What to Expect When Divorcing: Evaluating and Talking About Debt

What to Expect When Divorcing

Many people facing a divorce believe that it is best to pay off all debts before filing the divorce paperwork. A much better idea is to speak with a family law attorney first so you will understand how the presence or absence of debt will affect your case.

For some, the absence of debt results in a higher spousal maintenance payment to the other party. This is because there is more money left over at the end of each month—and that is money that can go to the other party. If, instead, there are a number of credit cards, a car payment, a mortgage or two, etc. the monthly income will first go to satisfying these joint bills that were incurred during the marriage (“marital debt”).

When considering the amount of marital debt, generally the Court does not care which of the parties incurred the debt. Marital debt—any debt incurred during the marriage—is the responsibility of both parties. There are some exceptions that may provide relief, such as: debts incurred in preparation for or in anticipation of divorce, debts incurred for large expenditures immediately before divorce, debts incurred due to fraudulent or illegal activity by only one party or gambling debts secretly incurred by only one spouse. These exceptions are not as common as many would like and marital debt is often determined based on every debt combined that was incurred during the marriage. Student loans may be treated differently at times. Student loans that are incurred before a marriage and then partially paid off during the marriage are more often considered the debt of the student—not of the marriage. Student loans that were incurred during a marriage can be considered either way—a debt of the marriage since it was wholly incurred during the marriage OR because the education goes with the student when they leave the marriage, the student remains responsible for the debt.

Financial Help During DivorceIn the end, it often does not matter WHO incurred a debt or in who’s name the credit card is listed, etc. Marital debt is not determined by who’s name is on the debt—if it was incurred during the marriage by either party—it is marital debt until ruled otherwise. Whichever party has the economic means to pay a debt, could be ordered to pay the debt. Knowing this eventuality, attorney need to work with their Clients to develop a plan and strategy to handle the debt. Is there enough money to meet the monthly obligations of all the debts now that the couple is living in 2 separate homes? Who pays which debt and how much on each debt? Will someone walk away from a home, allow foreclosure—and is this by mutual agreement of the parties? Will a party file for bankruptcy? Does one or both care about their credit score?

Determining how the monthly obligations for the marital debt will be met are a priority for the Court—absent the parties agreeing to not pay certain debts. Particularly during Temporary Orders Hearings, Courts will most often not assign fault to whoever incurred a bill but will order it to be paid by one party based on the amount of that bill and the parties’ ability to pay the bill. Arguing to assign a bill based on fault and how that assignment might affect the overall marital assets and debts, is a good topic for discussion with an attorney. Done incorrectly, assigning a bill based on fault may not give someone the relief they believe is forthcoming. Failing to determine whether that bill is part of the overall debt or can be segregated from the marital debt, is the difference between paying half the debt and paying nothing. Talk to your attorney about the marital spreadsheet and whether the debt will or will not be included on the spreadsheet. That is a good way to understand the ramifications of assigning debt or segregating marital debt due to fault.