All spouses know that a significant part of the divorce process involves the division of marital wealth. For many couples, only matters of child custody are more important. While Colorado spouses may spend a great deal of time and effort considering which assets they wish to pursue during negotiations, far fewer understand how debt is handled during divorce.
What is Marital Debt?
Colorado Judicial Branch defines marital debt as "any debt that took place while you were married." Generally, all liabilities you have accumulated jointly are viewed as the responsibility of both people, no matter whether the loan was taken jointly or under one person's name.
Just like marital assets, marital debt falls under the "Equitable Distribution" rule, meaning that it will be fairly distributed between the two parties. Equitable debt distribution assumes a balanced debt allocation that doesn’t always mean a 50/50 arrangement. For example, if one spouse accumulated debt without the other’s knowledge or used the money for strictly personal purposes, the debt will remain their responsibility.
It’s also important to note that debts remain shared between spouses until the Colorado court makes the final decision and issues a divorce decree. Respectively, all debt accrued during the divorce proceedings will be divided equitably too. Hence, don’t make any rash spending decisions or assume that certain new liabilities will not apply to you.
Also, once an agreement has been reached concerning the division of debt, it is important to remember to remove one's name from any account for which an individual is no longer responsible. This can help one avoid credit damage if the responsible party fails to make full and timely payments on those accounts after the divorce is made final. Still, if you feel that your spouse may make careless financial decisions during the divorce, seek legal counsel.
Difference Between Marital and Non-Marital Debt in Colorado
To ensure equitable debt division, Colorado judges first determine whether the debt is “marital” or “non-marital”.
Non-marital debt is debt that was either acquired before or after the marriage or for other reasons is seen by the courts as being the responsibility of just one party. Student loan debt, for instance, usually falls into this category.
Debt is also subject to division during the divorce process, although the exact manner in which debt is parceled out will vary from state to state and even from one case to another. In general, however, accounts that are jointly held or are used to purchase items or services for the family are subject to division within the divorce. In terms of credit card debt, the total outstanding balance is often divided equally, unless one spouse can show that the expenses were used for purposes outside of the marriage.
On the other hand, if the credit card or loan was taken to one spouse’s name, the other one may still be held liable for that debt. This is the case when the money was used to cover shared expenses or purchases.
Similarly, debts can become commingled during marriage. For example, if one spouse took a personal loan to help refinance the other’s student loans. In such cases, it’s best to have a divorce attorney at your side who will help ensure that you are not being taken advantage of.
Can I Be Held Liable for my Spouse's Debts in Colorado?
You cannot be held liable for debt that the court classifies as non-marital i.e. debt accumulated by one party solely. However, when it comes to marital debt, the court distributes it between both of you. If your ex fails to meet the terms of their obligation, the creditors may go after you. Also, if your ex proceeds to declare bankruptcy, you may end up being the sole debtor liable for all marital debt. To avoid such scenarios, consult with a family law attorney.
Debt Distribution Factors The Colorado Courts Consider
As mentioned already, Colorado courts generally want to divide marital debt equitably. However, that does not necessarily mean a 50/50 arrangement. If the divorce case goes to court, the judges will likely take the following factors into account:
- The personal, professional, and financial circumstances of each party
- The duration of the marriage
- The circumstances under which either party incurred the debt
- The amount of marital assets, child, or spousal support payments that either party has been awarded so far to either party.
- Legal documents, stipulating certain liabilities and obligations such as prenuptial and postnuptial agreements.
To correctly classify the debt and make rulings, the court will try to determine when the debt was incurred, and why. For instance, if the courts find that debt was taken on selfishly, secretly, or as part of marital misconduct during the marriage, they may rule that debt is solely the responsibility of one party. Additionally, with sufficient grounds, a Colorado judge may decide to allocate a larger share of debt to a party who can afford to service it.
Generally speaking, debt division decisions are made on a case-by-case basis, and outcomes differ based on personal circumstances.
What if My Ex Defaults on a Loan?
Unfortunately, creditors are not obligated to abide by the decisions of a family court. If your name is on a marital debt, they can come after you. However, if there is a divorce agreement in effect, you can then sue your ex for contempt. The court may order them to pay or liquidate assets to cover that debt.
What If My Spouse Declares Bankruptcy?
The scenarios differ depending on whether you file for bankruptcy jointly while still being married or separately after the divorce. The declaration of bankruptcy doesn’t automatically eliminate all debt obligations to the creditor. Hence, the collectors may come after you if your spouse cannot pay their share of marital debt and vice versa.
The court may also oblige the other party to meet the debt obligations after the other one files for bankruptcy. If you cannot meet these obligations either, you will have to file for bankruptcy too. Joint filing for bankruptcy reduces the risks of such scenarios as in such cases, your debt is still viewed jointly and either of the parties cannot be held accountable separately.
Non-Dischargeable Debt in Colorado
It’s also important to note that not all debt obligations are discharged after filing for bankruptcy. Similar to other states, Colorado recognizes non-dischargeable debt. The type of debt can include:
- Student loans (accrued by either spouse)
- Payments owed for personal injury caused by a debtor
- Tax debts and arrears (including debt associated with joint income filing)
- Spousal maintenance and child support payments, put in place by the court.
Learn more about filing for bankruptcy during a divorce from our previous post.
Negotiating Shared Debt in a Divorce
The good news is that a qualified divorce attorney can help you to negotiate your debt liability as part of your divorce settlement. If you believe there is debt that you should not be held responsible for, they can use the resources available to them to help you investigate the matter, and present a case on your behalf. Marital debt is also an issue that can be tackled during mediation. This could lead to a mutually favorable agreement on the way that debt is distributed. To get any questions answered, reach out to Tolison & WIlliams today!