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Distribution of Debts in a Divorce

On Behalf of | Nov 28, 2014 | Divorce |

Division of Debts in Divorce – Overview (C)Bruce Clement

One important task for the court in a divorce is to divide the responsibility for paying debts between the parties. The basic rule is that responsibility is equal, and that debt should be divided equally. However, divorce court is a “court of equity”, and the judge can actually divide marital debts in any way the judge feels is fair. For more information on how the court divides assets and debts in a divorce, see my Blog on Distribution of Assets and Debts.

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Rule Number One – Equal Division

All things being equal, the parties should divide the responsibility for marital debts equally. If both parties have equal income and financial resources, the debts will probably be divided 50 – 50 by the court. This can be done in many ways. For example, if the house has a negative equity of $10,000 and the parties also have credit card debts of $10,000, the court could (1) provide that each party will pay $5,000 of each; or (2) one party will get the house and pay the deficiency and the other will pay the consumer debt; or (3) any combination which equally distributes the burden.

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Rule Number Two – Separate (Non-Marital Debt)

In dividing debt, the court will normally first provide that the separate debt of either spouse will remain that spouse’s responsibility. Separate debt is whatever debt one spouse acquired before marriage, or after physical separation with the intent to divorce. If the husband came into the marriage with a Ford on which he owes $5000, the divorce decree will normally award the Ford to him, and assign the debt to him. If the wife buys furniture on credit after they separate, she’ll get the furniture and that debt. This gets more complicated when the parties have joint credit cards with balances for marital purchases when they separate, and after they separate they each buy items for individual use (dinners out, trips, etc.) The court will usually try to separate out the part of the debt that’s marital, and that which is separate.

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Rule Number Three – Ability to Pay

The court is a court of equity. Up to now, we’ve discussed the general rule of equal division. Sometimes equality is seen by the judge as unfair. For example, if a doctor husband earns $400,000 per year, and his housekeeper wife of 30 years is unemployed, the court is not going to divide marital debt equally. The doc is probably going to get all the debt (plus pay child support and spousal maintenance). In the division of debt, the amount assigned for payment to each party often reflects their proportionate earnings. If the husband earns 70% of total income, he may well be required to pay 70% of the marital debt. These are not rules that are carved in stone, but are given as examples to illustrate how the court often deals with the thorny issue of division of marital debt.

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Rule Number Four – Misbehavior

This is a rule that is discussed in appelate cases, but is actually not used by the court very often. If one spouse spends money in a manner that is harmful to marital finances or in violation of marital vows, the court has the authority to assign that debt entirely to the offending spouse. Debts that might fall into this category are: purchases of illegal drugs; payments to prostitutes; and debts racked up due to obsessive gambling.

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Rule Number Five – Responsibility to Creditors

The judge in a divorce can allocate responsibility to one spouse to pay a marital debt. However, the judge cannot change the legal responsibility of both spouses to pay the creditor. For example, if the mortgage on the house is a community debt, and the house and mortage are awarded in a divorce to the husband, and two years later he defaults on the mortgage, the lender can sue the husband, the wife, or both (usually they sue both). In that situation the wife can then sue the husband to recover anything she had to pay; but if the husband has no money or goes bankrupt the wife is probably out of luck.

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Disclaimer

This Legal Guide is provided for general educational purposes only. By using or participating in this site you agree and understand that there is no attorney client relationship between you and the attorney who wrote this Legal Guide, and no attorney-client confidentiality. The law changes frequently, and varies from jurisdiction to jurisdiction. The information provided in this Guide is general in nature and may not apply to the factual circumstances described in your question. The applicable law and the appropriate advice may be different in the State or States where the relevant facts occurred. For definitive legal advice you should independently consult an attorney who (1) is licensed to practice in the state which has jurisdiction; (2) has experience in the area of law you are asking about, and (3) has been retained as your attorney for representation or consultation. Your comment to this Legal Guide may be used for promotional or educational purposes. (C)Bruce Clement

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