When navigating a divorce, many focus on who will keep the family home, car, or savings. Yet, one question often goes overlooked: Who is responsible for the debt? From credit cards to student loans, dividing debt is just as critical as dividing assets. In Colorado, debt is treated similarly to assets during a divorce. This means it is subject to equitable distribution under Colorado law. Understanding this process can protect your financial future and set the stage for a fresh start.
Debts can be a big reason why spouse’s divorce in the first place.
Colorado’s Approach to Property and Debt Division
In Colorado, property and debt division during divorce follows the principle of equitable distribution, meaning the court divides marital assets and liabilities fairly, though not always equally. Marital property includes all assets and debts acquired during the marriage unless excluded by factors such as a prenuptial agreement, inheritance, or property owned before the marriage (C.R.S. § 14–10–113). Courts consider various factors, including each spouse’s contributions, financial circumstances, and the nature of the property, to ensure a balanced outcome tailored to the couple’s unique situation.
FAQs About Debt in Colorado Divorce
- Can debt be negotiated in a settlement? Yes, spouses can negotiate how debts are divided, often finalizing agreements through mediation or court approval.
- What happens if one spouse doesn’t pay the debt assigned to them? Creditors can still pursue repayment from either party if the debt was jointly incurred, even if the court assigns responsibility to one spouse. Make sure to include indemnification provisions in settlement agreements if you are going to remain obligated on a debt after a divorce.
- Is debt divided equally in Colorado? No, debts are divided fairly based on equitable distribution principles, not necessarily equally.
- How does the court decide who pays the credit card debt? The court considers factors like who incurred the debt, who benefited, and each spouse’s ability to pay, among the other statutory factors like contribution.
- What if a spouse hides debt during the divorce? Hiding debt can lead to penalties, and the court may revisit the division of assets and debts. Usually spouses do not hide debt, however, they hide assets.
- Can new debt accrued during separation be considered marital debt? Yes, unless a court order specifies otherwise.
- Who is responsible for joint loans after divorce? Responsibility is assigned during the divorce, but creditors may still pursue repayment from both spouses.
- What happens to the mortgage if one spouse keeps the house? The spouse keeping the house typically assumes the mortgage, often requiring refinancing to remove the other spouse.
- Can the court force a spouse to sell assets to pay off debt? Yes, the court can order the sale of assets like a home or car to satisfy debts.
- Is medical debt considered marital debt? Medical debt incurred during the marriage is generally shared, even if only one spouse received treatment.
- What if my spouse declared bankruptcy during the divorce? Bankruptcy complicates proceedings, potentially impacting the division of debts and assets. This requires special expertise and advice.
- Can spousal maintenance (alimony) be used to offset debt responsibility? Yes, spousal maintenance can factor into how debts are allocated.
- What documents are needed to address debt in a divorce? Essential documents include loan agreements, credit card statements, and credit reports.
- Can the court divide debt without dividing assets? No, debts and assets are considered together to achieve equitable distribution.
- How are retirement account loans treated in divorce? These are typically assigned to the account holder but can affect overall property division.
- What happens if the debt was incurred due to gambling or reckless spending? Such debt could be assigned solely to the responsible spouse depending on the circumstances related to “dissipation.”
- Can temporary orders address debt payments during the divorce? Yes, courts can require one spouse to maintain debt payments to preserve financial stability.
- How can I protect my credit during divorce? Monitor credit reports, close joint accounts, and ensure clear responsibility for debts post-divorce.
Key Steps in Property Division
The court uses a three-step process to divide property and debts in a Colorado divorce. First, it classifies the property as either marital or separate. Next, it values the property, assigning a monetary worth to each asset and liability. Finally, the court distributes the property equitably, considering factors such as each spouse’s financial contributions and needs.
What Is Marital Debt?
Marital debt includes any liabilities incurred during the marriage, such as credit card balances, car loans, and shared lines of credit, regardless of whose name is on the account. In contrast, separate debt includes obligations taken on before the marriage or after a legal separation and is generally not divided between spouses. Student loans are typically treated as separate debts unless marital funds were used to repay them. Additionally, any new debt incurred during a separation without a court order may still be classified as marital, leaving both spouses potentially responsible. Courts carefully review these distinctions to ensure debts are allocated fairly.
Valuing Debt During Divorce
Just as assets require valuation, debts must also be accurately assessed during a divorce. Courts rely on documentation like loan statements and credit reports to determine the exact amounts owed. Proper valuation ensures a fair and equitable distribution, with speculative or uncertain debts often disregarded (C.R.S. § 14–10–113). To facilitate this process, it’s essential to gather all relevant financial records and maintain transparency by disclosing all debts during the discovery phase. Clear and comprehensive documentation helps avoid disputes and supports a balanced resolution.
Equitable Distribution: Balancing Assets and Debts
Colorado courts aim to divide assets and debts fairly by considering key factors such as each spouse’s contribution to marital property, their financial circumstances after the divorce, and whether the family home should go to the custodial parent (C.R.S. § 14–10–113). For instance, one spouse might keep the marital home but take on more mortgage debt to balance its equity. This approach ensures that the division reflects both fairness and practicality for each party’s future.
Temporary Debt Management During Divorce
During the divorce process, courts may issue temporary orders to maintain financial stability by requiring one spouse to continue paying certain debts. These orders are designed to preserve the status quo until a final resolution is reached (C.R.S. § 14–10–108). Examples include continuing mortgage or rent payments or making temporary credit card payments to avoid default.
Protecting Your Financial Future
Debt allocation in a divorce can have lasting financial implications. To safeguard your future, work with a knowledgeable family law attorney who understands Colorado’s laws, advocate for a fair division of debts and assets, and ensure all agreements are clearly detailed in the final divorce decree. Proper planning can help secure both your immediate and long-term financial stability.
Contact Griffiths Law for Expert Guidance
Understanding Colorado’s approach to debt division is essential for a fair settlement. At Griffiths Law, our experienced attorneys specialize in helping clients navigate the complexities of divorce. Contact us today to schedule a consultation and take the first step toward securing your financial future.
Christopher Griffiths is a Shareholder and Chief Financial Officer at Griffiths Law—a law firm specializing in family law and civil litigation.