As you’re reading this, there is more than likely a married couple in Milwaukee who just put down a large mortgage on their new family home. Another in Green Bay is in the throes of divorce with a mountain of credit card debt to take care of.
Here’s the thing about those debts: dividing them during divorce isn’t always as simple as cutting them down the middle. It’s a process that keeps many Wisconsin residents up at night. They worry about their financial future and wonder how they’ll manage these obligations after their marriage ends.
We see these situations play out every day in Wisconsin. As your local legal team, we want to help you understand how debt division works in our state. Knowledge is power – and the more you know about this process, the better equipped you’ll be to protect your interests.
Marital vs. Separate Debt
Before we dive into how debt gets divided, let’s talk about which debts actually need splitting. Not all debt accumulated will be considered joint debt.
Marital Debt
Marital debt typically includes any debt you or your spouse took on during your marriage. Wisconsin is one of only nine community property states in the country. This means the court assumes both spouses approved any property bought during the marriage.
The same goes for debt. If you’re married and living in Wisconsin, you’re in what we call a community debt state. Think back to our Milwaukee couple and their new house. That mortgage is considered mutual debt, even if only one spouse signed the paperwork.
Here are some common types of marital debt:
- Mortgage loans
- Credit card balances
- Car loans
- Home equity lines of credit
- Medical bills
- Home improvement loans
Separate Debt
As you can imagine, separate debt means any debt you picked up before getting married or after legal separation. Let’s say you bought a car before your wedding day, and you’re still paying it off. That’s your separate debt. Student loans from before marriage fall into this category as well.
But there are exceptions. Debt used for purely personal reasons might stay separate. The same goes for debts tied to gifts or inheritance. Even gambling debts might count as separate if one spouse racked them up without the other’s knowledge.
Division of Marital Debt
For this guide, we’ll be focusing on marital debt. You and your spouse gathered debt from various purchases during your marriage. Now you’re divorcing. What happens to all that debt?
Much like property division, Wisconsin courts typically split marital debt equally between both parties. Let’s break down an example. Say you have $200,000 remaining on your house, $50,000 in car loans, and $20,000 in credit card debt.
That adds up to $270,000 in marital debt. Theoretically, each spouse would take on $135,000 of that debt after divorce.
However, the court looks at several factors before making a final decision. They want the split to be fair and equitable. Here’s what they consider:
- Each spouse’s income and earning capacity: Someone making $100,000 a year might handle more debt than someone making $30,000
- Contributions to the marriage: This includes both financial support and taking care of the home.
- Economic circumstances: The court looks at each person’s financial situation after divorce
- Responsibility for the debt: They might consider who actually spent the money and why
There are also different ways to handle this split. The way your situation will go depends on if you can reach an agreement or what the court orders.
Assignment of Specific Debts to Each Spouse
This approach works best when it’s clear who should take specific debts. Maybe one spouse went back to school and took out loans. Those loans might go to that person.
Sometimes, the higher earner takes on bigger debts, like the house payment. The lower earner might take smaller debts, like car payments. This method also comes into play if one spouse hid assets or deliberately created debt. For instance, if someone maxed out credit cards right before filing for divorce, they might get stuck with that bill.
Proportionate Division of the Total Debt
With this method, the court adds up all marital debt first. Then, they assign percentages based on each person’s situation. Let’s say one spouse earns 70% of the household income. They might end up responsible for 70% of the total debt.
Remember – whatever method gets chosen, good communication helps reach a fair settlement.
Protecting Your Credit
Many people don’t think about their credit score during divorce. But they should! Maybe all your purchases went on your partner’s credit card during marriage to rack up points. Your credit didn’t see much activity for years, but you weren’t in debt either. Then suddenly, you’re getting divorced, and half of that marital debt is now in your name. That can seriously hurt your credit score, especially if you miss payments.
Here are a few financial planning tips to help you protect yourself:
- Close joint accounts right away and open new ones in your name only to stop new debt from piling up
- Check your credit report every month. Watch for any suspicious activity or missed payments
- Look into refinancing shared loans. Getting your ex’s name off the paperwork protects both of you
- Talk to your creditors, as many will work with you during divorce if you explain your situation
Negotiation and Settlement
Although Wisconsin law aims for a fair distribution of assets and debts, the courts often urge people to reach a settlement through negotiation rather than going to trial. If you’re on decent terms with your ex, try figuring out who will handle which debts before heading to court.
Here are a few amicable ways to do just that:
Mediation
Mediation brings in a neutral third party to help you reach agreements. This person doesn’t make decisions for you. Instead, they guide conversations and suggest solutions. Mediation often costs less than going to court and lets you maintain control over decisions about your debt.
Collaborative Divorce
In collaborative divorce, each spouse hires an attorney trained in this process. Everyone agrees to work together openly and honestly. You might bring in financial experts to help divide complex debts. This approach usually creates less tension than traditional divorce.
Settlement Conferences
These meetings happen at the courthouse with a judge or court commissioner. They’ll review your situation and suggest ways to settle your disputes. Settlement conferences often lead to agreements without a full trial.
The Role of a Family Law Attorney
Going solo in divorce court might save money upfront. But it could cost you big if your spouse shows up with an attorney ready to play hardball.
A good family law attorney starts by reviewing all your financial documents. They’ll spot which debts count as marital or separate. That’s crucial for getting a fair split.
Your attorney also speaks for you during negotiations. They know the law and can spot unfair proposals right away. Plus, they’ll draft agreements that protect your interests now and down the road.
If talks break down, your attorney will represent you in court. They know how judges typically handle debt division and can present your case effectively.
Conclusion
Divorce doesn’t have to wreck your finances. Even when dealing with complicated debt situations, there’s always a path forward.
Remember these key points:
- Know which debts count as marital vs. separate
- Understand how Wisconsin divides marital debt
- Protect your credit early in the process
- Consider negotiation before heading to court
- Get professional legal help to protect your interests
Ready to discuss your situation? Our team at Vanden Heuvel & Dineen, S.C. helps Wisconsin residents navigate divorce and debt division every day. Call us or visit our website to schedule a consultation.
For more information, check out these resources:
Wisconsin State Bar: www.wisbar.org
Wisconsin Court System: wicourts.gov
Annual Credit Report: www.annualcreditreport.com
