Debt Considerations in Gray Divorce

All Debt Is Not Created Equal

Every divorce involves an equitable distribution of marital assets and marital debt. Equitable does not mean equal, but fair. Courts do try to start from a position of equality, but various factors might result in something different than 50-50 splits. Courts will look to each spouse’s age, health, and employment status; current and future income streams; current assets; the contribution made to the income stream during the marriage as well as to the support and maintenance of the household; and other financial obligations.

When considering debt, spouses must remember that some debt goes with the asset, particularly the marital residence. If one spouse receives the marital residence in full, that spouse will have to assume the mortgage. Spouses can have all varieties of debt, from car loans or leases to home equity lines of credit, business loans, credit card balances, and medical bills. Loans against assets typically go with the asset, so a spouse who gets a car would typically get the lease or loan on that car.

But having established the “norm” of debt following associated assets, for individuals over 50, traveling debt poses real problems – particularly if one spouse earns much less than the other spouse or cannot work for several years after the divorce. It will be critical for spouses with questionable future income streams to consider how much debt to carry. Each spouse must not have more debt than the spouse can maintain through monthly payments. If neither spouse can get to that point with the debt, the parties will have to agree to liquidate some assets to reduce their collective debt burden. Spouses must also factor in any promises made regarding payment of acquired assets, including whether an asset could be considered a gift, in which case the debt should not go to the recipient. 

Debt need not be a negative. For some spouses, carrying debt may be the only way to maintain a lifestyle with a certain set of assets (house, car, entertainment, and leisure). Some spouses are self-employed, so their business debt goes with them, and the other spouse should not have to bear that cost. So long as a spouse feels that, long term, they can pay for the debt given future income streams, the lifestyle-debt trade-off continues to work. Some people are less risk-averse than others and will not be bothered by heavy debt. Others will find that unacceptable. Balancing debt requires confronting those preferences and the standard of living that spouse desires.

Regarding credit card debt, each spouse should determine the source of the debt and who received the associated assets. Each spouse should agree on what a fair division of assets and debt is for them. A higher-earning spouse may be comfortable covering more debt; a lesser-earning spouse may not be able to survive if assigned too much debt.

Finally, for individuals nearing retirement, the amount of debt could impact future purchases, including a home. Consider consulting a financial advisor to evaluate the costs and benefits of carrying a certain level of debt based on the desired lifestyle and the risks associated with age and fixed income.

Contact Our St. Louis County & St. Charles County Gray Divorce Attorneys

If you are over age 50 and are thinking about divorce, you probably have questions about how the court divides marital debt. Call The Marks Law Firm, L.L.C. today at 314-993-6300 to discuss your questions and get the answers you need about the divorce process.

At The Marks Law Firm, L.L.C., our family law attorneys can also help you address many of the practical concerns associated with your gray divorce. Additionally, we provide guidance with drafting prenuptial agreements for individuals over 50 who are looking to get married again. Contact us today to schedule an initial divorce consultation. Our divorce attorneys look forward to hearing from you.