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Debt Division

How Marital Debts are Distributed During Divorce

Joint debts can be a tough issue in a divorce. These debts may have terms longer than the duration of the marriage. These debts can also be a painful reminder of the marriage. Nevertheless, knowing who pays what can help you to better prepare for your transition into life as a single income earner.  In this article, we’ll talk about distributing marital debts and how this get’s done in a divorce.

Debts Incurred Through Property

Colorado is an equitable distribution state, not a community property state.   This means we divide debts fairly in Colorado.  Fairly does not necessarily mean equally, however.

Debts incurred through property held separately from the marital assets will not be the responsibility of the spouse who doesn’t own the assets. An example would include a tax lien on property purchased before the marriage and held separately. Separate property may increase in value during the marriage.  If it does, that increase may be marital.

What is Equitable?

During the dissolution of marriage, the Colorado courts may separate debts equitably. So how would this affect a stay-at-home spouse who doesn’t have any income outside the marriage? Just because debts are structured equitably doesn’t mean that one person will be saddled with half of the debts. Equitable means that marital debts will be distributed fairly by the court system to each spouse. Therefore, a stay-at-home spouse may receive a greater share of assets, a smaller portion of debts, or some combination of the two.

Student Loans

Student loans, like taxes, are a special type of debt that doesn’t easily go away. Federal student loans taken out during the marriage by one spouse may be part of the marital debts under the Colorado equitable distribution mandate. The result is that the spouse who didn’t take out the loan may still be responsible for a portion of the debt.

Credit Card & Revolving Debts

Credit card debts and debts like home equity lines of credit (HELOC) belong to a category referred to as revolving debts. These types of debts, with changing balances, may be considered marital debts unless an account is held separately from other marriage debts.

Home Loans & Debts

Equitable distribution also applies to debts like home loans.  Home loans will be divided equitably, not equally.  Often, the debt will go with the asset, meaning if you got the house, you get the mortgage too.  But not always.  Things like an award of maintenance can impact how a home loan gets divided in a divorce.

When distributing marital debts, it’s always best to speak to a qualified divorce attorney who can best assess your financial situation. Not all assets or debts are equal, so an attorney can help you to sort out what’s in your best interest.

Modern Family Law focuses on the practice area of family law and divorce. Contact us today for a free consultation.

Posted January 25, 2017
by: MFL Team

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