The attorneys at Plog & Stein, P.C. help many Denver area family law clients come to grips with the concept of what constitutes “marital debt.” Ironically, when looking through the statutory section regarding divorce in Colorado, C.R.S. Title 14, Article 10, or the Uniform Dissolution of Marriage Act, one will find that there is no specific “debt” section. There is a section set aside for just about every other facet of a custody or divorce case, just not one for debt.
Without explanation, those lay people brave enough to try to figure out divorce statute and the meaning of “debt” may be left scratching their heads. In our divorce practice, we view debt almost as negative property in need of division. Setting that aside, definition is also needed. Courts generally view marital debt as debt incurred during the course of the marriage.
However, not all debt incurred during the course of the marriage is marital or subject to division. To understand what marital debt is requires a Colorado litigant to also understand what marital debt is not. Debt incurred prior to the marriage is non-marital or pre-marital debt. The debt a party has prior to the marriage remains his or her separate debt. This can include credit cards, student loans, a mortgage on a house, or any other pre-marital obligation. These debts are not divided by the court as part of the divorce process, though they can be viewed potentially as an economic circumstance when it comes to figuring out other aspects of a case, such as alimony or property.
Though pre-marital student loan debt is non-marital, there is an argument that student loans incurred during the course of the marriage are marital and should be divided. When working out a settlement agreement, or fighting in the courtroom, our general position is that student loans should be considered separate debt of the party incurring them. The benefit of the education gained will last a lifetime and well beyond the time period after the divorce in which financial entanglements may continue. On the flip side, one could argue that the other party derives a benefit from the student loans, such as more child support, based on more income, based on the education obtained via the student loan incurred during the marriage.
Another common misconception about marital debt is that if the debt is not titled jointly, it is non-marital. This analysis is generally wrong. Presuming that the individually titled debt was incurred for marital purposes, such as food, clothing, shelter, the kids, etc., the debt is marital, whether titled jointly or not. We see many families in which all the debt is in one party’s name due to him or her having better credit. It would be grossly unfair to stick that person with all the debt incurred during the course of the marriage solely because he or she was able to obtain the credit. Most Denver area courts ascribe to this theory as well.
Going back to the issue of debt being incurred for marital expenses, it is not uncommon for someone to come into our office listing a whole array of debt incurred by his or her spouse and questioning where in the heck the debt came from. For example, an attorney might be faced with a situation in which a family has $10,000 per month in income, $7,000 per month in living expenses, and $50,000 in credit card debt incurred by one spouse. This raises questions and eyebrows. With a positive cash flow of $3,000 per month, how on earth can there be $50,000 in debt? In such instances, our attorneys will attempt to do a thorough analysis of the debt in terms of figuring out what it was incurred for and when. We often say that if the debt was incurred for diamonds and furs, or for separate trips to Vegas, it should not be considered part of the marital mix. A court would likely find that debt to be incurred for selfish endeavors and to be the sole problem of the person racking it up.
Other aspects of debt in a divorce case tie into certain property. A general rule of thumb is that the person keeping a piece of property, such as a car with debt or a house with a mortgage, will be solely responsible for that debt. This makes sense, as with each payment made, the value of the property (in theory and pre-2008 economic crash) goes up. It would also be foolish to leave the other party responsible for this debt. In these instances, the debt associated with the property is not factored into the mixing and matching of debts and assets. Though the debt would not be factored into the property/debt division analysis, any equity in the property would be.
Another common question regarding debt in a Colorado divorce relates to the time period between separation and the final entry of the divorce decree. Often times, people assume that any debt accrued after separation is the problem of each party. This is not always the case. Though some courts may follow this theory, most will look at all the facts and circumstances. Courts have the ability to divide all marital debt accrued up to the time the divorce is final. In reality, one party may be forced to incur debt until such time as a temporary child support or maintenance order is entered. In other instances, the party paying the child support or maintenance may have to incur debt to meet other marital obligations or just to survive.
Just as with property, debt is generally divided equally. Sometimes it is divided disproportionately, depending on the parties’ financial circumstances. Just as with property, the general idea is to mix and match the debt (and the property) such that both sides are left with roughly equal amounts of property and debt. It would also behoove both sides to try to take on as much individually titled debt as possible, so as to minimize the risk of relying on your spouse (who is already likely not thrilled with you) to pay debt in your name.
Marital debt is a significant aspect of property division is many Denver area divorces. At Plog & Stein, our attorneys sometimes see cases in which there is more debt than property to be divided. Sad, but true. As divorce orders or agreements regarding debt are generally not dischargeable in a bankruptcy, it is important to see debt allocated fairly.