DIVISION OF DEBTS

How is debt incurred during the marriage separated or allocated during a divorce? For example, if credit cards are in only one spouse's name, are such credit card debts incurred during the marriage also the responsibility of the other spouse?

Liabilities (debts) incurred during the marriage must be considered from two perspectives: (1) within the marriage, between husband and wife, and (2) outside the marriage, between the creditor and debtor. Between spouses, debt incurred during the marriage, like property acquired, is subject to division by equitable principles such as who has the means and ability to pay the debt and for whose benefit the debt was incurred. It is important to note that equitable principles will apply to the division of marital debt regardless of whose name appears on the credit card or who signed the promissory note. The apportionment between spouses of any existing debts is an integral part of the financial resolution of a divorce and may be achieved by written agreement or pursuant to a court order.

The second relationship—between the creditor and the debtor—is not affected by the terms of a divorce decree or by any agreement between the spouses as to the division of debt. If your name is listed on the debt, then you will continue to be liable for the debt from your creditor's perspective, regardless of how your divorce decree or agreement allocates responsibility. For example, if, during your divorce, your spouse assumes responsibility for certain debts incurred either solely in your name or jointly, and your spouse later fails to make the required payments, you are and will remain liable to your creditor for this debt. Even if your settlement agreement stipulates that your spouse is responsible for paying the debt, the settlement agreement will not provide you with a defense against your creditors. Your protection in these circumstances would be to take action against your ex-spouse for enforcement of her or his obligations.

Additionally, you may include a provision in a settlement agreement that requires your spouse to indemnify you in the event of her or his failure to pay a debt and requires such debts to be paid by your ex-spouse's estate. You may also include a provision that designates you as the beneficiary of a sufficient amount of life insurance to pay off the debts. You may also include a provision in a settlement agreement that requires your spouse to indemnify you in the event of her or his failure to file tax returns or pay taxes or in the event that the tax returns contain incorrect or false information.

We have more debts than assets. If I just walk out and leave the marital home taking only my personal possessions, will I still be responsible for the bills?

You may possibly still be responsible. With respect to obligations where you are the sole or a joint debtor, such as jointly held utility bills, abandoning the martial home will not terminate or otherwise affect your liability to creditors. Between you and your spouse, until your marriage is legally ended, debts incurred by either of you are subject to apportionment between you and your spouse along equitable principles either as part of a court-ordered property distribution or pursuant to a written agreement.

May I become liable for the pre-martial debts of my spouse?

While it may seem unfair, it is possible to have your property become subject to your spouse's unpaid premarital debts. In general, you are not liable for your spouse's premarital debts, unless you have agreed to assume the obligation. However, if you and your spouse jointly own property, then you may be indirectly liable for your spouse's premarital debt. For example, suppose your spouse has debts which have remained unpaid at the time of marriage and after marrying, you and your spouse purchase a house which is jointly-owned. The creditor for your spouse's premarital debts can sue your spouse and, upon obtaining a judgment against your spouse, may convert that judgment to a lien with respect to your jointly owned property. As such, the existence of premarital debts may have a significant impact upon the divorce or separation negotiation process.