Division of Debts Upon Divorce
National Legal Research Group, Inc.)
As a matter of law, secured marital debts must be offset against the value of the asset they encumber. E.g., Ritter v. Ritter, 690 So. 2d 1372 (Fla. Dist. Ct. App. 1997) (error not to subtract loans against insurance policy from its cash surrender value).
If an unsecured obligation is classified as marital, it must be considered in dividing the marital estate. It is difficult to find case law stating exactly how debts must be considered. The general practice is to assume that marital liabilities offset marital debts that is, to divide the marital estate so that each party receives an equitable share of the net balance of the estate.
Because the courts are looking primarily to the final net balance, there is clearly no requirement that individual unsecured debts be allocated in any specific manner. Debts incurred to support a business are almost always awarded to the spouse who receives the business, e.g., Costa v. Costa, 57 Conn. App. 165, 752 A.2d 1106 (2000) (awarding business debts to husband, who received business assets, even though business was run in wife’s name); debts from a family member are almost always awarded to the spouse with the family relationship, e.g., Lykins v. Lykins, 34 S.W.3d 816 (Ky. Ct. App. 2000) (proper to award husband debt from his brother); and questionably incurred (but still marital) debts are often awarded to the spouse who incurred them. E.g., Lohstreter v. Lohstreter, 574 N.W.2d 790 (N.D. 1998) (error to make equal division of debts incurred by husband; some of the debts were for alcoholism treatment, and others were excessive living expenses). Otherwise, the most common practice is probably to allocate the debts in general proportion to the parties’ ability to pay them. Thus, the party with the most income generally receives most of the debts. See Kocsis v. Kocsis, 28 S.W.3d 505 (Mo. Ct. App. 2000) (where husband was employed and wife was not, proper to burden husband with larger share of marital debt); Schmaltz v. Schmaltz, 586 N.W.2d 852 (N.D. 1998) (proper to award most of the debts to the wife, whose income was substantially greater than that of the husband).
Again, these rules normally determine only which spouse receives the actual debts. The final net award of marital property to each spouse still depends upon all of the facts of the case, analyzed in light of the relevant equitable distribution factors. For example, if an equal division is equitable, and the husband is the only spouse with significant income, he will probably receive most or all of the marital debts, but the assets awarded to the wife will be reduced so that the overall net division is equal. Likewise, the rule that marital business debts are awarded to the spouse who runs the business is most emphatically no excuse for failing to consider the debts in determining the net value of the parties’ respective property awards. In re Marriage of Holden, 81 S.W.3d 217, 224 (Mo. Ct. App. 2002).
Because the division must be based upon net value, a court which assigns disproportionate debt to one spouse must explain why the overall net award to each spouse is equitable. The recent trend is to reverse greatly unequal allocations of debt without any supporting basis. See Bernard v. Bernard, 730 A.2d 663 (D.C. 1999) (error not to expressly consider $50,000 tax debt; "to assume that [the trial judge] considered it, as [the wife] urges us to do, without any indication of how, is tantamount to saying he could ignore it"); McCleary v. McCleary, 2002 WL 31875127, at *5 (Md. 2002) (trial court summarily noted the existence of a substantial amount of marital debt, but it failed to expressly consider that $7,812,111 of the debt was owed by the husband, while only $714,400 was owed by the wife; "[t]he fact that appellant’s debt was greater than appellee’s by at least $7 million warranted discussion in the court’s marital property analysis") (published opinion not yet released in A.2d).
Information provided by:
National Legal Research Group, Inc.
Recommend Page | Print Page