Your ex’s credit card bill may not be the first thought that crosses your mind when getting divorced, however you may be responsible for that bill and other debts incurred by your ex if they are found to be “marital debts”. Just like physical property obtained during your marriage, debt can be a marital asset that must be divided. Generally, marital property includes the things bought or accumulated during the marriage using funds earned during the marriage. So if you’ve been asking, “Am I responsible for my spouse’s debts?”, the answer depends on what the debt is for.
While all property acquired during a marriage is included in the estate, unless proven to fit a limited exclusion, the opposite assumption is made regarding debt. Debt incurred during the marriage is not part of the assets subject to equitable distribution until you or your ex prove the debt was incurred for the “joint benefit” of both parties.
How is marital debt accrued?
Debts and liabilities incurred during the marriage, including mortgage, credit card debt, student loans, and sometimes even business loans can fall under the term, marital debt. Marital debt can include debts in only one spouse’s name, and the fact that a debt has both spouses’ names on it does not mean the debt is considered marital by default. This is why understanding the concept of joint benefit is so important. For a debt to be considered marital it must be incurred during the marriage, meaning after your wedding and before separation, for the joint benefit of both spouses.
What is “Joint Benefit”?
The person claiming a debt was marital has the burden of proving a joint benefit existed. The relevant statute does not provide a definition for marital debt, and in the absence of clear guidelines, courts have come to varied conclusions that may seem confusing for you. The key to anticipating what a court may hold you responsible for is knowing and understanding “joint benefit”.
Joint benefit simply means the debt provides something of value to both spouses. This concept can be interpreted broadly. To be considered marital, the debt must be shown to actually have benefited both parties at some point in the past. A debt is not likely to be marital if there was an expectation of joint benefit that was never realized (See Warren v. Warren below). When you think “joint benefit”, think of a family car financed by an auto loan, funds obtained from a second mortgage for home improvements, or a weekend retreat for you and your husband charged to your credit card. These debts would be marital because they have been incurred to provide something of value to the family.
Debts that provide a joint benefit
To further clarify, let’s look at some real cases. In Glaspy v. Glaspy, business tax liens were considered marital because the profits of the business were used by the family during the marriage for family expenses. And in Godley v. Godley, the husband’s debt to his capital account for withdrawing funds was a marital debt because those funds were spent by the family during the marriage.
Debts that do not provide a joint benefit
On the other hand, in Comstock v. Comstock, the court concluded a line of credit the husband took out was not marital debt even though the funds were used to improve the home they shared because the wife had no knowledge of the debt’s existence or use. The court in Comstock v. Comstock also held that the husband’s credit card debt incurred for women, alcohol, and gambling did not provide a joint benefit either.
A note about future joint benefit
The expectation or hope of a future benefit when taking on debt is not enough. In the case of Warren v. Warren, a couple agreed that the wife would take on student loans in her name to obtain a college degree with the goal of increasing her income for the benefit of the family. The funds were used for school expenses, as well as living costs during her time in school. After school, the wife earned more in a better job for twenty months until getting divorced. The court made a point to emphasize that an expectation of joint benefit at the time a debt is incurred is not enough, there must be evidence that the marriage lasted long enough for the couple to “substantially enjoy benefits gained” from the debt.
Proving the debt was not for joint benefit
If your ex is claiming a joint benefit existed from a debt they incurred, then you are likely wondering how you can refute their claim. There are two main ways you can try andprove a debt did not provide a joint benefit: providing evidence that the debt had absolutely zero positive effect on you; or proving your spouse hide the debt from you. It is important to note that the line is not always clear, and the ultimate decision on whether a debt is marital rests with the court based on the evidence provided.
Zero positive effect
The types of debt that you can refute for having no positive effect on you include those incurred by your ex for marital affairs, reckless and selfish purchases, or hidden debts. For example, if your ex-spouse had an Amex Platinum card that she never shared with you that she used it for lavish weekend getaways with another man, the outstanding balance on that credit card provided no benefit to you or your marriage and therefore is separate debt to which you owe no responsibility.
These types of extravagant and salacious debts are easy to refute, however the smaller personal charges over time may prove more difficult. For example, while a trip to the nail salon or an expensive coffee might not benefit you directly, these expenses can be related to the professional or personal well-being of your wife sufficient to have some direct or indirect benefit to your marriage.
Debt you had no knowledge of
The other way to prove a joint benefit did not exist is to prove you had no knowledge of the debt or its use. However, this is also a gray area in which you may not be able to refute certain debts. Imagine your wife has been bringing home luxurious furniture and art that greatly exceeds her income level as well as your combined income, and you never speak up. This goes on for a year and totals one million dollars in rare décor. It is possible a court would determine you had condoned the debt and acknowledged a joint benefit by failing to ever inquire or oppose your wife’s new taste. Therefore, you very well may be on the hook for the debt. On the other hand, in Comstock v. Comstock, the wife did not have reason to question the husband’s normal actions of home improvement or any cause to suspect he had incurred a hidden debt for his projects. Therefore, the wife proved she had no knowledge of the debt’s existence or use, and it was not deemed to have provided a joint benefit.
Factors in dividing marital debt
We have discussed how marital debt is defined, but how is it divided? The process for dividing marital debt is similar to that for property. The easiest process for determining how debt is divided would be to create a separation agreement that addresses all marital debts. However, if the court does get involved the process begins with a characterization of all debts.
The court will classify each debt as marital, divisible, or separate based on when it was acquired, who acquired it, and how it was used. North Carolina is an equitable distribution state, meaning the court will divide your property as well as your debts in a way that is fair. If the debt is labeled “separate” it is excluded from division. For marital or divisible debts, the court considers several factors in deciding who gets what debt, including, but not limited to, the following:
- The length of the marriage
- The age and health of the spouses
- Income, property and liabilities
- Pension or retirement expectations
- Obligations for support from a previous marriage
- Each spouse’s contribution to marital property
- A spouse’s contribution to the education or career of the other spouse
- Tax consequences
- Character of the assets (whether liquid or non-liquid)
- Need for a custodial parent to remain in the marital home
