It may be appealing to forget about the marital debt since it can be an unpleasant thought, but the division of debt must be part of the divorce.
Debts are applied against all of the marital assets in divorce to determine the net marital estate. They necessarily reduce the value of the overall assets to be divided.
If one spouse assumes more debt than the other in the divorce, they can be awarded more of the assets to make up the difference. It is important to obtain your credit report, especially if you have not been the spouse in charge of the family’s finances. This way you can make sure of all the debt you have in your name.
Under Tennessee law, you and your spouse are free to divide the debt in whatever way seems fair to both of you, but some of the factors a court would consider are the following:
- who benefitted from the debt
- who has the ability to carry the debt payments after the divorce
- who incurred the debt in the first place
- what are the tax consequences, if any, of carrying the debt.
Sometimes creative solutions need to be employed to handle the division and disposition of large amounts of marital debt.
Financial and tax experts in concert with your attorney can be helpful in solving complex debt issues, such as when parties owe back taxes to the IRS, or when Qualified Retirement plans might be used to pay off debt.
Please also see the series of TN Law Topics in the web site on the Division of Property under Tennessee law.