What Happens to Debt When I Divorce?

In Separation & Divorce by Elizabeth Stephenson

When most people think about property division and divorce, they usually think about money, houses, investments, business interests, retirement, and personal property. This is natural, as the title is “property division” and the ultimate question is: who walks away with what? Despite the focus on property, another critical question that must be resolved when dividing property is: what happens to debt?

North Carolina is an Equitable Distribution State

Property division in North Carolina is referred to as “equitable distribution.” This means that all property deemed “marital” property is divided in an “equitable” manner—which generally starts off as a split down the middle, followed by the court making adjustments based on numerous statutory factors that make the division fairer.

While people don’t like thinking about debt, it is an issue that cannot be ignored. Many people in this country hold more debt than they would like, and it doesn’t go away just because of a divorce. Like with property, equitable distribution also requires that a court consider a couple’s marital debt and make an equitable distribution of this debt between the parties. The court is tasked with considering the same factors when dividing debt as it considers when dividing property.

What is Marital Debt?

Generally, marital debt is debt that occurs between a couple’s date of marriage and the date of separation. Exceptions to this involve inheritances and gifts, as well as a spouse’s ongoing child support and alimony obligations from a prior relationship. Disputes about classifying debt as marital or separate can become as contested as property classifications. Obviously, this is because neither spouse wants to be saddled with debt or reduce what they take from an equitable distribution proceeding.

Here, the issue is whether a debt that was taken on after the date of marriage served a “marital purpose.” In other words, was there a joint benefit to the marriage even if it was only one spouse’s contested debt? Some common areas of contention include student loans and hidden loans.

Regarding student loans, case law has established that a student loan taken out during a marriage can benefit both spouses because of the increased earning capacity that the spouse enjoys. The law becomes a little murkier when it comes to hidden loans—or debts that one spouse was in the dark about. A court will closely examine the joint benefit of these loans, as well as the nature of how the debt was acquired and hidden.

Let New Direction Family Law Assist You

Resolving marital debt is very important to your financial future and your ability to move forward with your life. At New Direction Family Law, we understand the law and can help you obtain a fair, accurate distribution of marital property. With years of experience and a passion for advocacy, we want to help guide you forward. Our office provides representation throughout Wake, Johnston, Durham and surrounding counties. Call New Direction Family Law at (919) 719-3470 to schedule a consultation or visit us online at our website.