Dividing Debt in a Divorce

One of the most difficult issues for a couple to address during a divorce surrounds the question of how to divide what they own.  Even more challenging can be the task of dividing what they owe.  Dividing debt in divorce has become an increasingly common concern given the current state of the economy.  A divorcing couple striving to work through their financial challenges has a number of options.  In some cases, the husband and wife may be able to sell assets, for example, the family car, to pay off the loan.  This, however, may not always be an option.  It may, therefore, be that the couple decides on a payment plan, whereby each spouse contributes a certain monthly sum to continue making payments on their joint debt after divorce.  They may also consider dividing the debt between themselves, each assuming responsibility for the payment of certain debt or loan obligations.  It is important to bear in mind, though, that both parties may remain responsible for the entire amount of the debt, which could have implications for the credit history of both spouses, if one defaults.  A qualified Minnesota family law attorney can advise you on the best way forward.

If the couple is not able to come to an agreement on how to handle their debt following divorce, the issue will be set before a family law judge to decide.  In Minnesota divorce proceedings, debts are handled in much the same way as property.  As a first step, courts will determine whether the debt is “marital” or “nonmarital.”  If debt is determined to be “marital” debt, it is the joint responsibility of both parties, whereas “nonmarital” debt belongs to one spouse, who will bear the burden of repayment.  Generally speaking, debt that is incurred prior to marriage is presumed to be “nonmarital” debt, while debt that is acquired during the marriage will be considered “marital.”  Courts will, however, analyze a number of factors and in some cases, part from these general rules.  In the court’s analysis, some of the questions they may ask include:

  1. Which party incurred the debt?
  2. What was the purpose of the debt?
  3. Which spouse benefitted?  Did the debt benefit the family or marriage?
  4. Were both parties informed, and did they consent?
  5. Which spouse is in a better position to be able to repay the debt?

As mentioned above, for “nonmarital” debt, the spouse who incurred it will generally be responsible for repaying it.  In cases of “marital” debt, on the other hand, the court may use it to offset the value of marital assets and divide it according to the principles of equity and fairness.  An equitable distribution, at times, may result in half of the debt being apportioned to each spouse.  In other cases, one spouse may bear the bulk of the responsibility for repayment.  In making a determination as to how to equitably divide debt, the court will undertake an analysis of all relevant factors, which may include:

  • The length of the marriage;
  • The age and health of the parties;
  • Occupation, vocational skills, and employability; and
  • Amount and sources of income of each spouse.

Even though a family law judge may assign the debt to one or both spouses, it is important to bear in mind that a family law court does not have jurisdiction over third party creditors, since they are not parties to the divorce action.  The decision of the court is, therefore, not binding on third party creditors.  Both husband and wife may remain jointly and severally liable for the debt.  This means that each spouse remains individually responsible for the entire amount of the debt.  Thus, a divorce does not absolve either party of his or her legal obligation to repay the debt.  To illustrate, if the judge decides that a mortgage loan or credit card debt is to be repaid by one spouse and he or she defaults, the bank or credit card company may still be able to go after the other spouse for repayment.   

There may be exceptions that would prevent a third party creditor from going after both spouses in a collection action.  Under Minnesota law, a spouse is only liable to a creditor for certain debts of the other spouse.  Minnesota statute 519.05 provides that, “where husband and wife are living together, they shall be jointly and severally liable for necessary medical services that have been furnished to either spouse… and necessary household articles and supplies furnished to and used by the family.”  A third party creditor, therefore, cannot pursue collection from one spouse for the debts incurred by the other spouse which fall outside of these two areas.    

At Mundahl Law, our Minnesota family law attorneys understand the complexities of divorce and can advise an individual on the best course of action.  Our Maple Grove, MN divorce attorneys will help you understand the options available to you and the advantages and disadvantages of each.  If you are contemplating divorce or have already begun the process of dissolving your marriage, contact our office to learn more.  Hiring a qualified family law attorney in Minnesota early can help you avoid likely pitfalls and ensure the best possible outcome for you and your family.