How Is Debt Divided in a Divorce?
Most people walk into a divorce thinking about what they will keep. Fewer think about what they will still owe. Debt division can shape your financial future just as much as asset division. When asking how debt is divided in divorce, it is important to understand that in North Dakota the court looks at the full financial picture of the parties, which includes both assets and debt, and assigns responsibility based on what it considers “equitable”.
How is Debt Divided in Divorce?
As outlined in N.D.C.C. § 14-05-24, North Dakota courts must create an equitable division of debt for divorcing couples. An equitable split is one that is fair, based on various Ruff-Fischer guideline factors. But that doesn’t always mean equal. Marital debt includes mortgages, credit card debt, auto loans, personal loans, student loans, and medical bills. Before any debt (or asset) division can happen, the parties must value everything, both assets and debts. Unless the parties agree otherwise, the parties must update the values of their assets and the amount of debt until sixty (60) days before their scheduled court trial date.
Factors Courts Consider When Dividing Debt
Once all of the parties’ assets and debts are identified, valued, and updated, North Dakota courts use the Ruff-Fischer guidelines to determine an equitable distribution of debt in a divorce. This analysis uses several factors. Judges have broad discretion in weighing evidence applied to each factor, and there is no fixed formula. The Ruff Fischer factors include:
- Length of the marriage
- Income and earning capacity of each party
- Contributions to the marriage (including homemaking)
- Financial needs after divorce
- Age and health of each of the parties
- Conduct of the parties
- Value of property awarded in the divorce
It is important to remember that assets and debts are looked at as part of the whole picture. One can not determine asset division without debt division and vice versa. Oftentimes, a party is assigned and must pay more of the parties’ debt, but that also likely means that they would get more of the assets. The overall percentage of asset/debt division has to be fair and equitable and every single asset or item of debt does not necessarily get divided 50/50.
Student Loans
Student loans may be part of the marital estate. The court focuses less on whose name appears on the account and more on when the debt was incurred. Student loans often represent an investment in a spouse's future earning potential, which can benefit the family as a whole. As a result, student loan debt incurred during the marriage may be included as part of the overall property and debt division.
Mortgages and the Family Home
When one spouse is awarded the home, they are typically assigned responsibility for the mortgage. They are often required to refinance the loan within a specified period after entry of the divorce judgment to remove the other spouse's name. If refinancing is not feasible, selling the home may be the most practical solution.
Vehicle Loans
One spouse may keep the vehicle and refinance or assume the loan, or they may buy out the other spouse's interest. In other cases, the vehicle may be sold and the proceeds divided, or one spouse may receive the vehicle while the other receives assets of comparable value.
If there are multiple vehicles, each spouse may keep one. The court may also consider practical issues, such as which spouse primarily uses the vehicle for work, transportation, or caring for the children, when determining an equitable division.
Who Is Responsible for Credit Card Debt in Divorce?
With the exception of credit card balances brought into the marriage, most credit card debt incurred during the marriage becomes part of the marital estate. One spouse may assume responsibility for certain credit card accounts based on their income or earning potential. In other cases, a spouse who receives a larger share of the marital assets may also be assigned a larger share of the marital debt. Debt allocation may also be tied to other parts of the settlement, such as refinancing the mortgage or transferring ownership of other property. The goal is an overall result that is fair and equitable under the circumstances.
What Happens If One Spouse Doesn’t Pay the Assigned Debt?
A divorce judgment and decree is a court order. While it outlines who is responsible for which debts, this is separate from a creditor contract. If the spouses obtained debt jointly, they are still both liable for repayment to the creditor. Each individual likely signed a creditor agreement when they obtained the debt. This agreement gives the creditor the ability to seek repayment. A divorce decree doesn’t always negate or override this agreement.
The divorce decree requires the designated spouse to repay the debt they are deemed responsible. However, that doesn’t always mean they will do so. If they fail to make payments, the creditor can seek repayment from either/both spouses. The other spouse may need to make payments or risk non-payment. Nonpayment of debt can bring greater negative consequences that they will want to avoid.
The spouse who made the payments would then need to seek a reimbursement remedy through the court. There are also ways to request relief prior to any non-payment of a debt by an ex-spouse. You can request that the Court require your ex-spouse to refinance the debt into their own name and remove your name within a certain number of days after entry of judgment (typically 90-180 days), for example.
Common Mistakes to Avoid
Divorce is a common experience. Many people, however, misunderstand the law and believe one or more of the commonly shared inaccurate divorce myths. One of the most common myths is that debt is automatically split 50/50. While the court may start here, it isn’t always the ending division. Debt division is customized to each couple’s situation. Another common mistake is not refinancing or closing joint accounts, post-divorce. As long as your name is on the account, you are liable. Late and missed payments will show up on your credit report.
Contact a Family Lawyer
Debt division can shape your financial future long after your divorce is finalized. What may seem like a simple issue often depends on a detailed analysis of fairness or “equity” under North Dakota law. Small decisions can have lasting consequences. Working with a family lawyer helps ensure your interests are protected and that no obligation is overlooked. The team at Fremstad Law focuses on guiding clients through complex divorce issues with practical, results-driven advice. If you are facing divorce and need clarity on how debt will be handled, contact their office today to discuss your situation.
We welcome you to contact us online or call 701-401-9220 to learn how we can assist you.
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