Colorado’s divorce law requires the fair and equitable division of marital assets, often prompting both spouses to put significant time and effort into arguing for their fair share of joint assets and specific household items they wish to retain.
Often, less thought and preparation go into the division of marital debts; however, the outcome of debt division in a Colorado divorce has a significant impact on both spouses as they move forward from the divorce. Contact our Denver divorce lawyers today at (303) 451-0300.
Does Debt Have to be Divided 50/50 During a Colorado Divorce?
Colorado is not a community property state, which requires an exact 50/50 division of assets and debts. Instead, Colorado divorce laws prioritize the division of assets and debts in a manner that’s fair to both parties, allowing them to move forward on a similar financial footing.
When considering the division of marital debt, Colorado does not prioritize splitting debt exactly in half, as some states require. Instead, a judge considers each spouse’s ability to pay. Factors such as each spouse’s income and the marital property they retain impact the total debt assigned to each spouse during a Colorado divorce.
What Types of Debt Are Not Subject to Division In a Colorado Divorce?
Any debt incurred by one spouse before the marriage remains their debt after the divorce. Common examples include student loans, car loans, and credit card debt. However, if the spouse with the credit card debt adds the other spouse’s name to the account and that spouse uses the credit card, the debt becomes marital debt and is subject to equitable division.
In some cases, a debt that one spouse alone accumulates during the marriage may remain their separate debt if the other spouse or the family gained nothing from the debt. A good example of this is one spouse’s gambling debt.
Finally, if one spouse accumulates secret debt, debt from spending on an extramarital relationship, or commits fraud against the other spouse resulting in debt, the debt remains that spouse’s alone after the divorce.
What Types of Debt Are Typically Considered Marital Debt and Subject to Division?
Just as all assets accumulated during the marriage, including real estate property, savings accounts, investment accounts, retirement accounts, vehicles, artwork, antiques, collectibles, jewelry, and household goods, are considered marital property and subject to fair and equitable division, so are marital debts. Common marital debts in Colorado include the following:
- Mortgages, including for the marital home, vacation homes, and rental property
- Auto loans
- Joint credit card debt
- Personal loans
- Joint business loans
- Medical debt
- Joint debt for any credit extended during the marriage, such as from store credit lines
If both spouses earn similar incomes and retain an equal number of marital assets, their marital debt will be divided 50/50 or nearly equally. However, in many cases, a judge considers additional factors based on the unique circumstances of the marriage and the terms of the divorce.
Colorado is a no-fault divorce state. For this reason, a judge will not assign one spouse a larger portion of the marital debt as “punishment” for behaviors that led to the divorce.
Reaching a Settlement Agreement for Dividing Debt
Not all Colorado divorces require a judge to divide assets and debts between spouses. In fact, in most divorces, the spouses eventually reach a mutually acceptable agreement on the division of their marital assets and debts and achieve an uncontested divorce. To reach a divorce settlement agreement, each spouse must first submit a full financial disclosure.
Each spouse’s attorney may request additional financial documents from the other, and the other must submit the requested records. Both spouses meet together with their attorneys to negotiate a settlement agreement. In most cases, this requires one or more meetings with a professional divorce mediator. The mediator offers creative solutions to all necessary divorce terms, including child custody, child support, asset division, debt division, and alimony, as appropriate. Call our child support attorneys in Denver to discuss the details of your case.
The division of marital debt is often a contentious aspect of a divorce settlement agreement, with both spouses blaming the other for their marital debt. To reach an agreement that a judge will sign into binding orders, it is necessary to meet the state’s standards for a “fair and equitable” division of debts and assets, which puts each spouse on a similar financial footing after the divorce.
What If Spouses Cannot Reach an Agreement on Debt Division In a Colorado Divorce?
Dividing assets and debts can be a straightforward matter for spouses with few assets and little debt. Unfortunately, the more complex a couple’s financial portfolio, the more challenging it becomes to reach a settlement agreement that a judge considers fair and equitable. Debt division during the divorce is often an obstacle that may become an impasse to reaching an agreement.
When this occurs, the divorce becomes a contested divorce requiring a trial. In these cases, each spouse presents their disputes to the judge with their Denver family law attorneys representing their client’s best interests. The judge makes the final decisions on any disputed terms, including debt division, before signing their decisions into binding orders.
What to Do After Dividing Debt In a Divorce
When a divorce settlement agreement or a judge’s orders divide debt between spouses, each spouse is responsible for paying the debt assigned to them. It’s important to note, however, that a creditor may still hold one spouse responsible for a debt assigned to the other spouse in the divorce.
For this reason, after the division of assets and debts becomes final in the divorce decree, each spouse has the responsibility to contact creditors and ask that their name be removed from the formerly joint debt. This typically requires submitting a copy of the divorce orders.
A divorce ends a marriage, but it does not automatically end debt responsibility. Colorado creditors may still hold one spouse legally responsible for debts assigned to the other spouse. For this reason, a skilled divorce lawyer may advise that their client’s spouse refinance debts assigned to them in their name alone. Otherwise, if one spouse falls behind on debt payments, it adversely impacts the other spouse’s credit rating regardless of the judge’s decision.
After a divorce, it’s beneficial to carefully monitor credit reports to ensure that one spouse’s debts are no longer impacting the other’s credit.