Gray Divorce and Debt

When it comes to divorce, everyone thinks first about the assets that need to be divided, whether it’s the home, other properties, cars, or bank accounts. But divorce also involves the division of the less-exciting aspects of the marital estate, the debt.

For a few couples nearing or in retirement, much of the debt has been paid off. Sometimes the home is free and clear of a mortgage, or at least very close. Credit card debt is paid monthly and both cars in the garage are free and clear.

But the concept of being debt-free by retirement is not a reality for most couples.

Those in the gray divorce demographic are generally in much more debt than their predecessors were at the age of retirement. According to one recent study, debt among 65-year-olds increased per capita by 48% from 2003 to 2015.

One of the largest contributors to indebtedness for those nearing retirement age is student loan debt. Many baby boomers are first-generation college graduates, but that means more loans were taken out. Also, many parents guarantee their children’s loans or even take them on altogether.

Another big contributor is the mortgage. With homes more expensive than ever and the trend of taking out a second mortgage to pay off other debts or make home improvements, sometimes the asset of the marital home has very little equity.

In a divorce, Arizona follows community property laws, which means that all assets and debts are equitable divided. This doesn’t mean equally, but it does mean that each spouse will pay his/her fair share.

Sometimes, courts will give more debt to one spouse in exchange for receiving extra property, or in lieu of spousal support payments that may be owed to the other. This can be a relief to the lower-income-earning spouse who may not have the capacity to take on half of the marital debt.

And debt isn’t all bad for the one retaining it. For them, there may be tax benefits, especially for mortgages and student loans. We strongly encourage all of our clients to consult a tax professional regarding these issues.

The big takeaway is that assets and debts need to be considered together when talking about the division of the marital estate. Having experts such as tax professionals and attorneys assist you through the process will avoid costly mistakes and headaches.

If you are at or are approaching retirement age and are considering divorce, and you would like to work with one of our experienced Attorneys, please call OWENS & PERKINS at (480) 994-8824 to schedule your free 30 minute consultation.