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Splitting Debt In Divorce (I’ve Been There…)

Divorce sucks. You never marry a person thinking that someday you’ll just split and then go find someone else. Nope. We all marry for forever…but often times, life just doesn’t go along as blissfully as we initially planned. And then there’s debt. Mix that in with a divorce and things can get pretty hairy. Splitting debt in divorce – how do you do it? Unfortunately for me (and fortunately for you I guess), I’ve gone through it and can give you my take.

Related: Divorced and Back in Debt

My Divorce

I can’t tell you the exact date (or even the exact month now that I think of it – some time in the summer of 2012), but I’ll never forget that moment. Those awful words that were uttered from my spouse… “I want a divorce.”

Just like anyone in that situation, I froze. I found the wall with my back and slowly slunk down with my eyes going fuzzy, eventually finding the floor with my backside. That was it. It was all over after that.

splitting debt in divorceThe Division of Assets and Debt

We were in our 20’s and were both pretty broke, so naturally neither of us hired legal counsel and instead just represented ourselves. At some point in the late fall, we met with a local mediation company to help us sort through the whole splitting debt in divorce thing… 

Going into that meeting, both my wife and I wrote down all of our large assets and our debts. Net net, we had a net worth of $60,000.  

Here was the big stuff on our list:

  • House – worth $90,000, we owed $55,000 (and therefore had equity of $35,000)
  • Car  – $9,000
  • Truck – $3,000
  • 401k – $10,000
  • Household furniture: $3,000

And that was basically it. There were other smaller things of course, but for the most part, these items were the ones that really moved the needle. We had paid off our student loans by then, so that debt was gone. We didn’t have credit card debt or car loans. The only thing we owed on was the house.

We both agreed that she would keep the car, and then everything else (the house, furniture, truck, and 401k) would stay with me in my name. 

So out of the $60,000 in assets, I was keeping $51,000…which means I owed her some money.

But how much?

Well, with $60,000 in total net worth, we figured we should both leave the relationship with $30,000 (assuming we were splitting our net worth 50/50…which is how it ends up in many states by the way). But, since she was only keeping the car that was worth $9,000, I owed her $21,000.

Related: 5 Things I Did to Ditch $21,000 in Just 6 Months

Just to finish the story here, I busted my butt, paid her off in 6 months, and started a wonderful new life without her. Part of me still wishes that her life fell apart without me, but I actually hear she’s doing well too, which is good. I’ll try to be the bigger person here. It’s not easy…but I’m still trying. 

Splitting Debt In Divorce – What About You in YOUR Situation?

What about you?

What’s your situation? 

Since I’ve been through it before, here’s how I’d suggest you handle splitting debt in divorce – ie. the division of stuff between the assets and debts.

1) Agree to be civil with your soon-to-be ex

The most important part in all of this is to keep a level head – easier said than done I know. But, what you don’t want to do is get all riled up and then just make a snap decision that leaves you hanging with most of the financial baggage (this is more common for you peacemakers, but DON’T do it! You’ll regret it later.)

Be civil. Keep your tone steady. Work through your assets and debts with reason and logic. Nothing more, nothing less. Again, I know, it’s not easy (remember, I’ve been there), but it’s incredibly important if you want to get through this tough time with a fair result that both of you can manage.

2) Both write out your assets and your debts

On your own separately, write down all of your major assets. Then, next to each one, write down the value of the item (your best guess for now – use websites for help if you need to (like KBB.com for car values, etc.)). And, to the right of that, if you still have some debt on the item, write down the amount of debt that’s left.

So, in the end, you’ll have something that looks like this:

  • House    –    [Value = $300,000] |  [Debt = $250,000]
  • Car #1    –    [Value = $20,000]    |  [Debt = $10,000]
  • Car #2   –    [Value = $3,000]
  • Boat       –    [Value = $5,000]
  • 401k       –    [Value = $100,000]
  • Student Loan – [Value = $0]        |  [Debt = $50,000]     

Your list could easily be 20+ items long as you go through everything. That’s totally normal.

phishing scams - worn out couple3) Both write a name next to each asset and debt for who’s keeping it

Once you believe your list is complete, come together with your ex and walk through both lists. See if either of you missed anything or if any dollar amounts are different. Make a master list that you can both agree to.

Next, write a name next to various debts that are solely yours or solely your spouses (like old credit cards or student loans that you took into the marriage). Or, if you agree that everything should be shared equally, you can determine that as well.

(One of the keys to remember here is, let’s say everything is listed under the husband’s name, but both of you agree that a couple of debts are solely the wife’s. Even if you both agree on that, the name of that debt is still recorded as the husband’s. And, if the bill is not paid, it’s going to hurt the husband’s credit score and the loan company will go after him. Keep that in mind when making your agreements.)

4) Total it up, then discuss the split – will it be 50/50?

Alright, so let’s say…

  • you and your spouse had the civil conversations (you know…as best as you could through the mountains of emotions involved here),
  • you have your full list together,
  • and you can clearly total all the values and the debts. Now you need to decide how to split it. 

Will it be 50/50?

40/60?

100/0?

Some states will have this mandated for you already, so it may not be up to you. Be sure to check out your states’ rules and regulations around asset division in a divorce.

For most, I’d say they would agree on a 50/50 split.

So, if your total assets come to $500,000 and your debts are $300,000, that means you and your spouse have a total worth of $200,000. Therefore, each of you will likely get $100,000 out of the deal (assuming you decided on the 50/50 split).

5) Decide who keeps what possession

Just like in my situation, you’re probably dividing more than just cash that’s sitting in the bank. So, you’ll have to decide who keeps what.

  • One of you will likely keep the house – the other will move out
  • You’ll likely each keep your respective car
  • If there are 401k’s, you’ll almost certainly each keep your own
  • Etc, Etc. Etc. 

On that same master piece of paper that has all the asset names, the values, and the debts, write the name of who’s keeping each one to the front of it. Once you’ve done that, total up the values and the debts for each person. 

Let’s say it shakes out like this:

Husband

  • House    –    [Value = $300,000] |  [Debt = $250,000]
  • Car #2   –    [Value = $3,000]
  • Student Loan – [Value = $0]        |  [Debt = $50,000]     
  • Total Value = $303,000    |   Total Debt = $300,000

Wife

  • Car #1    –    [Value = $20,000]    |  [Debt = $10,000]
  • Boat       –    [Value = $5,000]
  • 401k       –    [Value = $100,000]
  • Savings  –    [Value = 82,000]
  • Total Value = $207,000  |   Total Debt = $10,000

fun ways to save money6) Who owes money and how much?

Net net, the husband walks away with $3,000 of the $100,000 he deserves.

The wife’s net value totals $197,000. This means she could keep all the stuff listed, but she’d still owe her husband $97,000 because that’s the amount she’s getting above and beyond the $100,000 she should get.

But what if some of the assets/debts shouldn’t be counted in the split?

As an example, what if the husband had his college debt 5 years before the couple even met and they both agree that he should take care of it on his own and not even factor that into the formula? 

In the case, the -$50,000 would be removed from step #2 and is also omitted from the net worth total. So, in this case, the total net worth would no longer be $200,000, but it would instead be $250,000, meaning that each individual should receive $125,000 of value from the divorce.

And, since the husband’s $50,000 isn’t part of his net worth formula anymore either, that means that his total net worth that he’s receiving (the house and the car) is $53,000. Now, instead of the wife owing the husband $97,000, she only owes him $72,000.

This probably goes without saying, but with all of your calculations, be sure to check with a professional and your state regulations before finalizing any numbers.

6) Put together a formal list for the judge with a total of what’s owed

You now have your list and the amounts that each party will be receiving, and the amount that one party owes the other. Put this together as clearly as possible – with a summary page outlining the…

  • total net worth,
  • the amounts both parties are receiving,
  • and the final payment due.
  • And then also a sheet with the full detail of assets. 

With this preparation, the hearing should go smoothly and quickly (because who wants more drama in this already painful experience?).

Splitting Debt in Divorce – Good Luck to You

I’m sorry again. I know how tough this can be for you, your spouse, and your kids if you have them. It sucks for everyone. Hopefully this post made at least one aspect of it a little bit clearer and easier. 

If you need any help, or just need someone to vent to, feel free to contact me. Seriously. My contact link is at the lower-right of this page.

Best of luck to you, my friend. If you stay positive and keep your chin up, I bet your future will be bright!

Have you ever dealt with splitting debt in divorce? What’s your experience?

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AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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