Dividing Up Debt in a Divorce
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In addition to the property acquired during the marriage, the marital debt is divided upon divorce. Dividing the debt upon divorce determines who is responsible to repay the debt.
Where Both Spouses Co-Signed
If both spouses co-signed for a debt, both spouses will probably be held to "joint and several liability" for the debt. "Joint and several liability" means that each spouse is responsible for the entire debt, but also the spouses are jointly responsible for the debt. When a joint and several liability is divided, the debt is attributed to both spouses. Often, however, one spouse is made responsible for the entire amount of the debt. This is generally offset by an "equalization" payment; that is, the spouse who pays the debt receives more property in the settlement than the spouse who is left free from the debt.
Debt in Community Property States
In some states debts that were incurred for the benefit of the family are joint and several liabilities of both spouses. For example, housing, furniture, furnishings for the home, child care and children's doctor expenses would be considered as being incurred for the benefit of the family. Since both spouses benefited from these family expenses, both spouses would be responsible for the repayment of these debts.
Expenses that were incurred solely for the benefit of one spouse, such as a vacation for one spouse, or a hobby of a spouse, may be left as the responsibility of the spouse who obtained the benefit. However, in most community property states, both spouses are equally responsible for the repayment of debt incurred during the marriage, even if only one spouse enjoyed the benefit.
Typically, the debts that one spouse brings into the marriage (separate or non-marital debt) remain the responsibility of that spouse. In special circumstances (in community property states), both spouses can be held responsible for separate (non-marital) debt.
Liability for Tax Debts
When a joint tax return is filed, the Internal Revenue Service holds both spouses to joint and several liability for the tax. Even in a community property state, where the spouses file married but separately, the spouse who did not incur the income tax debt will not be held responsible for the debt. This is because federal tax law has superiority over the state community property laws.
To prevent liability for the other spouses unpaid income taxes, a spouse may therefore file separately, however, tax liability is lower when spouses file jointly. A divorce attorney should be consulted to determine the most beneficial course of action when there is a question about tax liability during and after divorce.