How Does Divorce Affect Debt Consolidation?

In divorce, it’s not just a marriage that splits. Assets and liabilities also have to be divided. Most American households have debt, and divorce doesn’t make it disappear.

If you’re considering debt consolidation after a divorce, you must first understand how divorce affects debt.

Table of Contents

Key points

Debts that were solely yours before you were married will likely remain your individual responsibility
Debts incurred after the marriage will likely be considered joint debts
Even if you repay your share of a joint debt, you may still be responsible for the remaining debt if your spouse skips payments
It’s important to remove authorized users from your accounts and close joint accounts as soon as you separate
Home loans, auto loans and medical debt should be negotiated as part of the divorce settlement

Are you consolidating individual accounts — or joint ones?

When you get married, your individual accounts remain your individual accounts. Married couples also have joint accounts, including joint credit cards, mortgages, and auto loans. Repayment of those joint accounts (and ownership of the items they financed) must be determined in the divorce proceedings.

If the debt that needs to be consolidated is not on joint accounts, the divorce is unlikely to have much effect. However, the majority of post-divorce debt consolidations involve joint accounts, and that makes debt consolidation more complicated.

Pro tip: If you’re considering divorce, you must speak with an attorney. This information is not legal advice; it is for informational purposes only.

Laws are different in every state

Divorce laws and their impact on debts vary from state to state. There are two primary categories of divorce laws.

In Community Property States, assets and debts are assumed to be owned equally by the two spouses, and the law emphasizes equal distribution of both assets and debts.

There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Couples can voluntarily opt into a community property arrangement in Tennessee, South Dakota and Alaska.

In Equitable Distribution states, the law stipulates that assets and liabilities be distributed fairly. The definition of fair distribution varies from state to state but typically involves assessments of income, need and other factors.

A prenuptial agreement can affect the application of divorce laws of either type, so it’s essential to ask your divorce attorney about debt consolidation. Judges often have broad discretion in applying these laws based on the specific characteristics of a given case.

Do you have a common-law marriage?

A common-law marriage is a legally recognized marriage between two people who have not purchased a marriage license or had their marriage solemnized by a ceremony. If you live in a state that recognizes common-law marriage, you may be considered married without ever paying for a license or holding a ceremony.

Pro tip: States that recognize common-law marriages are Colorado, Iowa, Kansas, Montana, New Hampshire, Oklahoma, Rhode Island, South Carolina, Texas and Utah, plus Washington D.C.

Not all states have statutes addressing common-law marriage. In some states, case law and public policy determine validity. However, it’s best to speak with a lawyer if you’ve cohabitated with a partner for several years, particularly if you live in one of the states listed above and own joint assets (like a home or car). You may still need to go through divorce proceedings.

Your creditors don’t care about your divorce

It’s easy to assume that the main issues in a divorce are resolved in the divorce proceeding, but that’s not always the case. A divorce decree is a contract between two ex-spouses. It does not involve your creditors.

If your name is on an account, the creditor can still try to collect from you and put any delinquency on your credit report, even if the divorce settlement assigns responsibility to your spouse for that particular debt. Your credit can be damaged even if the account is not your responsibility.

Pro tip: Creditors don’t care about the terms of a divorce settlement. They want their money back, and if your name is on the account, they will come after you.

If your ex fails to pay a debt they are responsible for under a divorce agreement, you can ask the court that handled the divorce to order them to pay or even garnish wages. However, the courts can’t stop the creditor from reporting the debt in your name or trying to collect it from you.

How divorce affects different types of debt

Divorce can have different impacts on different types of debt. Any debt you incurred before marriage will be your exclusive responsibility after marriage. Student loans, for example, often remain individual debts. Responsibility for debts incurred while married will depend on the laws of your state.

Some states regard debts incurred after a couple separates as the sole responsibility of the person who incurred the debt, but this will vary from state to state.

Credit card debt

There’s a basic rule covering responsibility for credit card accounts.

If the credit card is in one spouse’s name, the responsibility for paying it lies with that spouse, even if the other spouse is an authorized user.
If the credit card is held jointly, the debt is the responsibility of both parties.

These rules can be modified. For example, if one spouse makes a significant charge or set of charges exclusively for their own benefit, responsibility for this debt may be assigned solely to the person who incurred it, even if it’s a joint card.

Pro tip: If you charge a trip to Paris or a new boat to a joint card, you can’t assume your estranged spouse will be obligated to pay for half of it.

If you have decided on divorce, these steps can make resolving credit card debt issues easier.

End all authorized user relationships: If your spouse is an authorized user on your card, contact the credit card issuer and remove them as soon as it is clear that divorce is inevitable. You may need to have a new credit card issued with a completely new account number.
Close all joint credit card accounts: The balances will still need to be paid, but no new charges will be made, and “revenge spending” on a joint card won’t be an option. You can each apply for new cards in your name.

Debt consolidation can help you resolve joint credit card balances. Once you’ve decided who is liable for what share of a closed joint account, you can take out a personal loan in your name and use it to pay your share.

The risk here is that if your ex fails to pay their share, your credit could suffer and debt collectors could come after you. It’s best to resolve these accounts before a divorce is finalized.

Mortgage debt

For most couples, the family home is their largest asset and liability. Resolving who gets ownership of the home and responsibility for the mortgage can be a real challenge.

There are two primary scenarios.

If neither spouse wants to keep the home, the simplest solution is to sell it and split the proceeds.
If one spouse keeps the home, they can buy out the other spouse’s share. The easiest way to do this is by refinancing the mortgage with a loan taken out solely by the party who wishes to retain the home.

A refinance scenario sounds ideal, but it’s often difficult. If you jointly applied for your initial mortgage, the lender’s assessment of what you can pay would be based on two incomes. A lender may not be willing to lend enough to cover the mortgage balance based on your income alone.

Lenders will consider alimony or child support as income, but they will still require enough income to make the monthly payments.

If you don’t want to sell your home, you should make a financial plan to retain it. If both parties wish to keep the home, that may have to be decided in court.

Pro tip: Before you address a mortgage situation, take note of your mortgage balance, the market value of your home, and the equity in your home, which is the difference between the market value and the mortgage balance. You may wish to get a professional home appraisal to establish its market value.

You will want to consult a divorce lawyer and a qualified financial advisor before making key decisions. Be sure that any agreement with your spouse is accurately recorded in the divorce agreement.

READ MORE: How debt consolidation works

Auto loans

If the vehicle is solely in your name and you had it before your marriage, it belongs to you, and the payments on the loan are your responsibility. If you acquired the car while married and the loan is in both your names, you will need to resolve the situation.

Note that the car loan and title are two different things. If both names are on the loan agreement, it is a joint debt, regardless of whose name is on the vehicle’s title.

As with a mortgage, one option is to sell the car and split the proceeds. Another is for the party who wishes to keep the car to refinance it in their name alone. Again, refinancing may be difficult if the party that wishes to retain the vehicle has poor credit or limited income.

Some lenders may allow a modification of a joint loan to individual status. It’s worth asking, but don’t count on it.

Pro tip: As with a mortgage, it’s important to know the balance on your loan and the value of your vehicle (check the Kelley Blue Book for an estimate).

Car values depreciate rapidly, and long-term loans with low down payments have left many Americans underwater on their car loans. Underwater means owing more than the car is worth. If you’re in that situation, selling or refinancing the vehicle without adding cash will be difficult.

If you are underwater on your loan or if both parties wish to retain the vehicle, you will need to discuss the situation with your attorney and a financial advisor.

Medical debt

Medical debts incurred during marriage by either party are typically considered marital debt, with responsibility divided according to your state’s laws. Elective procedures undertaken purely for the benefit of one spouse, like cosmetic surgery, may be treated differently.

If you have children, note that their medical expenses will generally be a joint responsibility even after divorce.

Student loan debt

If you had student debt when you married, it will still be your responsibility after divorce. Student loans taken out after marriage will be considered marital debt and may be shared between spouses according to the laws of your state.

Child support and alimony

Child support and alimony are usually assigned during the divorce process. If one parent receives sole or primary custody of the children, the other parent will usually be compelled to pay child support. If custody is fully shared, there may be no child support.

Alimony is often required if there’s a wide income disparity between the two spouses or if one spouse has been primarily supporting the career of the other.

Pro tip: State laws can be very different. If you have children and are getting divorced, you must consult an attorney specializing in family law.

Prioritizing child support and alimony over all other debt payments is critically important. You cannot be jailed for failure to pay most unsecured debts, but you can and will be sent to jail for not paying child support or alimony.

Can you still consolidate debt after a divorce?

Yes, you can consolidate debts after divorce. Popular debt consolidation methods, like debt consolidation loans and balance transfer credit cards, are available to recently divorced people.

Consolidation will not make your debts disappear, but it will simplify your payments — an important factor at a chaotic time — and could get you lower interest rates.

There are some things to remember.

You will have to qualify based on your personal credit score and financial position: That will include any alimony or child support, but it will not include your former spouse’s credit score or income.
Do not consolidate any debt that is disputed or is the responsibility of your ex: Once it is consolidated under a new account in your name, it will be exclusively your responsibility.

Pro tip: Remember that if you consolidate and pay off your portion of a divided debt, your credit score can still suffer if the other party fails to pay their share.

If you consolidate debt, it is important to avoid incurring new debt until it is paid off. Running up new debts — especially high-interest credit card debts — will worsen your situation.

Review your credit reports

If you are going into a divorce, you must know your debt situation. Start by pulling your credit reports from the three major credit bureaus: Experian, Equifax, and TransUnion. You can get one free report from each credit bureau annually at annualcreditreport.com. Carefully review them to ensure that there are no surprise joint debts.

Pro tip: Reviewing your credit report will give you a clear picture of the credit accounts in your name, jointly and individually. Pay particular attention to joint accounts. They can cause problems even if they are entirely or partially assigned to your spouse in a divorce decree.

If you come out of a divorce with split responsibility for one or more joint accounts, monitor your credit carefully. If your spouse is missing payments, you need to know about it right away. You can petition the divorce court to force your spouse to meet these responsibilities.

More debt relief options after divorce

You have other options if your post-divorce debts are a serious burden.

Debt settlement
Nonprofit credit counseling services
Bankruptcy

The best option will depend on where you live and your financial situation, but you will need to decide and take action. Debt problems won’t get better on their own!

The bottom line

We associate divorce with courtrooms, but over 90% of divorces are settled before they get to court. If you can negotiate a settlement, you’ll save money and a great deal of trouble. Part of a settlement will be assigning responsibility for debts.

Paying off and closing joint accounts before the settlement is finalized will make it much easier to handle debt in divorce. That can mean both parties taking on new debt to pay off and consolidate their share of the joint debt.

How Does Divorce Affect Debt Consolidation? What You Need to Know