How is debt divided in a divorce?
In almost every single case I have (at least, in the cases that I have where the parties have a significant amount of debt), my client tells me that she won’t take any portion of “his” debt. While I understand – I mean, I don’t want to have to pay off any extra credit card debt, either – that’s really not generally a very reasonable position to take.
How is debt divided in a divorce?
In a divorce, the assets AND LIABILITES are divided in equitable distribution. So, along with half the equity in the home and half the retirement incurred during the marriage, typically you also take away half of the debt.
It’s not automatically “half the debt” any more than it is “half the equity in the house,” though. It’s half of whatever was incurred during the marriage. Typically, whatever you incurred prior to the marriage or after separation is yours (or his) separately.
But the debt is in his name!
Property is marital (or separate) based on how it is classified. If it was earned during the marriage, it’s marital – regardless of title.
If your house was deeded in his sole name, that wouldn’t mean that you don’t have an interest in it. If a car was purchased in the name of one or the other of you, that doesn’t mean that the other spouse doesn’t have an interest. If your retirement accounts are in one spouse’s name alone, that doesn’t mean that the account is that spouse’s sole and separate property.
It works the same with debt. Even if the debt was incurred in his name, if it was incurred during the marriage you will likely have some responsibility for it in divorce.
Does it matter what the debt was spent on?
Yes. Though the debt will be presumed to be marital, if it was incurred during the marriage, if it was spent for one party’s sole benefit there could potentially be an argument that they should be responsible for it.
Of course, in plenty of marriages, things are purchased for one party’s sole benefit. That doesn’t necessarily mean that it’s not a marital expense. It’s not like a judge – if your case were to go to court – would look through each item and say, “Well, makeup, that’s her expense,” and then, “Well, car repair, that’s obviously his expense.”
Part of being a married couple means taking care of each other, and spending money on each other’s interests, hobbies, and needs. I once had a case where the parties spent tens of thousands of dollars on remote control race cars for the husband. It was his hobby. Obviously, he was a pretty serious enthusiast. Just like some other husbands hunt or fish or work on cars, there can be unorthodox hobbies, too. None of that automatically means that an expense belongs solely to one spouse.
There are exceptions, though. To the extent that he’s using marital money to, say, wine and dine his mistress – we could probably argue that be counted as separate, even if it happened during the marriage. We’d have to prove it, though (and the burden of proof is on us, since the debt is automatically presumed to be marital), so that’s not necessarily an easy thing to do.
Additionally, to the extent that there’s a drug and alcohol habit or other spending addiction (gambling, etc) that has caused one spouse to liquidate marital assets and cause a lot of debt, that could be attributed to one party or the other. Again, that’s something we’d have to prove, but it’s possible that we could do so.
But I can’t afford to take any of the debt!
No, I get it. Divorce itself is expensive, and it’s also difficult to live post-divorce. Equitably, I think it’s clear that if the debt was incurred during the marriage, it’s divided in the divorce. Still, it may be possible to negotiate something different than what the court would likely award. If you were to reduce, for example, your interest in the marital residence, reduce the amount of spousal support you receive (assuming you’re eligible) or take a lesser share of the retirement, he may be willing to take on all of the debt. It’s a negotiation, like anything else, so there’s definitely some freedom there to negotiate.
I get it. It’s scary to divide things AND take on debt. But, if there IS debt to divide, chances are good that you’ll walk away with a portion of it, even if the debt is in the sole name of one party or the other.
Just like you’d expect a share of the things that have value, you’ll have to take a share of the things that have a cost as well.
Is there anything I can do to minimize the debt?
Of course. A lot of women who I meet with hear this, and then decide to take some time using marital money to try to pay down debt before they separate or take further steps to end the marriage. It may be easier to do this with marital funds than it is to do it with separate funds later on, even if it delays progress.
Some parties choose, instead, to liquidate an asset – say, sell the home – and use a portion of the proceeds to pay down the debt. Sure, you may get less liquid cash that way, but it may be worth it to avoid the difficulties that come from a monthly payment that you can scarcely afford.
It’s never a bad idea to talk to a financial planner about options, either. If you’re worried about your debt, talk to someone and come up with a plan for how to address it, either before or after you separate.
If you’re thinking about bankruptcy, it’s a good idea to talk to someone about that, too. A good family law attorney can help point you in the right direction.
For more information or to talk to an attorney bout your situation, including your credit card debt, give our office a call at 757-425-5200.