Summary in Divorce
Just as a divorcing couple must divide what they own, so they must divide what they owe. The piper must be paid.
Divorcing couples deal with debt in one of three ways: One, they pay it all off; two, they service it jointly; or three, they divide it and each take a share. While option one may be difficult, it makes for a clean break and fresh start without friction between former spouses. Options two and three not only make for continued contact, but also put one spouse’s credit at risk. Credit card companies are not bound by a divorcing couple’s property agreement. In all jurisdictions, joint credit card debt is jointly owned because each spouse has joint and several liability for the obligation. Even when one spouse agrees to take on a debt, if it has the other spouse’s name on it -- or in some cases, even it does not -- the creditor has the right to come after both spouses for payment. When debt cannot be paid off, it must be divided. The classification of debt, like the classification of assets, is a preliminary to their distribution. Most jurisdictions hold that the debts must to allocated between the spouses. In distribution, courts consider who incurred the debt and who benefited from it; which spouse is better position to pay it off; and the debt’s relation to a particular asset. As a rule, secured marital debts must be offset by the value of the asset they encumber. Unsecured marital debt is allocated so that each spouse receives an equitable share of the net balance of the estate. Generally, only marital debt is divided, which means any debt incurred for the joint benefit of the parties during the marriage. Joint benefit does not necessarily mean joint use. Debts incurred in the hope of creating marital property are marital. Not all debts incurred during a marriage, however, are marital. Debt incurred through gambling, high living and reckless investment may be not be a joint responsibility, even when the obligation occurred during the marriage. Debt caused by dissipation of assets is not marital. The contour lines of debt division depend upon whether the divorcing couple live in a community property or equitable division jurisdiction. In a community property state, a spouse is responsible for debts incurred during the marriage and it does not matter whose name is on them. In an equitable distribution state, debts in one spouse’s name are his or hers alone, but a spouse is responsible for debts taken in his or her name, even those without his or her consent.
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