Though we talk a lot about division of the assets, we often spend a lot less time talking about division of debt. Even though dividing debt is always an important part of a divorce, it tends to take a backseat – not because it’s not important, but probably more because it’s a whole lot less fun to talk about.
Most families have some debt so I don’t want you to come into your appointment feeling embarrassed. That’s one not-so-fun part about working with lawyers, right? Sometimes we’re so darn smug! It can be hard to admit the things that are less-than-flattering or are otherwise more embarrassing – and the amount of debt that we carry is one of those things that we don’t like to lead off with. It almost feels like we’ve done something wrong, right?
But you haven’t. And you’re not alone. In fact, though your lawyer might not tell you this – and you may infer smugness from that silence – MOST of our clients have some debt to divide. In many cases, this takes the form of credit card debt. That’s probably the most common, universal debt that there is. In other cases, though, there can be things like home equity lines of credit, second mortgages, 401(k) loans, and other types of debt that are reflected in a divorce.
Everyone wants to talk about dividing the assets; after all, that’s what’s going to give you the tools you need to start over post-divorce, and that’s probably what you’re spending the most time thinking (and worrying) about. But there’s no question that, in most cases, dividing the debt is also part of the equation, and you’d be silly not to contemplate it, even if it’s no fun (or is downright stressful).
Just because you’re carrying some debt doesn’t mean you’ve done something wrong or that you’ve lived beyond your means or that you’re somehow financially un-smart. The world is tough, inflation is high, and life is complicated. This is not a moral failing. It’s not even a consideration in that sense, it’s just something that we have to resolve before your divorce can be finalized.
In general, in a divorce, we assume that the debt that was acquired during the marriage is marital debt, regardless of whose name the debt is under. Just like we don’t really care whether the house or a car or any other asset is in the name of only one spouse, we don’t really care that the debt was racked up under only one spouse’s name. If it was incurred during the marriage, it’s marital, and will be divided.
Debt, though, isn’t necessarily divided 50/50, like the marital share of the assets tends to be. In some cases, there is a certain amount of offset for the difference in income between the parties. If he earns more, for example, he’s fairly likely to take a larger portion of the debt, though there’s no specific statute that requires that this division be achieved by each spouse taking on pro rata (or proportional) shares according to their income.
If there’s something more nefarious going on – like he obtained a line of credit without telling you, or by forging your signature, or the debt exists for a non-marital purpose (like, the wining and dining of his mistress), then we have an argument to make that he should be responsible for that debt. The court’s default position will still be that this is marital debt, so we’d have to offer evidence, witnesses, and exhibits to convince the court that he should take the amount he is responsible for incurring – or, in the alternative, we’d have to get him to agree, in writing, to an appropriate division of the debt in a separation agreement. Those are the only two options: get an order by the judge or get a signed separation agreement in place with the specific terms you want to see reflected.
I also see cases where one spouse is saddled with more or less of the debt (or more or less of the assets in equitable distribution) because of their relative fault – in other words, their negative monetary contributions to the marriage. In the event that one spouse or the other has an issue, like an addiction to drugs or a gambling problem, and a great deal of marital money was used (ideally, without the other spouse’s awareness) to that end, we can argue that the addicted/gambling spouse bear responsibility for that debt.
Say, for example, that he liquidated a retirement account to cover his drug addiction or to fuel his gambling problem. That money is gone, of course, and there’s no retrieving it – but it’s possible that you could receive, for example, a larger share of the remaining retirement.
If he has used marital money to make a larger purchase, like a motorcycle or a boat, keep in mind that this isn’t quite the same as credit card debt. It’s not just a black hole; there’s an asset tied to it. Typically speaking, the debt goes with the asset – so, if he takes the motorcycle, he’ll also take the loan with it. You won’t be expected to split a loan for an asset that he takes away from the marriage or that you receive no benefit from. If, on the other hand, you were to sell the asset, you could use that to pay down (or pay off) the loan as well. I often see these kinds of purchases being made in the wake of a separation or divorce, and it often makes the other spouse furious, but in general this is a better kind of debt to have because we can simply hand it off to the other spouse. To the extent that there is equity, that could be divided, but you wouldn’t be responsible for the liability without taking ownership of the asset. And you could always agree to sell.
It’s not a guarantee; these things never are. But they are certainly things to be aware of in the event that debt is a major issue in your divorce. Though we do often see cases where debt is a major issue, we also occasionally have cases where debt is, essentially, the only issue. Don’t make the mistake of assuming that because there are no assets to divide that it’s not worth consulting with an attorney. Avoiding taking on too much of the debt is an important goal as well and, depending on the amount of debt that you have taken on during your marriage, it may also be critical to your happily ever after.