Debt Is Subject to Equitable Distribution in Divorce
When spouses approach divorce, their primary focus is often on dividing assets and ensuring a fair allocation of property. However, property division involves both assets and liabilities. In fact, overlooking the role of debt in the divorce process can result in unexpected financial consequences that may impact both spouses for years to come.
In most states, debt—just like property—is subject to characterization as either separate property or marital property. How debt is classified determines whether it will be assigned solely to one spouse or shared by both.
Separate Debt vs. Marital Debt
Separate Debt
If one spouse enters the marriage with pre-existing debt, such as:
Student loans
Credit card balances
Personal loans
Business debt
Medical bills
These liabilities are often considered separate property, meaning the spouse who brought the debt into the marriage will typically remain responsible for it. Courts generally do not require the non-indebted spouse to share responsibility for debt clearly incurred before the marriage—unless the debt was later refinanced jointly or used to benefit the marital partnership.
Marital Debt
Debt incurred during the marriage is often treated as marital debt, regardless of whose name is on the account. This may include:
Joint credit card charges
Mortgage balances
Home equity loans
Business or investment debt
Vehicle loans
Medical or education expenses paid with marital funds
Marital debt is divided under the same legal principles as marital property. In equitable distribution states, the division must be fair, though not necessarily equal. In community property states, marital debt is often split 50/50, though exceptions may apply.
When Separate Debt Becomes Marital Through Appreciation or Commingling
Even if a debt began as separate property, it may be partially reclassified as marital if:
The debt increased during the marriage
The increase was tied to marital decisions or joint spending
Marital funds were used to pay down or refinance the debt
The debt benefitted the marriage or family
For example, if one spouse brings a business loan into the marriage but both spouses participate in business decisions or contribute marital funds to expand operations, the increased portion of the debt may be considered commingled and therefore marital.
Courts evaluate not only who incurred the debt, but how the debt evolved and whether both spouses contributed—directly or indirectly—to its creation or expansion.
Why Marital Debt Matters in High Net-Worth Divorce
High-net-worth individuals often have complex debt structures involving:
Business liabilities
Investment loans
Commercial mortgages
Lines of credit
Tax debt
High-value personal loans
Mischaracterizing debt can significantly affect the overall division of property. For example:
If one spouse keeps a business with substantial debt, they may receive fewer assets to offset the liability.
If marital debt is overlooked or misvalued, one spouse may unfairly shoulder obligations that should be shared.
Debt tied to high-value investments may influence tax treatment and long-term financial planning.
Because debt can dramatically influence wealth distribution, it must be analyzed with the same level of care as assets themselves.
Skilled Legal Representation Matters
Stange Law Firm, PC has substantial experience representing high-net-worth clients who need strategic guidance in dividing both assets and debt. Our attorneys understand the complexities of:
Characterizing debt as separate, marital, or commingled
Unraveling business and investment-related liabilities
Evaluating how debt impacts asset division
Working with financial experts to trace debt sources and growth
Negotiating or litigating equitable assignment of liabilities
If your debt—including business obligations, mortgages, credit debt, or other liabilities—is a significant concern in your divorce, it is critical to secure knowledgeable legal counsel. Missteps in debt division can lead to long-lasting financial strain, even for individuals with substantial assets.
Our firm is committed to helping clients navigate these complex issues and protect their financial futures.
Contact Our Attorneys Today to Discuss Marital Debt with An Attorney
Do you have questions about dividing marital debt in divorce? To learn how an understanding of the exceptions and complications of marital property characterization can benefit you, contact us online or call 855-805-0595. Our insightful lawyers can discuss all options with you, including whether you should consider filing for bankruptcy before filing for divorce.
