Dividing debts and liabilities is a key part of the divorce process, as it can significantly impact the financial future of both spouses.
The courts follow specific rules to ensure a fair division of financial responsibilities, taking into account various factors to promote equitable outcomes..
Identifying marital and separate debts
The first step in dividing debts is to determine which ones are marital and which are separate. Marital debts are those taken on during the marriage for the benefit of both spouses, such as a mortgage or joint credit card. Separate debts are those one spouse incurred before the marriage or for their sole benefit. North Carolina courts only divide marital debts during a divorce.
Evaluating equitable distribution
North Carolina uses the principle of equitable distribution to divide marital property, including debts. Equitable does not always mean equal. The court considers factors like each spouse’s income, the length of the marriage, and contributions to the family when deciding how to split debts fairly. For example, one spouse might take on more debt if they have a higher earning capacity.
Considering secured versus unsecured debts
The type of debt also affects its division. Secured debts, like a mortgage or car loan, are tied to specific assets. The spouse keeping the asset often assumes the associated debt. Each spouse’s ability to pay impacts the division of unsecured debts, such as credit card balances or personal loans.
Planning for future financial stability
Dividing debts fairly helps both spouses move forward after the divorce. It’s important to consider how the division will impact future finances, including credit scores and the ability to meet financial obligations. Courts aim to minimize financial hardship for both parties.
Preparing for financial independence
Careful consideration of debts and liabilities helps ensure a smoother transition to financial independence after divorce. By understanding debt division, spouses can work toward a fair resolution that supports their long-term financial health.