Debt and Divorce: Am I Responsible for my Spouse’s Debt?

Under Minnesota family law, a spouse is not responsible for their spouse’s debt unless they are a co-signer, with a few exceptions. Spouses and their attorneys must look closely at all of their debts to determine who is responsible for paying them and how best to divide them. The following is an overview of the process of dividing debts in a Minnesota divorce.

What Types of Debt Could Be Involved in a Divorce?

Two main types of debt may be an issue in a divorce case:

• Secured debt: This is debt that has one or more assets pledged as collateral. A mortgage, for example, is secured by a house or condominium. A car loan is secured by a vehicle. If a borrower stops making payments on a secured loan, the creditor can foreclose on or repossess the collateral.
• Unsecured debt: This is debt that is not directly connected to an asset. Credit cards, medical bills, and student loans are common examples of unsecured debt. Non-payment of this kind of debt may result in calls from debt collectors, negative credit information, and debt collection lawsuits.

When Are My Spouse and I Both Liable for a Debt?

Minnesota law states that a person is typically not responsible for paying debts that are solely in their spouse’s name. For example, if Spouse A took out student loans in their own name, or obtained a credit card on their own, Spouse B is not liable for those debts.

Minnesota identifies two specific exceptions to the debt rule. It states that spouses are both responsible for paying debts incurred while they were living together even if incurred in one person’s name related to:

• “Necessary medical services…furnished to either spouse”; or
• “Necessary household articles and supplies furnished to and used by the family.”

If both spouses signed a contract or other document creating a debt, they are both responsible for making payments. They will have to figure out how to divide this responsibility in a divorce. Credit cards in one person’s name that have a balance for regular day-to-day expenses or articles for the benefit of the family, will often be treated as marital debt regardless of whose name is on the debt. This can be an area of discussion and negotiation in a dissolution.

When Am I Responsible for My Spouse's Debt After Separation?

One spouse might be responsible for paying the other spouse's debt in some situations. As mentioned above, certain types of debt, such as medical debts, are both spouses’ responsibility even if the debt is only in one spouse’s name.

A spouse could also be responsible for debts in the other spouse’s name if they incurred the debt for their own benefit. Using the example of the credit card that is solely in Spouse A’s name, Spouse B could be responsible for charges on the card that they incurred solely for themselves and without Spouse A’s knowledge.

How Can We Separate Our Debts in a Divorce?

In a Minnesota divorce, the spouses must divide the following types of debt:

• Debt for which both spouses signed the contract, promissory note, or other documents;
• Debt for necessary medical care; and
• Debt for necessary household supplies.

Division of secured debt depends on what the spouses decide to do with the collateral. If one spouse keeps the car, for example, they will probably also be responsible for paying the rest of the car loan. The spouses can agree on how to divide unsecured debt without regard to any particular assets.

Creditors and debt collectors present a challenge for dividing joint debts in a divorce. They are not parties to the divorce case, so the court has no jurisdiction over them. Suppose that both Spouse A and Spouse B signed the mortgage for their home, and then they agree that Spouse A will keep the home after the divorce and be responsible for paying the mortgage and indemnify Spouse B from the liability. The mortgage lender still has a contract signed by both spouses. The court can order Spouse B to sign over their share of the house, but it cannot take Spouse B’s name off of the mortgage. If Spouse A defaults on the loan, that will almost certainly damage both spouses credit. Spouse B can show that they are indemnified from the liability contractually between the two of them, but Spouse A will probably need to refinance the house in order to remove Spouse B’s name. The parties can negotiate time frame and securities to protect Spouse B during an indemnification period.

Unsecured debt can present an even bigger challenge. If the spouses agree that Spouse B will be responsible for paying the balance on a joint credit card account, that agreement is not binding on the credit card company. It has a contract with both spouses, so it can still pursue either spouse to recover the debt. If Spouse B stops paying off the credit card debt, Spouse A might have to go to court to enforce the terms of the divorce decree.

Collaborative law procedures can be immensely valuable to a couple that has to divide their debts in a divorce. A typical Collaborative team includes a financial professional who can help you find ways to separate your debts and protect one another from debt collectors, credit damage, and other harms. Having professionals who understand the risks and safety measures needed to create a solid agreement is important.

Dividing assets and debts in a divorce can be a difficult, painful process. Family attorney Louise Livesay has helped families in the Twin Cities area navigate complex issues in family law disputes for more than two decades. She uses Minnesota’s family laws the help her clients resolve conflicts and transform their relationships. If you have questions about divorce mediation, Collaborative law, or other family law matters, please contact us today online or at (651) 964-3887.

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