By Mike Geary
Trial courts have enormous discretionary powers when it comes to dividing the debts and liabilities of the parties upon divorce.
There are no absolute rules. In most cases, though, the debt associated with a particular piece of property will be the responsibility of the party who receives that property.
Once the divorce has been filed, debts are usually to be paid by the party who incurred those debts. This is particularly true for debts incurred for ordinary and necessary living expenses.
This does not necessarily hold true when it comes to expenses attributable to the children of the marriage. You should be extremely cautious about incurring debts of any kind while a divorce is pending. If, for example, you learn that your spouse is going to initiate a divorce, you should not go on a credit card-fueled shopping spree unless you are prepared to pay that debt.
Generally, when a spouse agrees or is ordered to pay a particular debt as part of the property division, he or she will be required to indemnify and hold the other spouse and his or her property harmless from that debt. But a spouse’s indemnification of the other spouse is only as good as the paying spouse’s ability or intention to pay the debt assumed.
If a creditor later pursues collection of an unpaid debt that the other spouse has agreed to pay, usually the only remedy available to the spouse who was indemnified is to sue the non-paying spouse.
As a rule, third party creditors (such as credit card companies and banks) are not a party to divorce proceedings. Therefore, a court order or agreement made between the parties relating to the division and payment of debts and liabilities does not affect a creditor’s rights to pursue collection of the debt from both parties.
Let’s say both spouses sign a note for the purchase of an automobile. The fact that one spouse receives the car and the debt in the divorce does not protect the other spouse from that liability if the spouse fails to pay the car loan. Because both spouses legally obligated themselves to pay the loan, both spouses have “personal liability” for the car loan, regardless of who receives the debt in the property division.
If only one spouse executed the loan documents for the car, that spouse assumed the loan and defaulted on it, the non-signing spouse would not have personal liability and the creditor could not pursue the non-signing spouse personally for the debt. However, the creditor could attempt to collect the debt from non-exempt property received by the non-signing spouse as a part of the property division upon divorce.
This is a complex area of the law. It is important to discuss these issues with your attorney, including “primary cardholder” responsibility with respect to credit card liability.