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Wisconsin is a community property state. In a divorce, courts divide debt much the same way as they divide assets. The court starts from the presumption that a couple’s debt should be divided equally, then considers 13 factors that may alter that distribution. While the divorce decree applies to the relationship between the divorcing couple, it applies only to the relationship between the ex-spouses and does not protect one spouse if the other fails to satisfy a debt or declares bankruptcy. Understanding how debt is classified and how to protect yourself in the event of an unpaid debt is key to protecting your financial future when dividing debt in a Wisconsin divorce.
Wisconsin is a community property state. A couple’s assets and debts are presumed to be marital property and are divided equitably in a divorce, regardless of whose name is on them. Assets owned and debt incurred by one spouse before the marriage are also considered in the divorce property division. While most debt is presumed to be marital property, that presumption can be rebutted if a spouse can show it was not used for the benefit of the marriage. Certain gifts and inheritances are exceptions and generally are not considered marital property.
Under Wis. Stat. §767.61, Wisconsin law treats the marital estate as a combined pool of assets and debts that are generally divided equally. However, the court may alter this distribution when dividing debt in a Wisconsin divorce based on the following factors:
(a) The length of the marriage.
(b) The property brought to the marriage by each party.
(c) Whether one of the parties has substantial assets not subject to division by the court.
(d) The contribution of each party to the marriage, giving appropriate economic value to each party’s contribution in homemaking and child care services.
(e) The age and physical and emotional health of the parties.
(f) The contribution by one party to the education, training or increased earning power of the other.
(g) The earning capacity of each party, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children and the time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage.
(h) The desirability of awarding the family home or the right to live therein for a reasonable period to the party having physical placement for the greater period of time.
(i) The amount and duration of an order under s. 767.56 granting maintenance payments to either party, any order for periodic family support payments under s. 767.531, 2019 stats., and whether the property division is in lieu of such payments.
(j) Other economic circumstances of each party, including pension benefits, vested or unvested, and future interests.
(k) The tax consequences to each party.
(L) Any written agreement made by the parties before or during the marriage concerning any arrangement for property distribution; such agreements shall be binding upon the court except that no such agreement shall be binding where the terms of the agreement are inequitable as to either party. The court shall presume any such agreement to be equitable as to both parties.
(m) Such other factors as the court may in each individual case determine to be relevant.
Mortgage debts are assigned to the spouse who keeps the marital home, but the home typically must be refinanced in the name of the single homeowner. Car loans are generally assigned to the spouse who keeps the vehicle. Credit card debt may be divided equally or assigned to the spouse who benefited from a particular expenditure. Medical debt is usually treated as a joint debt, unless it was incurred for an elective procedure. Student loans incurred before the marriage are generally treated as individual property, but Wisconsin courts can treat them as marital property when the facts support it.
A spouse can be allocated a share of debt they did not know about simply because it was incurred during the marriage. However, the presumption that all debt incurred during the marriage is marital property can be rebutted. Debt may be treated as individual property if a spouse can show it was not used for the benefit of the marriage, such as if it was tied to gambling, an affair, or financial misconduct.
Once a divorce is final, the divorce decree governs the relationship between the two ex-spouses. However, deciding which spouse must pay a debt does not affect a creditor’s collection rights. If your name is on a joint account, a car loan, a mortgage, or another debt, creditors can pursue you for your ex-spouse’s unpaid bills, even if the divorce decree ordered your spouse to pay them.
Equal division applies to the overall estate, not each debt. Premarital debts can be considered in a divorce, and debt in one spouse’s name is not automatically excluded.
The State of Wisconsin Department of Financial Institutions recommends contacting creditors in writing to ask that they close joint accounts or accounts where your ex-spouse is an authorized user to avoid being responsible for charges to a joint account incurred solely by your ex-spouse that were incurred after the divorce is finalized.
Marital property assigned to each spouse in a divorce remains available to satisfy marital debts. Under Wis. Stat. §766.55(2m), the nonincurring spouse cannot use their ex-spouse’s future income to satisfy a debt. However, this protection does not apply to joint borrowers or the spouse who incurred the debt.
Protect yourself when dividing debt in a Wisconsin divorce by closing joint accounts, removing your ex-spouse as an authorized signer, refinancing a mortgage and car loans into one name only. Consider including a hold harmless clause in your divorce decree that allows you to seek reimbursement from your ex-spouse if you pay debts allocated to them. Including a firm deadline for refinancing the mortgage and car loans can void one of the most common sources of disputes.
If your ex-spouse fails to pay a debt they were ordered to pay, you may be responsible if a creditor pursues you for collection. You can return to family court and seek reimbursement.
You should also beware of how bankruptcy can affect divorce. If your ex-spouse files for bankruptcy, a creditor may be able to pursue you to recover the debt.
Dividing debt in a Wisconsin divorce on paper is only half the story. To protect yourself from creditors and in the event of bankruptcy, your divorce decree should include hold harmless provisions, refinancing deadlines, and specific language allocating debt.
The family law attorneys at Muter Law Office know how to negotiate and draft divorce judgments that protect our clients and their financial future well after the divorce is finalized. Contact us today to schedule an appointment to discuss how we can help you handle property division during divorce. We will answer your questions, explain your rights, and help you take the next steps with confidence.
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