American household debt hit a record high at the end of 2022.  A study by credit reporting agency Experian found that families with children have more total debt than the national average, and married couples tend to have double the debt of single individuals.[1]  With average consumer debt for families on the rise, it is no surprise that most divorcing couples are concerned about who will be responsible for the payment of their debt following their divorce.

Florida is an “equitable distribution” state. This means that the debt either spouse incurs during the marriage is typically considered a “marital” debt subject to equitable distribution by the Court.  Florida Statute §61.075 governs the equitable distribution of marital assets and liabilities in Florida.  It provides that when dividing marital assets and liabilities, “the court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution.”   It also provides that debt incurred by either spouse prior to the marriage is  “nonmarital” and not subject to equitable distribution by the Court.  This means that a spouse cannot be held responsible for the payment of any pre-marital debt incurred by the other spouse prior to their marriage.

Married couples incur debt during their marriage in their joint and/or individual names. The debt might be secured or unsecured.  A secured debt has property pledged as collateral for a loan whereas an unsecured debt does not.   Secured debt in a typical divorce includes home mortgages and car loans.   It might also include loans secured by equipment or inventory in those cases where a spouse owns a business, and properly recorded judgments or liens on real estate properties.  If secured debt is not paid, the lender or lien holder may foreclose on the loan or lien and force the sale of the property pledged as security to pay off the debt.  Unsecured debt typically includes medical bills and most credit card debt.

Many people believe that marital debt is only the debt incurred in joint names.  That’s simply not true.   Under Florida law, all debt incurred during the marriage is presumed to be marital regardless of whether the debt was incurred in joint or individual names.  However, as far as a creditor or lender is concerned, the spouse whose name is attached to the debt will remain responsible for the debt, even after a divorce.  This means that an agreement between spouses in a divorce action or a divorce decree assigning responsibility for a debt to anyone other than the borrower, is not binding upon a creditor or lender who was not a party to the divorce proceeding or agreement.  Consequently, the way the division of debts interacts with their creditors can have a significant impact on the divorcing couple’s future.

The three most common types of debt divided in a divorce are mortgage debt, credit card debt, and auto loans.

1. MORTGAGE DEBT. The marital residence is usually one of the most significant assets owned by the parties in a divorce action and often the source of significant conflict between divorcing spouses.  The marital residence could be titled in joint names or in the name of only one of the spouses.  To determine who is the legal owner of the property, the parties must look at the Deed recorded in public records.  A deed is the instrument that transfers the title of real property from a grantor to a grantee.  Only the spouse who is listed in the deed is the legal owner of the property.[2]  However, regardless of how the property is titled, the lender might have required both spouses to sign a mortgage if one of the spouses obtained a loan to finance the purchase of the property.  Signing a mortgage will not give a spouse who is not in the deed an ownership interest in the property.  A mortgage is a legal document that secures the payment of a loan against the property and gives the lender permission to foreclose if the loan is not paid.  A promissory note is a document between the lender and the borrower in which the borrower promises to pay back the lender, it is a separate contract from the mortgage.  Only the borrower, the spouse that signed the promissory note, is legally responsible for repaying the loan.  Therefore, in the event of a foreclosure, the spouse who did not sign the promissory note will not be legally responsible for the repayment of the mortgage but will be named in the foreclosure action as an interested party that must get notice of the foreclosure.  If the property is sold in a foreclosure sale for less than the amount that was owed to the lender, the lender might be able to get a deficiency judgment against the borrower.Transferring title of the property to the non-borrowing spouse as part of a divorce settlement agreement will not relieve the borrower from the obligation to pay the loan, even if the divorcing spouses agree otherwise.  The lender is not bound by the terms of a divorce settlement agreement or divorce decree requiring a non-borrowing spouse to pay the loan.  If the required monthly mortgage payment is not paid within thirty days of the due date, the lender will report the past due payment to the credit reporting bureaus and the negative reporting will adversely affect the borrower’s credit score rating.  To relieve the borrower from the legal obligation to pay the mortgage, the non-borrowing spouse must refinance or otherwise pay off the loan.
2. CREDIT CARD DEBT. Florida law requires the parties to a divorce proceeding to exchange mandatory disclosures. Those disclosures include credit card and charge account statements showing each party’s indebtedness as of the date of the filing and for the last 24 months preceding compliance with the disclosure requirements. See Florida Family Law Rules of Procedure 12.285(e)(14).  It is during this process that the parties have the opportunity to review each other’s credit card statements and determine who is legally responsible for the debt.  If the credit card statements list both spouses as credit card holders, they are jointly responsible for the debt.  If the credit card statements list only one of the spouses as the credit card holder in an account that was used by both spouses, the other spouse is just an “authorized user” and is not legally responsible for the debt.   If the debt is held in joint names, credit card companies will pursue repayment from both spouses no matter what a divorce decree or agreement says about who’s the responsible party.  Likewise, regardless of how the spouses agree to split their credit card debt in a divorce, a creditor will look to the spouse who signed the credit contract for payment and will report any past due payments to the credit reporting bureaus.
3. AUTO LOANS. An auto loan or lease is a secured debt in that the underlying vehicle serves as collateral for the payment of the loan.  A leased vehicle is typically not an asset in that the leasing company is the owner of the vehicle.  Instead, the spouse who signed the lease pays to use it for a specified period. Once the lease ends, the leasing spouse either renews the lease, returns the car, or buys it.  An auto loan, on the other hand, is used to finance the purchase of a vehicle, but the buyer owns the vehicle.  Once the loan is paid off, the title to the vehicle will be released to the owner.  Generally, in a divorce, the responsibility for the payment of the auto loan or lease follows the underlying vehicle.  This means that the spouse who gets the car is the one who will be responsible for paying the loan.  However, this becomes a point of contention when the loan or car lease is in joint names. Just as with the credit card debt, whoever signed the lease or loan agreement is responsible for the debt regardless of any divorce Court ruling or agreement between the parties. If the vehicle is repossessed by the lender for non-payment, it will eventually be sold at a public sale and the borrower will be held responsible for any deficiency if the vehicle is sold for less than the balance owed to the lender.   If the vehicle is involved in an accident, the spouse who owns the vehicle or signed the lease will also be held responsible for any damage caused by the driver that was not otherwise covered by insurance.   Therefore, if it is not possible for the spouse keeping the vehicle to refinance or renegotiate the loan or lease agreement to remove the other from the obligation, the spouse legally responsible for the debt should make sure that the vehicle is kept fully insured.

Ideally, divorcing couples should pay off all marital debt.  However, this is not always possible and divorcing couples are left with no other option but to negotiate how their marital debt will be paid after their divorce.  The division of debt is included in a settlement agreement negotiated by the divorcing couple.  This agreement is often called a Marital Settlement Agreement.  In their Marital Settlement Agreement, the divorcing spouses can agree to transfer the responsibility for the payment of a specific debt to the other. This agreement creates a binding contract between spouses. Although that may not make the non-borrowing spouse contractually liable to the creditor, it will create a legal obligation between the divorcing spouses enforceable in court.  However, unlike an obligation to pay child support or alimony, an obligation to pay a debt is not enforceable by contempt.  Therefore, any agreement between divorcing spouses assigning responsibility for the payment of debt titled in joint names or in the name of one spouse to the other should include an indemnity clause.  An indemnity clause allows the parties to manage the risks attached to their agreement by making one party pay for the loss suffered by the other in the event of a default.  In cases concerning payment of secured debt, the spouse legally responsible for the debt should not take his or her name off the title of a home, car, or any other property of joint indebtedness until the debt has been refinanced or paid off.  Retaining an ownership interest in the asset will provide some protection to the spouse legally responsible for the debt; it will prevent the asset from being sold or pledged as collateral for additional debt without notice to the owner.   However, all joint accounts including credit cards and secured or unsecured lines of credit, should be cancelled, or closed to ensure that a divorcing spouse is not made responsible for any additional debt incurred by a former spouse after they are divorced.  The bottom line is that a divorce decree or agreement may allocate the payment of certain debts to a specific spouse in a divorce action, but it does not change the fact that a creditor can still collect payment of the debt from anyone whose name appears as borrower on the loan or debt.

[1] Fay, Bill, (Updated 2023, April 3) Demographics of Debt, retrieved from https://www.debt.org/faqs/americans-in-debt/demographics/

[2] This does not mean that the property is not a marital asset subject to equitable distribution by the Court in a divorce action.  Any assets acquired by the parties during the marriage, regardless of how the assets are titled, are presumed to be marital and are subject to equitable distribution.  See Fla. Stat. §61.075.  This article does not discuss the division of marital assets in a divorce.