When a couple is getting a divorce, there are many things that have to be decided and property that has to be allocated between the spouses. However, the issue that really surprises a lot of couples is what happens to the debt. There are many different types of debt and the way that this debt is treated during the divorce depends upon whether the debt was jointly accumulated during the marriage, whether it was incurred prior to the marriage, and whether there are any issues of fraud or wrongful conduct in the amassing of the debt.
Marital Debt
This is the most common type of debt. Typically, it is debt that was accumulated during the marriage, including the mortgage on a home, loans on the vehicles, and credit card balances. When a divorce is contested and the judge is making the determination about the distribution of the assets and the assignment of the debts, there usually is a presumption that both are going to be divided evenly. It can be divided through an allocation of assets with associated debt, such as each party getting one of the family vehicles and assuming payments on the loans. If there is a disparity in the value of the property, there can be distribution of additional property to make it equitable. If the parties cannot agree on this, the property can be sold, the debts satisfied, and the additional funds distributed to the spouses.
Non-Marital Debt
The general rule is that the parties keep the debt that they brought into the marriage, unless there has been a very definitive action on the part of the other spouse to assume responsibility for the debt. The most common circumstance in which one party will assume the debt of the other is when one party comes into the marriage with a mortgaged residence. There are complications to this analysis, particularly if there was growth of the debt during the marriage. Often, the court performs an evaluation of the value of the property at the time of the divorce, along with an assessment of the value and the debt at the time of the marriage. It is important for the parties to present evidence about this, as well as any efforts to improve the value of the property during the course of the marriage.
In addition, there is debt that may have been accumulated during the marriage where one spouse took sole responsibility for the debt. This type of agreement typically has to be memorialized in writing in order for the court to make the unusual decision to exclude this from the distribution analysis.
Situations Involving Fraud or Other Wrongdoing
There are times when one party takes steps to accumulate debt knowing that a divorce is likely. This may include going on a spending spree and buying personal property that is not going to benefit the other spouse. In addition, a party may go on a lavish vacation with ten of his or her closest friends and pick up all of the expenses. Regardless of the nature of the expenditures, the court will analyze the circumstances surrounding the accumulation of the debt. The court likely will penalize harshly a party who appeared to take deliberate actions to burden his spouse with additional debt.
There also are times when one spouse will take actions to try to hide assets by moving money out of accounts or selling assets. There may be attempts to create the appearance of debt in order to alter the balance of the distribution. It is very important to retain experienced legal counsel who will be able to reveal the true state of the couple’s finances and the value of the assets as well as the extent of the valid debt.
During the dissolution of the marriage, it is crucial to get the most favorable allocation of debt possible in order to start a new life with minimal financial burdens. The Palm Beach Divorce Lawyers at the Law Offices of James S. Cunha, P.A. are committed to providing the best possible representation for our clients, including a thorough review of financials in order to ensure that our client gets the results that he or she deserves. We combine experienced analysis with tenacious advocacy for the benefit of our clients. Call our West Palm Beach office at (561) 429-3924 or send an email to [email protected] to schedule a confidential consultation.
