How Does Colorado Law Handle Debt in a Divorce?

On April 27, 2020

Assets and Debt in a Divorce Go Hand-in-Hand

Many of the same principles that apply to asset and property division in Colorado also govern debt in a divorce.

Many of the items that divorcing spouses acquired during their marriage and want in their column at the end of the process are also the products of debt that neither of them wants.

Cars, the marital home, furnishings, student loans, and everything purchased with a loan or a credit card – debt is intertwined with some or all of these assets. And someone will remain responsible for paying those obligations. Creditors and lenders don’t care about your divorce. They care about getting their money.

That is why the division of debt in a divorce is just as important as the division of assets.

Marital Debt v. Separate Debt

The threshold issue when looking at debt in a divorce is determining which debts are “martial” and which are “separate.” It is the same issue that couples and courts confront when dividing assets and property.

As with assets, only marital debts get allocated between the spouses during a Colorado divorce. Marital debts consist of those liabilities that either spouse acquires during the marriage. Separate debts are for loans and obligations that preceded the marriage. These debts remain the sole responsibility of the borrowing spouse.

So, if one spouse financed a car before the wedding day, they will remain solely responsible for the payments. If, however, that spouse purchased and financed the vehicle while married, the spouses or the court must allocate responsibility for any outstanding amounts between each other. It doesn’t matter if only one spouse signed on the dotted line; if the spouse took out the loan for the benefit of the couple, it is a marital debt.

Debt Acquired During the Divorce Proceedings

But, if one spouse racked up significant debts unbeknownst to the other, or used credit to carry on an affair or for other selfish purposes, such debt will likely remain their sole responsibility.

This distinction between separate and marital debt is especially critical after a couple separates and until their divorce becomes final. No matter how much they feel their marriage is over, couples must realize that they remain married until the moment a judge signs the final divorce decree.

That means purchases by either spouse made with credit or financing during the divorce proceedings still constitute marital debts. While the principles of equitable distribution discussed below may result in the allocation of such liabilities mostly or exclusively to the purchasing spouse, it is still possible for one spouse to be at least partially on the hook.

Equitable Division of Debt in a Divorce

In Colorado, a legal principle is known as “equitable distribution” governs the allocation of both assets and debt in a divorce. However, “equitable” does not necessarily mean “equal.” Rather than simply dividing marital debts 50/50, Colorado courts consider several factors when determining how to fairly and equitably distribute a couple’s outstanding obligations.

Since debts and the assets needed to pay them are so closely intertwined, courts and parties can’t consider how to equitably divide the former without taking into account the latter. As such, the same factors that a court looks at when allocating assets apply to debts. These include:

Each spouse’s contribution to the acquisition of marital property, including a spouse’s contributions as a homemaker;
The value of the property given to each spouse in the property award;
The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse with whom any children reside the majority of the time; and
Any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.

Debt in a Divorce May Follow An Asset

The connection between asset allocation and debt allocation often arises when one spouse receives a piece of property in a divorce settlement that carries an outstanding loan balance.

If one spouse keeps a financed car, for example, they will likely keep the debt attached to that car as well. Not only is the conceptually fair, but it also eliminates any need to rely on the former spouse to make needed payments. No one wants to wake up and find their car repossessed because their ex dropped the ball or acted out of spite in not paying the bill.

Allocating Debt in a Divorce Is Complicated – Make Sure You Have A Good Lawyer

No one likes debt, and no one wants to take on more debt than they need to. Fairly and equitably allocating debt in a divorce can be complicated. That is why you need to have an experienced Colorado Springs divorce attorney on your side to protect you.