Debt is challenging under the best of circumstances, but when you’re considering a legal separation or a divorce, it can be a particularly challenging extra layer of complication. On its face, dividing debt is the same as dividing assets – in most cases, we look to the source of the debt, classify it as either marital, separate, or hybrid, and then we divide it.
Most of the time, assets AND liabilities are divided somewhere close to 50/50 between the parties.
That’s a lot of information, so let me break it down for you.
In the case of a credit card, we’re going to look at the account itself. We’ll look at whose name it’s in (although, marital property is marital regardless of title – so it doesn’t matter that it’s just his card or just your card, though it is a relevant piece of information), when the debt was incurred (before the marriage, during the marriage, or after separation), and what the money was spent on.
In equitable distribution – the process by which we divide the assets and liabilities between the parties during the divorce – we classify property.
Anything that you earned, purchased or acquired prior to the marriage, or anything that you were either given or inherited from someone other than your spouse, is separate property. Likewise, when it comes to credit card debt, any debt that you incurred before the wedding is going to be the separate property of whoever incurred it.
Anything that you earned, purchased, or acquired DURING the marriage is going to be marital property. So, if things were charged to the credit card during the marriage, we’re going to start off assuming that it’s probably marital. More on this in a minute, though.
Anything that is a combination – part marital, and part separate – is hybrid. So, in the case of a credit card, it could be that you brought a certain amount of debt into the marriage, and then you added on debt from during the marriage. It could be a part marital/part separate hybrid liability, depending on the specific information that we have. This may be less likely, unless your balance has just increased, because, theoretically at least, you’re paying off some of the balance each month and chipping away at it – but it’s still a possibility that it could be a hybrid liability.
Does it matter how the money was spent?
Yes, it does. We’ll start out assuming that debt is marital, but we’ll look at the specific credit card statements, too, especially in a case where there’s an allegation that something more sinister is going on.
Just because there’s debt associated with one party (or both parties) doesn’t automatically mean there’s a problem. I mean, things are tough right now! Gas is so expensive, housing costs of skyrocketed, and inflation is making a trip to the grocery store eye-wateringly expensive. Debt is not a sign of moral failure, and we don’t treat it as such.
If debt was incurred during the marriage for a marital purpose, it’ll be handled as marital property.
Where it’s possible that we could argue that one party should take more of the debt than the other is in cases where there’s waste going on – like, one party is just making ridiculously big expenditures that aren’t jointly sanctioned – where the money is going towards funding an addiction, or where the money is going towards pursuing an affair. It’s possible that there could be other situations, too, where we’d allocate debt more or less to one party than the other, but those are the ones that I’ve personally seen.
Like I said, the court will first assume the debt is marital, but if you’re making an argument that your spouse should take most (or all) of the debt, it’ll be up to you to prove your point to the satisfaction of the judge. The normal order is to divide debt 50/50.
I don’t earn 50% of the income! Why would I take 50% of the debt? That seems crazy!
Dividing debt isn’t the same as determining support. In equitable distribution, we divide all the assets (like real property, retirement accounts, bank accounts, etc) and divide them, usually fairly close to 50/50.
The liabilities are handled the same way. Why should you get 50% of, say, the retirement accounts, but not pick up 50% of the debt accrued during the marriage? (I mean, I can think of a lot of reasons why, but I’m explaining the way the law views it.) It’s all divided.
There’s no rule that it HAS to be divided 50/50; in equitable distribution (unlike community property), there’s not a 50/50 assumption. But, practically speaking, something fairly close to 50/50 is what we see in the vast majority of cases anyway.
If credit card debt (or, really, any other kind of debt) is a major issue, it’s a good idea to start talking to an attorney now to see whether you can come up with a plan for how to address it.