Who Is Responsible for Debt During a Divorce?

Who is Responsible for Debt After a Divorce?

Property that is acquired during a marriage by one or both spouses, and owned on the date of formal separation, may be defined as marital property. If a divorce occurs, this property is subject to the equitable distribution law of North Carolina. (Excluded from the definition are gifts and inheritances, received by one spouse only, from third parties.)

Although “property” is generally thought of in terms of assets, it also includes all debts acquired during the marriage, and both parties are responsible for it. Equitable distribution law presumes that an equal (50/50) division of marital property is fair and equitable. In North Carolina, most judges favor awarding each party 50 percent of the marital property, unless certain factors make a good case for an unequal distribution.

Some of the factors the court may consider in deciding whether there is a good case for an unequal division of the marital property are:

  • An obligation for support arising out of a prior marriage
  • A need for the custodial parent to reside in the marital residence
  • The duration of the marriage
  • The age and physical and mental health of both parties
  • The income-earning potential of both parties
  • The previous direct or indirect contribution by one spouse toward the education or career potential of the other spouse

Responsibility for Marital Debt

Marital debt can actually lead to each spouse receiving a negative-sum. For example, if the net value of the marital property is $100,000, applying the 50/50 presumption leads to each spouse’s receiving property worth a total of $50,000. If, on the other hand, the marital property has a negative net value of, say, minus $20,000 (due to large debts that outweigh the spouses’ positive assets), then applying the presumption leads to each spouse’s receiving property worth a total of negative $10,000.

How you deal with debt is important and could affect you for years to come. There are several areas that need your attention. The first has to do with the debt that you have acquired during the marriage. You will need to obtain a copy of your credit history to determine whether there is any derogatory information that has been reported to the various agencies.

Not all of your personal marital debts will appear on these reports, only those for which the creditors consider you responsible. For example, if you have a joint credit card that you and your spouse have cosigned for, the payment history related to that card will appear on both your and your spouse’s credit histories. However, if the credit card is in your spouse’s name and you are just an authorized user, the payment history may only appear in your spouse’s name. This can be both good and bad. If the credit history is good and in both names, you will benefit from it. The opposite is true if the credit history is bad.

Credit card companies should be notified immediately of your situation and joint accounts closed, if possible because creditors will still consider you responsible for any joint debts. Although no additional debts will accumulate that are acquired by your spouse, you will still be considered responsible for previously existing debt. Because of this, it would also be in your best interests to pay off any joint debts and establish separate credit prior to the division of debt.

The fault is not considered relevant in equitable distribution cases unless marital misconduct has had an economic impact on the value of the marital estate. If the division of assets is contested, you should hire an attorney to file a temporary injunction to protect your rights and marital property.

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