Debt: How Owing Beats Owning in Divorce

Over many years, I've noticed a curious thing that happens when couples sit down to divide their marital estate. The assets can be a source of considerable disagreement, but the debts? Surprisingly, not so much.

After 25 years of working with divorcing couples, I've observed that dividing debt is rarely the issue that derails an uncontested divorce. That's not to say disagreements don't arise. They can. But compared to the sometimes painstaking negotiations over who gets the house, how much a business is worth, or what constitutes a fair division of retirement savings, debt often finds its way to an agreement with remarkably little resistance.

You might expect the opposite. After all, nobody particularly enjoys inheriting a bill, especially one they believe belongs to someone else.

Yet when it comes to debt, I've witnessed that couples seem less interested in determining who owes what under a strict interpretation of the law. Instead, they seem to have a keen sense of who the debt belongs to in the life they've actually lived.

The Debt Seems to Know Where It Belongs

Consider a couple who own a home with a home equity line of credit (HELOC). In my experience, when one spouse retains the property, the HELOC debt frequently goes along with it. The borrowed money may have been used to improve the property, maintain it, or otherwise support the asset against which it was secured.

To the couple, the connection often seems obvious and rarely invites much contention.

Student loans are another example. Although the financial resources of a marriage may have supported one spouse's education, I've found that couples overwhelmingly tend to assign student loan debt to the person who received, or is receiving, that education. There is often very little discussion about it.

A similar pattern appears with outstanding IRS tax liabilities from separately filed returns during the marriage. Couples frequently agree that the spouse who filed the return will assume the associated debt, without undertaking much consideration of community property principles.

The pattern continues with car loans, which generally follow the person keeping the car. Business liabilities tend to stay with the spouse retaining the business. Even debts owed to family members, a potentially delicate subject given the emotional complexities of family relationships, rarely become entrenched points of disagreement.

Expensive forensic reviews of marital liabilities are uncommon among the couples I've worked with. Rather than tracing every dollar or attempting an exact equalization of debts, they tend to make practical allocations that reflect their circumstances.

I don't advocate for any particular pattern of debt division, but I can say that in 25 years, I cannot recall a client expressing regret over these kinds of voluntary allocations, either at the time or in retrospect.

To be clear, these aren't universal outcomes, nor am I suggesting that every couple should divide their debts this way. They are simply recurring observations from the trenches.

What interests me most is how readily these agreements are reached. I've watched couples exercise remarkably grounded judgment about debt without continually referencing what a court might award them.

Their decisions generally seem reasonable in the context of their particular marriage, even when they depart from what a strictly mathematical division might suggest.

When People Make Their Own Rules

So, what happens when couples are given the freedom to make their own decisions about debt outside a courtroom?

Rather than approaching every liability as a mathematical exercise in community property division, they often arrive at arrangements that are uniquely their own.

A debt may follow a particular asset, an individual benefit, or simply an understanding between the spouses about what makes sense for them.

There is something revealing about this.

Couples who may disagree over the value of a business or the equity in their home can sometimes assign thousands of dollars in associated debt with little more than a brief conversation and a mutual nod of the head.

Perhaps the distinction lies in the way we experience ownership. Assets represent something we have, something we may want to preserve, or something we believe we've earned.

Debt, on the other hand, represents an obligation. And obligations often have a practical history that both spouses recognize, even when they don't agree on much else.

I sometimes wonder whether debt invites a more measured response because repayment speaks to character and a sense of personal responsibility toward those who extended the credit or provided assistance.

Whatever the explanation, the pattern has been remarkably consistent in my experience.

And Then There Are the Credit Cards

Credit card debt, I'll admit, is the notable exception.

Unlike a car loan or a mortgage, credit card balances don't always have a clear connection to a particular asset or individual benefit.

They may represent years of groceries, gas, household expenses, vacations, personal purchases, or simply the accumulated cost of a household that consistently spent more than it earned.

Imagine a couple with $18,000 in credit card debt.

Both statements may be true.

One spouse may have been the primary earner, depositing a paycheck into the household account each month. The other may have been managing the daily expenses, quietly making up the difference between what came in and what went out.

Over time, that difference became a running balance of debt. Then interest.

Years later, when the marriage is ending, the spouse whose name may not even be on the credit card sees $18,000 in spending now being presented as marital debt.

The spouse whose name is on the account sees years of keeping the household afloat. The spouse who didn't directly make the purchases can't imagine being responsible for them.

Of course, not all credit card debt is the product of necessity. Some people overspend. Some conceal purchases. Some use credit recklessly, while the other spouse works hard to live within their means.

But even then, the question of responsibility isn't always as straightforward as the question of who swiped the card.

The debt is now a reality on the marital ledger. The person who didn't make the purchases may feel blindsided. The person who did may feel accused of creating a problem when they spent years simply trying to manage a budget that ran in the red.

Credit card debt can become a referendum on character, with each spouse attempting to establish whose financial decisions created the problem.

And yet, even these disputes rarely become insurmountable in my experience.

Couples negotiate. They compromise. They may agree to split a balance, assign particular accounts to each spouse, or offset the debt against another asset.

The Law and the Agreement Aren't Always the Same Conversation

California is a community property state. But the legal characterization of a debt and the allocation two spouses ultimately agree upon are not always identical.

In an uncontested divorce, couples can negotiate how their debts will be assigned as part of their overall property settlement, subject to applicable legal requirements.

That freedom allows them to consider the practical realities of their lives rather than insisting that every individual liability be divided according to a rigid formula.

A Marital Settlement Agreement may provide that one spouse will assume a particular loan or credit card balance, but that agreement generally does not alter the rights of the lender.

If both spouses remain contractually obligated, a creditor may still have the right to pursue either of them, regardless of what their divorce judgment says.

Similarly, assigning a mortgage to the spouse retaining the home doesn't automatically remove the other spouse from the loan.

And, of course, the IRS has its own relationship with a taxpayer that is not superseded by any divorce settlement agreement.

What We Owe Versus What We Own

Perhaps there is little more than philosophical interest in determining why dividing debt produces so little drama compared to dividing assets in my experience.

There does, however, seem to be a practical instinct at work.

When couples are empowered to make their own decisions, they often recognize a connection between an obligation and the person or property associated with it.

They may not feel compelled to challenge that connection simply because the law might allow them to argue for something different.

And that is worth noticing.

In my experience, the division of marital debt is rarely the obstacle that prevents two willing people from completing an uncontested divorce.

For all the complexity of untangling a shared financial life, couples can be surprisingly resourceful when deciding what debt each will carry forward.