Property division is often the largest practical challenge that spouses face during divorce negotiations. Spouses in Indiana may disagree about what arrangements are fair and appropriate. Frequently, spouses focus primarily on property that they own during property division negotiations. However, they also need to address the debts that they owe. Credit cards, car loans, student loans and other financial obligations can have a profound impact on the financial circumstances of spouses after they divorce.
Addressing financial obligations appropriately is important for people’s financial stability after they divorce. What typically happens to debts during divorce proceedings?
Spouses share responsibility
The name on an account does not determine which spouse is responsible for that debt in the event of a divorce. All debts are part of the marital estate unless there is a premarital or postmarital agreement addressing those debts.
Spouses generally need to split responsibility for their joint debts when they divorce. The most effective means of doing so differs from one case to the next. Some people intentionally seek to avoid direct responsibility for debts and may push their spouses to accept more debts, possibly in exchange for more marital property.
While that approach may feel like a fresh start or a clean break, there are risks involved. If the spouse who agrees to assume the debt defaults on it or files for bankruptcy after divorce, the other spouse may ultimately end up responsible for paying those debts.
If they fail to do so, they could face collection activity, credit report blemishes and possibly litigation. Some spouses agree to liquidate marital assets during a high-asset divorce as a means of effectively resolving any lingering marital debts. While this arrangement might diminish the resources that they have in the future, the spouses may prefer to avoid the risk of a future default.
Assessing both overall resources and financial obligations can help people establish clear priorities and ensure their financial protection during property division proceedings. Debts of both spouses regardless of when they were accrued can be as important to address effectively as valuable marital property.
