Splitting Liabilities and Dividing Debt in Divorce
Determining marital debts and dividing them equitably
Along with great wealth, a marriage can create costly debts. Some marriages end in divorce because of this fact. On the other hand, many people remain in unhappy marriages because they “can’t afford” to divorce. The prospect of taking on shared debt as an individual can be intimidating, especially if either party's credit has been destroyed. In Pennsylvania, a marital settlement agreement can help with dividing debt and any assets if it cannot be resolved prior to divorce.
Breakdown of dividing debt in divorce
When dividing debt in divorce via marital settlement agreement, consider the tone of communication post-divorce before taking on obligations that involve the other party. Ideally, couples should work to pay off debts prior to divorce to avoid the task of dividing them. When this is not possible, couples rely on the Courts to make the decisions.
It should be made clear that lenders do not recognize divorce court orders. Each party's credit is still at risk, regardless of which person took over the obligation of paying per the marital settlement agreement. For example, if it is established that the husband pays off a joint credit card and fails to make his payments, the credit of the wife may be adversely affected as well.
Equitable distribution in Pennsylvania
Instead of the 50/50 approach, Pennsylvania divides debt in divorce during equitable distribution. More weight and consideration is given to factors surrounding the existence of the debt, and whether or not it is marital. The Courts focus on preventing any one party from being saddled with excessive debt created for individual use before and during the marriage. Fault is not taken into consideration.
Factors considered by the Court can include:
- the length of the marriage;
- age, health and employability of the spouse;
- the contribution of one spouse to the education or training of the other,
- the extent to which the spouse's earning capacity was increased;
- which spouse is the custodian of the child(ren).
Particularly of interest to many couples is student debt. Like other debt, the timing is critical in determining if it is marital, which would create a liability for the other spouse. If a party acquired the education and loan prior to the marriage, it is still his or her sole liability. The other party may be held accountable for contributing to paying the loan if the parties were married during the education period. The marital estate was enhanced by the increased earning capacity of the student spouse.
Non-Payment and Repercussions
Most couples do not continue to communicate regularly about their debt after the divorce is finalized. It can be difficult to count on the other party to fulfill his or her obligations. Once a party becomes aware of late payments, there are remedies to get the other spouse to pay.
Because the non-paying party is in violation of an Order, one may petition the Court to hold that party in contempt. There can be sanctions against the non-paying spouse ranging in severity based upon the circumstances. Most Pennsylvania divorce settlement cases do not reach this level and are usually settled prior to any hearings or motions.
Our experienced team of divorce attorneys in Bucks County can assist in drafting or enforcing complex marital settlement agreements. If you have questions about splitting up liabilities, equitable distribution, or other domestic matters, call our office at (215) 942-2100.