What Are the Options for Divorcing Couples with Shared Debt?

Divorce marks a turning point in life for many couples, bringing not just emotional changes but financial complexities as well. Among these challenges, shared debt often becomes a major concern. Whether it’s credit card balances, a car loan, or a mortgage, determining how to divide financial obligations can feel overwhelming. However, with the right approach and legal guidance, it is possible to address shared debt fairly and pave the way for a more stable future.

The Basics of Shared Debt in Divorce

Shared debt refers to any liabilities for which both spouses are jointly responsible. During a divorce, courts generally use equitable distribution principles to divide such debts, but “equitable” doesn’t always mean equal—it means fair. The process can vary depending on the laws in your state, the nature of the debt, and each spouse’s unique financial circumstances. Additionally, lenders are not bound by divorce decrees. Even if the court orders one spouse to pay a debt, creditors can hold both parties accountable if the original loan agreement names them jointly. That’s why proactive measures are essential in resolving shared debt during divorce.

Practical Options for Managing Shared Debt

When it comes to tackling shared debt, divorcing couples have several practical options to consider. Each approach comes with its own benefits and challenges, so it’s important to weigh your choices carefully and consult with family lawyers to find the best solution for your situation.

1. Pay Off Debts Before Finalizing the Divorce

If possible, paying off shared debts before the divorce is finalized can help simplify the process. This approach eliminates the need to divide debts or worry about future payment disputes. Couples might sell joint assets, such as a car or home, to cover outstanding balances. While it may feel daunting, clearing debts upfront provides a clean financial slate for both parties post-divorce.

2. Refinance or Consolidate Debts

Refinancing debt is another practical option. With debts such as a mortgage or car loan, one spouse may choose to refinance the loan solely in their name if they’re taking responsibility for it. This removes the other spouse from the obligation, reducing the risk of future complications.

For credit card balances or multiple small debts, debt consolidation can be an effective strategy. By combining several debts into one new loan, couples can simplify payments and potentially secure a lower interest rate. However, this option requires mutual agreement and planning.

3. Splitting Debts by Agreement

For couples unable to pay off or refinance debts, splitting them based on who is better equipped to handle certain obligations is often the next step. For instance, one spouse may agree to take the car loan payments while the other handles the credit card balances. Clear legal agreements are crucial here to formalize these arrangements within your divorce decree.

4. Selling Assets to Cover Debts

Sometimes, selling shared assets is the only viable solution. Liquidating property or high-value items can provide funds to settle outstanding debts. This option also minimizes financial ties between ex-spouses, allowing both individuals to move forward more independently.

5. Work with Professionals

Lastly, seeking professional advice can make all the difference. Financial planners, mediators, and attorneys can guide you through the complexities of shared debt and help ensure your financial well-being is protected. At Atticus Family Law, we understand how deeply intertwined financial and emotional challenges can be during a divorce, and we’re here to help you untangle them with care.

A Path Forward

Dealing with shared debt in divorce is undeniably challenging, but it’s not insurmountable. By exploring these options and making deliberate, informed choices, divorcing couples can address their financial obligations while protecting their long-term stability. Remember, you don’t have to face this process alone. Working with a trusted legal team like Atticus Family Law ensures that your financial future is both secure and fair, giving you peace of mind as you move forward.