What if Debt Exceeds Assets in a Divorce?

Many people assume divorce is about dividing property and assets, but sometimes it is about dividing debt instead. In Washington divorces, it is not uncommon for credit cards, loans, tax liabilities, or business debt to exceed savings or property. When this happens, the focus of the case shifts from dividing wealth to fairly allocating financial responsibility.

Washington’s Approach to Dividing Debt
Washington is a community property state, which means both assets and debts acquired during the marriage are generally presumed community in nature. However, community does not always mean equal. Courts are required to divide property and debts in a manner that is fair and equitable under the circumstances, not necessarily 50/50. This gives judges broad discretion when debts exceed assets.

How Courts Allocate Excess Debt
When there are more debts than assets, courts often look at factors such as each spouse’s income, earning capacity, and ability to pay. A higher-earning spouse may be allocated a larger share of the debt if that allocation is more equitable overall. Courts may also consider who benefited from the debt, whether the debt was incurred for family purposes, and whether one spouse engaged in financial misconduct.

Secured Debt and Collateral Issues
Some debts are tied to specific property, such as a car loan or mortgage. Even if there is little or no equity, courts must decide who keeps the property and who is responsible for the associated debt. This can be risky if one spouse agrees to take on debt but the other spouse’s name remains on the loan. Divorce decrees may not bind creditors, so refinancing or selling property is often necessary to avoid future problems.

Credit Cards and Unsecured Debt
Unsecured debt like credit cards and personal loans often creates the most tension. Courts may divide these debts between the parties or assign them to one spouse with an offset elsewhere in the property division. The Court may also force the payment of unsecured debts using remaining assets if possible. When assets are limited, the focus may often be on fairness and practicality rather than symmetry.

The Impact on Credit
Even after a divorce decree assigns responsibility for debt, creditors may still be able to pursue anyone listed on the account. This means missed payments by an ex-spouse can damage your credit. Addressing joint debt proactively, closing accounts when possible, and monitoring credit reports are critical steps during and after divorce. Final orders may talk about debt repayment plans or put in place contingencies for missed payments to avoid credit impacts.

Strategic Considerations
In cases where debt significantly exceeds assets, settlement negotiations may focus on minimizing long-term damage rather than achieving a perfect division. Bankruptcy implications, tax consequences, and post-divorce cash flow should be evaluated carefully. Sometimes the most important outcome is achieving financial stability moving forward rather than debating precise percentages.

Divorcing with more debt than assets can feel overwhelming, but Washington courts are equipped to handle these situations thoughtfully. The goal is not punishment, but fairness and feasibility. At Magnuson Lowell, P.S., we help clients navigate complex debt division issues and develop practical strategies for moving forward after divorce. We offer free telephone case evaluations to discuss your specific circumstances and options.