In Colorado, when a couple divorces, their debt is handled as part of the property division process. Therefore, debt is divided based on Colorado's property division laws. To understand what debt is divided between the divorcing spouses and what remains the responsibility of the person who incurred it, you have to understand Colorado's distinction between marital and separate property.
Understanding Marital vs. Separate Property
In a general sense, marital property is that which is owned jointly by both spouses, while separate property is only held by one of the spouses. Typically, separate property is all property, assets, and debts held by the individual before their marriage. Meanwhile, marital property is property, assets, and debts acquired during the marriage.
Common examples of marital debts acquired during a marriage include:
- Car loans
- Credit card debt
- Personal loans
This often means that if a debt was acquired before the marriage, it remains the separate debt of the person who accrued it. Meanwhile, if the debt was acquired during the marriage, both spouses are ultimately responsible for it. However, there are situations where some property that would otherwise be classified as marital property remains separate and vice versa.
To learn more about distinguishing between marital and separate property, review our blog here.
How Is Debt Divided?
As mentioned above, debt is divided during the property division process. The first step in dividing a couple's debt is determining which debts are shared by the couple and which are separate. The courts look at several factors when deciding which debts will be shared and which will remain separate.
Things the court considers when determining marital vs. separate debt:
- Who incurred the debt
- When the debt was acquired
- If both spouse's names are on the debt
- If the funds were used to benefit the household/family
After this is determined, the court will divide the shared debt. Under Colorado law, all property, including debts, must be divided equitably between the spouses. This means that when making property division decisions, the courts will determine what division is fair and just. Equitable distribution requirements do not mean property and debts will be split 50/50.
Examples of debt that may remain separate include:
- Credit card debt acquired before the marriage
- Student loans acquired before the marriage or which only benefited the individual
- Mortgages, car loans, and other personal loans acquired before the marriage
- Medical debt
Because debt division can be a complicated process, it is recommended that you collect as much documentation regarding the debt as possible. This will help ensure that all debt is accounted for and that you are not held responsible for debt you shouldn't be.
Difficulties of Debt Division
Some instances of debt are cut and dry, such as student loans taken out before marriage and not used to support the household or when a couple takes out a mortgage together. Similarly, suppose a credit card was taken out in only one person's name. In that case, that individual is usually the only one held responsible for the debt, regardless of when the account was opened. That being said, this varies from state to state, and several factors can complicate this.
Other situations are more complicated, like credit card accounts opened before marriage but with a spouse added at a later date and/or used to benefit the household. Additionally, if a spouse takes out student loans and they are used to help support the family while they are in school, these may be considered marital debts and not individual.
What About Debt I Didn't Know About?
If a spouse opens a credit account or incurs other debt without your knowledge, are you responsible for it? Typically, debt acquired without your knowledge you will not be liable for, but in these cases, you must consult with an attorney regarding how best to protect yourself. This is especially important if you have other property that you own jointly. If your spouse defaults on their debt, the bank or credit card company may be able to come after their interest in that shared property, thereby affecting you.
If you are going through a divorce and have questions about debt, reach out to the Law Office of Greg Quimby, P.C. We have helped countless clients deal with complicated debt situations, and we have the resources to guide you.