Understanding Marital Debt and Asset Division in Divorce

Hi, everyone; thank you again for visiting. Today’s topic is personal loans and how they’re handled in a divorce case. Of course, there is also likely credit card debt from the divorce. For the most part, whether the divorce takes place in an equitable distribution state or community property state, the results are likely similar.

Personal Loans, Credit Card Debt, and Divorce

I like to focus on many of my videos and blog posts on what I consider contradictions, which people tend to believe based on misapplying the law to a given set of facts. In this case, personal loans and divorce are the issues because the consensus is that it’s the debt of the spouse whose name it is in. That’s not necessarily true.

It doesn’t work that way. It’s based on equitable distribution, and I will explain why equitable distribution doesn’t mean 50/50.

Now, let’s go back to contract law. You apply for a credit card in your name. Guess what? It’s your debt. No one’s going to argue to the contrary. Everybody knows this, but things change once you enter family court.

• How Bankruptcy Affects a Divorce Case

It’s still your debt contractually, but now that you are in family court, it’s most likely not all your debt as there’s marital debt.

For example, if you have a credit card in your name that you got during the marriage and you owe $10,000 on that credit card, you will both likely be responsible for half of that credit card. That’s the case, even if one spouse claims they knew nothing about that debt.

Now, what if there’s $1,000 owed on a credit card before the marriage? Now you’re getting divorced, and you owe $10,000. How is that handled?

Well, now we have a $9,000 increase during the marriage. Guess what? That $9,000 increase is divided equally. That’s why equitable does not mean equal. Equal would mean each spouse pays half of the $10,000.

But it would not make sense that you owed debt before the marriage, and now your spouse is also responsible for that debt.

On the flip side, it wouldn’t make sense that you have an IRA account you’ve been pumping money into for twenty years, worth $1,000,000. However, with divorce, it only increases by $10,000, and now your spouse gets more than $500,000. Is that fair? No. Is it equitable? No. Fair and equitable is splitting that $10,000 increase.

So, the general rule is that assets and debt before the marriage remain pre-marital or separate property.

Look at this from another angle. Suppose one spouse has excellent credit, so both cars are in that spouse’s name to save money on the interest rate.

At divorce, that spouse gets both cars? How does the stay-at-home mom pick up the children from school? It doesn’t make any sense. So, again, it’s based on what is equitable, and since these assets were obtained during the marriage, each spouse typically gets one of the vehicles.

The problem is that people usually focus on community property states and hear terms like “my spouse would get half.” I’ve taught community property law in California for 4 1/2 years, so I’m well aware of the law in community property states.

If that’s the case, imagine if you had $1,000,000 in equity in your home before marriage. Six months later, you are divorced. Would it be fair for your spouse to walk out with half a million in equity? Of course not.

Community property states use different terminology, but in reality, if you look at the law of community property states and equitable distribution states, they tend to be similar to the concept of equitableness.

So, generally, you walk out with what you brought into the marriage at divorce.

For example, suppose you put down $10,000 as a deposit for the home. You’ll get that back at the time of divorce. So, if anything, half would be the equity increased during the time married. That’s fair, and that’s equitable.

Now, apply that concept to credit cards. While some will argue that’s still not fair, my response is yes, it is. Somehow, a benefit was received. For example, paying for trips, a TV, etc., with that credit card. That was a benefit to both.

I know the next thought you are thinking is that everything bought with that credit card was something for that spouse, not the other. Fine, that’s still a benefit because the other spouse didn’t have to buy it.

So, when it comes to personal loans, keep that in mind. In family court, you are not looking strictly at whose name the debt is in.

That concludes today’s YouTube video. For students who are using my textbook in your courses, continue using the blog as a way to supplement the material.

Always go outside the four corners of the text. That’s the best way to learn new information, by using outside sources.

Thank you for joining me today. If you have any questions, feel free to reach out to me.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing.

Additional blog content is available below:

• Bankruptcy
• Your Wallet

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

This podcast was transcribed and edited for clarity.

Updated on March 8, 2025.