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What Happens to Debt in Divorce?

What Happens to Debt in Divorce?

Many couples share finances and properties that can accumulate debt. When couples divorce, however, debts must still be paid. Debt distribution is a critical – and sometimes contentious — part of the divorce process.

The Three Classifications of Debt

There are three classifications of debt in a situation like this. The first type of debt is separate debt, which is the debt that only you are responsible for because you took on that debt before marriage or only you owned the property during the marriage.

 

The second type is marital debt. Marital debt means that you and your ex-spouse share debt, and you accumulate that debt together during the duration of your marriage.

 

In a community property state, there’s community debt. Community debt is also the debt you and your ex-spouse accumulated during marriage, but the philosophy of it says that you and your ex-spouse share debt equally. Michigan is not a community property state, so the debt and divorce laws differ. Michigan believes in dividing debt fairly rather than equally. The court divides marital debt if you and your ex disagree; otherwise, you and your ex can decide who takes on certain debts.

Common Martial Debts

The most popular debt couples take on is mortgage loans. Many married couples purchase a home together and must take out a loan. You and your ex-spouse are labeled as borrowers on your mortgage payment. Another common marital debt is credit card debt. Joint credit cards are a common way couples like to share their money. This is a form of debt that you and your spouse may have to split after divorce. If any cars were purchased together and you took out auto loans, this is another form of debt you and your ex-spouse must take on. Personal loans, student loans, medical debts, business debts, tax debts, and outstanding bills are just a few more examples of marital debts you and your ex might have.

Dividing Debt With Your Ex

You and your ex have choices when assigning the debt. Everyone’s divorce situation goes differently, so you have options for dividing debt. Let’s say your divorce is smooth, and you and your ex are on good terms. You might be able to agree on deciding who is paying different parts of your debts. A judge will review your agreed divisions; often, the judge will approve the agreed-upon decisions. This is ideal because it’s easy and low-cost – but it isn’t a realistic scenario for many couples. If you and your ex can’t agree, the judge will decide how to divide the debt. Factors that will influence the judge’s ruling include the contributions from each spouse during marriage, the financial status and needs of both people, the reason for divorce, and any other influential details of the divorce.

 

Another method if you and your ex disagree is mediation. During mediation, a neutral person helps make decisions for you that are fair and unbiased. Couples either choose mediation, or the court can order mediation for their case. There are plenty of unique situations that require other solutions. It is always a good idea to seek legal advice before proceeding with a divorce.

 

Depending on the cooperation of each party, dividing the debts between you and your ex can be civil. Everyone is searching for fairness and righteousness. With the help of an experienced divorce lawyer, you can achieve an equitable divorce.

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