How is Marital Debt Divided in a Connecticut Divorce?

No one really likes to think about debt during the divorce process. It can often come up as an afterthought after child custody, support, and property division issues have been resolved. But debt can be a stumbling block to resolving many Connecticut divorce actions. Understanding how marital debt is divided can be the key to negotiating or advocating for an equitable resolution that protects your assets and your interests after the divorce is over.

Equitable Division Includes Marital Debts Too

Under Connecticut law, each divorce must include an “all-property” equitable distribution. Connecticut judges have authority to divide up all the parties assets, including property obtained prior to the marriage or held in only one party’s name. The division must be fair and equitable, but that does not necessarily mean equal. This is true if the parties take their case to trial, or if they enter a settlement agreement through collaborative divorce or at mediation.

The equitable division laws mean that judges can also order a marital debt division between the parties. Unlike in other states, this does not depend on whose name is on a financial account, for example, an investment or retirement account, or on the title, for example, real property or motor vehicles. Generally, the idea is that the party who will retain or receive the property should also be responsible for paying for the obligations associated with that property, for example, a home mortgage with its property taxes and insurance. The Court can also allocate marital debt, like credit card debt, in any way it thinks is fair. It may split the marital debts equally, or assign different debts to different parties. Depending on the nature of the debt, this could require the parties to refinance, pay off accounts, or take other steps to divide and resolve their debts. Spouses may also need to sign a “hold harmless” agreement promising to pay the portion of the marital debts assigned to them.

Liability for a Spouse’s Premarital Debts

Debts and liabilities incurred during the marriage are generally divided equitably by the Connecticut divorce court, as discussed above. However, if your spouse came into the marriage with student loans, a car loan, or medical debt, you probably won’t be responsible for it. However, your financial circumstances may have changed over the course of your marriage. Depending on your financial situation, you may have co-signed on the debt or refinanced it along with joint debts or other household liabilities. In that case, the Connecticut court may determine it is equitable to require you to pay some portion of that debt, even if originally, your spouse acquired it prior to the marriage.

Enforcing Court-Ordered Debt Division

A judgment of divorce is only binding on the parties to the case - in other words, you and your spouse. Banks and other creditors are not bound by the judgment. If both spouses jointly owe a debt and the husband agrees to pay it, the wife may be sued if the husband defaults. In that case, the husband cannot use the Judgment of Divorce as a defense in the debt collection case, but he can file a motion in the Connecticut family court to enforce the judgment and require his ex-wife to pay back the debt according to the “hold harmless” agreement.

The Bankruptcy Option for Marital Debt

Sometimes, the marital debt itself is the problem. Many marriages struggle and ultimately fail because the couple can’t handle the amount of debt they are in. Although it should be a last resort in a divorce case, bankruptcy can be a valuable tool in these situations. While still married, the parties can save costs by filing jointly. And if the parties are already separated, the income-based eligibility requirements of bankruptcy are easier to meet.

Bankruptcy is a voluntary process. The court can’t order your spouse to file for bankruptcy or cooperate with your filing. However, if either party believes they will need to file for bankruptcy after the Divorce Judgment is entered, it may be wiser to separate, enter a settlement agreement, and then file for bankruptcy before getting divorced. This is because, as discussed above, creditors can sue both account holders if the underlying debt is a joint obligation. If one spouse files for bankruptcy, the creditors may sue the other spouse to collect the balance on any joint obligation. But if the parties enter a joint bankruptcy first, they can both walk away with less debt when the divorce is over.

The Connecticut divorce attorneys at Lawrence & Jurkiewicz, LLC represent divorcing spouses throughout the greater Hartford area and the Litchfield County area. We can help consider your divorce debt options to ensure you get a fair share in your divorce. We also offer individual and joint bankruptcy services, which can help spouses start their next chapter on the right foot. We offer consultations by in-person appointment, phone conferences and zoom meetings. Please call us at (860) 264-1551 or contact us to schedule a confidential consultation to see how we can help you.