Is Debt Division a Major Issue in Divorce?
Division of marital property can be one of the most complicated and contentious aspects of divorce. Marital property includes all debts and assets acquired by either or both spouses during the marriage. Marital debts may include credit card debt, car loans, mortgages, medical bills, personal loans, and other liabilities.
Divorcing couples may not agree on who is responsible for what debts when the marriage ends. If they cannot reach an acceptable agreement through mediation or negotiations, the matter will be left for a judge to decide.
How Does Equitable Distribution Work in an Ohio Divorce?
Ohio follows the principle of equitable distribution, as stated in the Ohio Revised Code, Section 3105.171. The aim of the courts is to divide marital assets and debts between the spouses fairly, but not necessarily equally. In determining debt division, the court considers various factors, including the following:
- Duration of the marriage: When longer marriages end, marital property including debt is likely to be more equally divided between the spouses. After a shorter marriage, the court may assign debts based on which party incurred them.
- Economic circumstances: The court considers each spouse’s income, employability, earning capacity, and potential for acquiring future assets. The goal is to give both parties a reasonable chance for financial stability after divorce. A higher-earning spouse may be assigned a larger portion of debt.
- Contributions to the marriage: The courts recognize that not all contributions to a marriage are financial. They consider the non-financial contributions, such as childcare and homemaking, along with the financial contributions of each spouse.
- Financial misconduct: If either spouse has acted irresponsibly in financial matters, thereby increasing the marital debt, the court may assign a larger portion of debt to that party.
- Tax implications: Dividing assets such as retirement accounts can have tax consequences for divorcing spouses. The court may consider tax implications to arrive at a fair outcome that minimizes tax burdens.
The court may not split a debt down the middle if it seems unfair to do so. The key factors influencing these decisions are who incurred the debt, who benefitted from the debt, and who has higher earning capacity and greater ability to pay it.
Are Different Types of Debts Handled Differently?
Not all debts are the same, and certain types of debts may be handled differently in marital property division. For example, secured debts, such as a mortgage or a car loan, are tied to specific assets. If one spouse keeps the family home or a particular automobile, he or she should be responsible for the associated debt. Division of credit card and other unsecured debt can be less straightforward. Student loans taken out before the marriage are generally considered separate debts. Student loans taken out during the marriage may be considered marital debt, particularly if both spouses benefitted from the resulting education.
What Are the Steps to Handling Debt Division in a Divorce?
Debt division is a complex process that could significantly impact your financial stability in the future. It is important to take a thorough, systematic approach with the following steps to ensure all marital debts are accounted for.
- Create an itemized list of all marital and separate debts: List every debt, along with the relevant details, including the amount of the debt, the interest rate, and the due dates and amounts of payments. This comprehensive list should include your mortgage, vehicle loans, medical bills, credit card balances, student loans, and any personal loans.
- Gather documentation for each debt: For every item on your list of debts, collect all available documentation, such as loan agreements, payment histories, and accounts statements.
- Determine which debts are separate and which are marital: As a rule, marital debts are those incurred during the marriage for the benefit of the marriage. Debts that were incurred by either spouse before the marriage or after separation are considered separate. Only marital debts are divided between the parties.
- Negotiate with your spouse: The next step is to negotiate with your spouse to reach a debt division agreement you are both willing to accept. If you can agree on your own, it will save you and your spouse time and money and give you much greater control over the outcome. Mediation may help you reach an agreement out of court. Another option is to resolve division of marital debts as a collaborative family law process, pursuant to the Ohio Revised Code, Section 3105.44.
How Can You Protect Your Credit After Debt Division in a Divorce?
If you have joint debts with your spouse, refinancing in one spouse’s name can help simplify debt division matters in a divorce. For example, if one spouse keeps the family home, it makes sense to refinance the mortgage in that spouse’s name only, with the cooperation of the lender. It is important to ensure the divorce decree addresses all joint debts to help protect your credit. Creditors can still hold you responsible if your former spouse has agreed to pay a debt but fails to do so. Monitor your credit report regularly.
It is important to consult with an experienced Ohio divorce lawyer. Our family law attorneys at Lawrence Law Office have decades of experience. We can provide sound legal guidance, negotiate skillfully on your behalf, and represent you in court if necessary. We can also ensure your divorce decree clearly outlines debt division to help reduce the risk of future disputes. Contact us at 614-363-1273 to schedule a consultation.
