What Happens to Debt In A Divorce?
The division of marital debt is included in the property division of the judgment of divorce. In general, debts are treated as negative assets in valuing an overall property award and courts typically allocate them according to the same equitable principles that govern property division in general.
First, the court or the parties (the married couple getting divorced) have to determine whether the debt is separate or marital. Almost all debt incurred by either party during the marriage is considered marital debt. This is true regardless of which party incurred the debt and even in cases where the other party may not have agreed with or directly benefited from the debt. Separate debts fall within certain categories, for instance student loan debts are typically considered the sole responsibility of the party that received the education. Another category of separate debt relates to wrong doing, such as unreasonable gambling debts, debts incurred pursuing an affair and debts related to criminal activity. In addition, secured debts, such as a mortgage or car loan typically are the sole responsibility of the person that receives that property. Finally, debts that one party incurred before the marriage are typically considered separate as well.
The court must consider the needs of the parties, their earning abilities and other equitable concerns when dividing the marital debt between the parties. Case law has developed the following factors that a court should consider when dividing the same: the length of the marriage, the needs of the parties, needs of the children, earning power of the parties, source of the debt, contribution to acquisition of debt and the cause of the breakdown of the marriage. Frankly, despite all of that, the court will most likely divide marital debt in a roughly equal fashion between the parties. Only in the more extreme cases will the court burden one party with more than fifty-six (56%) percent of the unsecured debt.
Family law is one of the more deceptively complicated areas of law. A divorce will typically involve the single biggest financial transaction in which an individual will ever be involved. If you have questions regarding this area of the law, please schedule a consultation by contacting my assistant, Cathy, at (248) 608-4123 or through the web site.