Getting divorced is likely one of the most challenging things you will have to go through, and dividing your assets can be particularly complicated. However, while you may have a pretty good idea of how your marital assets will be divided, you are not alone if you are unfamiliar with how dividing your debts will work during the divorce process. Ultimately, many of the same principles that apply to the division of assets and property during divorce in Colorado also apply to debts. However, if you and your spouse accumulated a significant amount of debt during your divorce, and one of you entered the marriage with previous debts, you may wonder how these debts will be divided fairly.
Debt is a valid concern, as about 40% of households currently carry consumer debt, with people in Colorado having the 8th highest average debt balance in the country. The average household carries over $25,000 in non-mortgage debt, leaving you wondering how much debt you will be left with following your divorce. To help you better prepare for your potential debt obligations following your divorce, keep reading to look at how debt responsibility is determined when getting divorced in Colorado.
Marital Debt VS. Separate Debt
Like assets and property, the first issue you and your spouse must face is determining which debts are “marital” and “separate”. In Colorado, marital debt is defined as debts acquired while a couple is married. Separate debts include those you or your spouse obtained before you were married or after the date of legal separation. These debts may include mortgages, car loans, and credit card bills. Fortunately, any debts deemed separate property will be the sole responsibility of each spouse.
If your spouse entered the marriage with significant credit card debt, you would not be obligated to share a portion of this debt. However, any debts acquired while you were married are considered marital property and will be divided according to Colorado’s equitable division law. While there is often a misconception that debt created in only one spouse’s name during a marriage will be classified as separate property, this is generally not the case. You may then be responsible for a portion of all debts acquired during your marriage, even if you consider them your spouse’s responsibility.
Equitable Distribution of Debt
Once you better understand which debts are separate and which debts will be considered marital and subject to division during divorce, you will likely wonder how these debts will be divided between you and your spouse. In Colorado, debts are divided during divorce using equitable distribution, so debts often aren’t split 50/50, as they will be divided based on what is considered “fair.” Ultimately, the judge will decide how to divide debts fairly. Typically, the spouse with a higher income is responsible for a more significant portion of the couple’s debts, as they can afford to pay them off.
Debt May Follow an Asset
Of course, when determining how marital assets and debts will be divided during a divorce, it is important to remember that debt in divorce may follow an asset. If one spouse receives property that carries a loan balance during the divorce, they will likely be solely responsible for that debt. For instance, if one spouse decides to keep a financed car, they will probably keep the debt attached to the vehicle. This is an important factor to consider when dividing assets with your spouse.
Determining debt distribution can be particularly complicated for couples with tax debt owed to the Internal Revenue Service. Typically, the IRS will divide tax debt according to how tax returns were filed, and the IRS does offer several options for evenly dividing tax debt. If you and your spouse are entering divorce proceedings with a significant amount of tax debt, consult an attorney for advice on what steps you should take moving forward and help negotiate how this debt will be divided.
What About Student Loans?
One of the biggest concerns people have regarding debt when entering the divorce process regards how student loan debt will be handled, particularly if one spouse has a significant amount of debt. Fortunately, any student loans taken out before marriage will be considered separate property and will not automatically become shared debt after marriage. If your spouse entered the marriage with student loan debt, you wouldn’t have to share this debt burden. However, things become much more complicated when student loans are taken out during the marriage. While the spouse who does not have student loan debt may argue that they will not benefit from their spouse’s degree following divorce, courts often split student loan debt during divorce proceedings because education helps the married couple.
Negotiating Marital Debt
Often, divorces in Colorado are resolved through settlement and negotiation, mainly if a couple can still cooperate and work together to reach a fair divorce agreement. During these negotiations, a significant emphasis should be placed on how to divide debt. It would be best if you went into these negotiations with a strategy, as you will want to ensure that debts are split fairly, and you are not left with any debts that should be your spouse’s responsibility. You must consult an attorney as soon as possible once you decide to get a divorce. An experienced attorney will be able to help you figure out what debts are your responsibility, and they can negotiate on your behalf to ensure a fair outcome.
Feel free to contact us to learn more about how debt is divided during divorce and find out about steps that you can take to ensure that you are not left with an unfairly heavy debt burden following your divorce.