Debts - How to Value and How to Divide

Debts are financial obligations that individuals or couples owe to creditors, ranging from credit card balances to mortgages, loans, and other liabilities.

Common types of debts include:

• Consumer Debt
• Mortgages
• Vehicle/Automobile Loans
• Student Loans
• Personal Loans

Debts in divorce are typically categorized as either separate/non-marital, joint/marital debts or a hybrid of the two, like other assets.

Two Unique Debt Categories

• If student loans were incurred for educational purposes only, whether before or during the marriage, they are often awarded to the named party as separate/non-marital debts because the education goes along with the income (or earning capacity) after divorce
• Debt incurred by one spouse on a new relationship may be treated as non-marital/separate property and remain with the party who incurred the debt

Considerations/Steps in Divorce

• Gather relevant information, identify and value the debts
• Allocate to each spouse as part of overall property division
• May negotiate a mutually agreeable arrangement for dividing debts, taking into account their individual financial circumstances, future needs, and other factors
• Document allocation of debts in final agreements

While divorce agreements may specify each spouse's responsibility for paying off certain debts, creditors are not bound by these agreements.

Consider ongoing debt as part of the cash flow analysis.

Monitor credit reports regularly to ensure that joint debts are being paid off as agreed and to detect any unauthorized activity or discrepancies.