When a couple decides to end their marriage, one of the most critical issues they encounter is dividing their assets and debts. In Tennessee, divorce courts follow equitable distribution laws, which means that the judge will divide property and debts fairly, but not necessarily equally. In this article, we’ll discuss everything you need to know about how debts are divided in a Tennessee divorce.
Understanding Equitable Distribution
In most divorces, the property, assets, and debts accumulated during the marriage are equally owned by both spouses, regardless of whose name is on the title or account. Tennessee is what’s known as an "equitable distribution" state, which means that marital property and debts are divided equitably, or fairly.
What is Marital Debt?
Just like marital property, marital debt refers to the debts incurred during the marriage. It includes credit card balances, mortgages, car loans, personal loans, medical bills, and any other debts that the couple accrued while they were married. Pre-marital debts, on the other hand, are considered separate property and are typically not subject to division.
How Is Marital Debt Divided In A Tennessee Divorce?
When a Tennessee court divides marital debt between the parties, the judge considers several factors to determine what a fair distribution would look like. Some of the factors the judge may consider include:
- Who incurred the debts
- Whether the debts were incurred jointly or individually
- Each spouse’s income, earning capacity, and assets
- The length of the marriage
- Each spouse’s contribution to the marriage (financial and non-financial)
- Any marital waste or misconduct
After evaluating these factors, the judge may direct one spouse to pay some or all of the outstanding debt, or both spouses may be held responsible for paying off the debt. In some cases, the couple may agree on how to split their debts, which the court may uphold if the agreement is fair and reasonable.
Types of Debt
Tennessee law distinguishes between two types of debt: secured and unsecured. Secured debt is debt that is tied to specific property, such as a car or a home, that has collateral that can be used to secure the debt. Unsecured debt, on the other hand, is debt that isn’t tied to collateral or property. This distinction can be relevant when it comes to dividing debt during a divorce.
Tax Implications
Dividing a debt between the parties doesn’t necessarily mean that both spouses are absolved of their responsibility to pay off the debt. Some debts, like credit card balances, can often be divided, but some debts may require one spouse to take over the debt entirely. It’s crucial to note that the IRS treats forgiven debt as taxable income. This means that if one spouse forgives the other spouse’s share of the debt, the forgiven amount may be considered taxable income to the spouse who was forgiven. It’s essential to consider these tax implications when dividing debt in a divorce.
How to Protect Yourself
Going through a divorce can be a challenging and emotional process, and dividing debt can be complex, especially when large sums of money are involved. Here are a few tips to protect yourself and your finances during a divorce:
- Gather all financial documents, including account statements, tax returns, and credit reports.
- Be honest and transparent about your debts and assets.
- Consider talking to a financial advisor or an attorney who can help you navigate the financial aspects of your divorce.
- Close joint accounts and credit cards to prevent any further debt.
- Make a budget and stick to it.
Conclusion
Dividing marital debt can be complicated, but it’s essential to ensure a fair settlement during a divorce. Understanding the laws regarding the division of debts in Tennessee, considering all factors, and seeking the right legal and financial advice can help you protect yourself and your finances during a divorce. With careful planning and consideration, you can overcome this challenging time and move forward confidently.