By Cara L. Boroda, Esq.
Van Oorschot Law Group PC
While the division of assets during a divorce causes acrimony because everyone wants more, the division of debt is quite the opposite. Like a hot potato, parties will throw accusations and theories against one another with the hope that they won’t be liable for the debt owing for his Botox, her breast augmentation, the clothes that were bought for date nights that never came to be, or the law degree earned during the marriage that never actually benefitted the community.
Unfortunately, the marital estate is liable for the debts incurred during the marriage and prior to separation. Sometimes, the community is also liable for a debt incurred before marriage, too. While there are other circumstances and rules that apply to the liability of debt, a few of the more common situations are as follows:
- A non-debtor’s spouse’s earnings are exempt from liability for the other spouse’s premarital debts: A spouse’s earnings (which does not include income from passive investments, gifts, etc.) is shielded for debts incurred by the other spouse before the marriage if the earnings of the non-debtor spouse are not commingled with the debtor spouses’ monies, nor held in an account in which the debtor spouse is able to access.
- Child and spousal support obligations from a prior marriage: A spouse’s child and/or spousal support obligation arising from a prior marriage is treated as a debt incurred before marriage. If, however, community property is applied to the support obligation at a time when the obligor spouse had separate income that could have been used to pay support, the community estate is entitled to a reimbursement from the spouse with the support obligation.
- Student loan debt: When one spouse works so that the other spouse is able to attend school or pursue training to increase their earning capacity, it is often intended that the community would derive a benefit from the education or additional training. However, if the parties divorce before the community enjoys this benefit, the spouse who incurred the student loan debt may be obligated to reimburse the community for money spent on the education as the community never received the benefit of presumptively increased income.
If you are considering marriage, part of the many topics that should be discussed should include existing debts or the desire to take on new debt such as educational debt. Indeed, it may be an uncomfortable conversation, but what is more uncomfortable is learning about the existence of your spouse’s debts during the marriage, and then learning that you may be on the hook for this debt in the event of a divorce.
Be cognizant of how money is being spent during the marriage; try to be a part of the management and control of the communal finances, and don’t leave it up to your partner to make financial decisions. Even if a spouse was uninvolved in the accumulation of the debt, the community may still be responsible, which may cause irreparable harm to a spouse and/or the community at the time of the divorce.