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Going Through Divorce With Debt

Wisconsin is one of a few states that considers property – and debts – accrued during the marriage as community property. This means that during a divorce, community property and debt are evenly distributed.

There’s a catch: Even if one party agrees to pay off a particular debt, both parties remain responsible after the divorce. If one party doesn’t pay the debt as agreed, the creditor will come after the other partner no matter what agreements were reached or the amount of time that has elapsed since the divorce.

An example

Here’s a more concrete example: Let’s say you are seeking a divorce in one of the community property states like Wisconsin – they are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington – and you and your spouse have equity in a house, have two cars, joint checking and savings accounts, two retirement accounts, jobs that create about the same amount of income and $20,000 in joint credit card debt.

Assuming neither party brought significant resources into the marriage and there are no children requiring parental support, then the couple can expect to split the retirement funds, the checking and savings accounts, and the cars. What’s left is the equity in the home and the credit card debt.

If the equity and debt are the same, the parties might agree that one partner might get control of the house if that partner assumes responsibility for the debt. The second party walks away clean.

Or so it would seem.

You could be on the hook

If the debt was accrued before the marriage – such as student loan debt – then that debt follows the borrower after the divorce. Debt accrued during the marriage – such as credit card debt – is the responsibility of both parties despite any agreement by one party to pay off the debt.

That means if your ex-spouse agrees to pay the debt and then doesn’t, creditors can come after you for the debt.

Creditors do not care about any agreement made between spouses. You both co-signed on the debt and that means you both are responsible for the debt.

Creditors can sue you for the debt. Despite the divorce agreement, you could face wage garnishment, a lien on the property, or other means to close the delinquent debt. You also may be forced to deal with ruined credit or paying back the debt accrued during your marriage.

This is one reason why you really need to make sure you understand every aspect of your divorce agreement — and how your decisions can potentially impact your future.