Dividing Debt During a Divorce
Dividing up assets during a divorce can be amicable, contentious, or somewhere in between. Since Maryland is an equitable distribution state, this means that property acquired during a marriage is divided in a way that is fair but not necessarily equal. But what about the debt? How is it divided?
What Types of Debt are Considered in Divorce?
There are two types of debt when it comes to divorce: marital and non-marital.
Marital debt is any debt incurred by one or both spouses while the two are married. This can include mortgages for any properties such as the primary residence, rental properties owned by a couple, vacation homes, and timeshares. This also applies to any credit cards, car loans, student loans, or any other revolving loans that were instated while a couple is married.
Non-marital debt is any debt that was incurred by either party before the marriage, such as car loans, student loans, and property or mortgages purchased by one spouse prior to the marriage.
It is important to note that any debt incurred after separation but before divorce without your knowledge is still considered marital debt.
While you may be thinking that you are free and clear from debtors, once a judge rules who is responsible for paying for what, that is not necessarily true. Simply put, debtors do not go by a divorce decree, but rather the names on the account. In other words, if your name is on an account, you are legally responsible for paying it.
What Factors Are Considered in Dividing Marital Property?
So, how do you go about deciding who pays for what? Although a judge may rule that a spouse who makes significantly more than the other may be responsible for a larger portion, concessions may be made in dividing property that offsets those debts. In this case, marital property and non-marital property will also be examined.
In this case, marital property is any assets acquired during the marriage, such as houses, property, cars, bank accounts, retirement plans, artwork, jewelry, stocks, and bonds.
Conversely, non-marital property includes assets each person acquired prior to marriage but also includes any monetary gifts, pensions vested prior to marriage, inheritance, and businesses owned by one spouse prior to marriage.
It is important to note that anything that combines marital and non-marital property essentially becomes marital property.
Who Pays for What?
There are several options to consider when resolving debt during a divorce.
First, the parties can pay off the expenses out of a shared account. Although this may be considered an ideal scenario, it is not always the most practical, as those who are divorcing may have difficulty agreeing on how to manage the account and the funds available.
Another option is to divide the debt and move it to separate cards that are in one spouse’s name only. This can work for credit card debt or even mortgages once assets are divided equitably.
In the same vein, one party can agree to take on the debt while the other party agrees to receive fewer assets in the divorce settlement to offset the debt.
Deciding which option is best for you is likely not an easy decision. Unfortunately, it is also unlikely that you and your soon-to-be ex-spouse will agree on which is the best option for both of you.
Get Answers to Some of Your Toughest Questions from the Annapolis Divorce Lawyers at Oliveri & Larsen
If you are wrestling with the best way to handle marital debt, seek legal advice from the Annapolis divorce lawyers at Oliveri & Larsen. Call 410-295-3000 or contact us online to request a consultation. Located in Annapolis, Maryland, we serve clients in Annapolis, Ocean City, Anne Arundel County, Baltimore County, Baltimore City, Calvert County, Harford County, Howard County, Queen Anne’s County, St. Mary’s County, Worcester County, Kent County, and the upper and lower Eastern Shores of Maryland.