Breaking up is hard to do, but when money is involved, itâs often messy, too. In addition to books, furniture and maybe the dog, youâll have to decide how to split up any debt you accumulated together. Whoâs responsible for what? And how can you protect yourself from bearing responsibility for your exâs debts?
âIf youâre going through a breakup and your name isnât listed on the debt, youâre not legally responsible,â said Leslie Tayne, a debt resolution attorney and author of the book âLife & Debt: A Fresh Approach to Achieving Financial Wellness.â But that doesnât necessarily mean you arenât morally obligated, if, for example, the debt was incurred to benefit you both. âYou may also have the debt under one personâs name and used the borrowed money for both of you,â Tayne said. âIn that case, even though there isnât a legal obligation to the creditor, there may be an obligation to the other partner.â
That obligation ultimately depends on where you live and the nature of your relationship, whether married or not. Hereâs a closer look at what happens to debt when you break up with someone, and how to handle it.
What happens to debt if you arenât married
âIf youâre not married, then generally, the person whose name is on the debt is going to be the person thatâs responsible for it,â said Tasha Cochran, a lawyer and founder of the personal finance blog One Big Happy Life.
So if you racked up a credit card balance with the expectation that your partner would help pay half, the reality is that in the eyes of the card issuer, you are legally responsible for 100% of the bill.
In the event of a breakup, you and your ex will need to work together to decide how you want to split up the debt that you accumulated while together. Of course, thatâs not always easy to do when your relationship is ending.
âThe best way to protect yourself and each other from a potential breakup if youâre not married is to have a cohabitation agreement, where you decide in advance how your property and debts will be split between the two of you if you break up,â Cochran said. A cohabitation agreement wonât supersede the law when it comes to ownership of debts, but it can help facilitate a more civilized discussion about how the two of you will handle them.
Of course, hindsight is 20/20 and you may not have had the foresight to write up an official contract. If you just canât reach an agreement, one option is to take the issue to small claims court and have a judge decide. âBut without a written agreement, itâs going to be a he-said, she-said situation, so there is no guarantee as to how the debt will be divided or if it will even be divided at all,â Cochran said.
A better (and less expensive) solution, she said, would be to split the debt in a fair manner, such as 50-50 or proportionately according to your incomes. If you have a loan or credit card in your name that your ex agrees to handle, itâs a good idea to refinance the debt into their name. If they donât qualify to refinance due to poor credit or unsteady income, one option is to sell off the backing asset (such as a car) and pay off the loan. âThat way, when you split, you each take the debt thatâs in your name and youâre done,â Cochran said.
What happens to debt if you are married
If you are a married couple going through a divorce, there are certain rules that apply to your debt. Those rules, however, vary depending on where you live.
The good news is that any debt a person incurred before marriage stays theirs in the divorce. That means if your hubby had six figures in student loan debt before you got hitched, those loans are his alone to repay once youâre divorced.
When it comes to debt you accumulated together, such as a credit card balance or mortgage, it will be handled according to state law.
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. âIf you are married, and then get divorced, and live in one of those states, all of your assets and debt accrued during your marriage are evenly split between partners,â Tayne said. That means youâd be equally responsible for your spouseâs debts post-divorce.
In the remaining âcommon-lawâ states, debt taken on by one person during a marriage (i.e., their name is on the account) remains their sole responsibility once divorced. âHowever, even in other states, certain debts can be considered marital debt, and that would have to be reconciled during a divorce,â Tayne said. For instance, debt related to a rent or mortgage, utilities or child care may be considered marital debt.
How to manage debt in future relationships
âDebt in relationships can be tricky since it can be uncomfortable to tell a new significant other that theyâre struggling financially or have large amounts of money owed,â Tayne said. However, once youâre in the relationship and both partners know about the debt, itâs never too late to discuss where responsibility falls, she noted.
âYou can memorialize that in an agreement or simplify the information in an email so you both can remember later what you agreed to,â Tayne said. âThe agreement doesnât have to be, nor should it be, contentious.â
If youâre getting married or already married, that agreement is known as a prenuptial or postnuptial agreement, a fairly common type of contract. âYou donât need to have a lot of money or assets to utilize these types of agreements, and they can help to make sure everyone understands who is responsible for what,â Tayne said.
In addition to putting everyoneâs responsibilities down on paper, itâs also a good idea to remain involved in the finances during a relationship, regardless of whether you believe it will last. âItâs common in relationships to see that one person handles the income and expenses of both people, which isnât always a great idea if a breakup occurs,â Tayne said. âIf this applies to you, know that ignorance is not bliss since your finances could be at stake. While thereâs no need to hide money from your significant other to plan for a breakup, be sure to make financial decisions as a couple and be aware of the money entering and exiting your accounts.â