Dividing Debt In Divorce

Sometimes a person involved in a divorce case may find themselves arguing for a larger share assets but a much lesser share of debts!

Two people who are separating can divide property any way they want. Without an agreement, our legislature provided us with directions to be found in the South Carolina Equitable Distribution statute.  We are told that assets acquired during the marriage as well as “…any other existing debts incurred by the parties or either of them during the course of the marriage” (emphasis added) are considered part of the marital estate. Clearly both assets and debts are subject to equitable division, but equitable means fair, not 50-50.

For example, what if one person acquires a significant debt during the marriage resulting from a failed business venture? How fair is it to apportion 50% this debt to the other person? The Equitable Distribution statute says that we must also look to the “contribution of each spouse to the acquisition, preservation, depreciation, or appreciation in value of the marital property…”. A person who acquired a debt may be assigned a larger share of the debt, but still the innocent party may not avoid full responsibility.

…when a debt is proven to have accrued before the commencement of marital litigation, the burden of proving the debt is non-marital rests on the party who makes such an assertion… to prove the debts were not incurred for the joint benefit of the parties.

Schultze v. Schultze, 403 S.C. 1, 8, 741 S.E.2d 593, 597 (Ct. App. 2013)

If a person starts a business, takes on a debt, and then the business fails, was the debt “incurred for the joint benefit of the parties”. Without strong factual evidence of a person’s misdeeds (alcoholism, substance abuse, criminality, negligence in performing his duties), a failed business risks being seen as a not so notable. After all, businesses fail all the time, for lots of reasons. In many ways it is more common to see a small business fail than succeed.

When two people marry, our laws regard them as having formed a business as well as a family. Complete avoidance of responsibility for marital debt will be difficult in most situations without very strong evidence, perhaps akin to the innocent spouse exception for taxpayers.

Dealing with money issues in a divorce can often be just as stressful for people as the child related issues. However, people ultimately find that it is rarely worth the money and stress to have a costly fight over assets and debts. Dividing Debt In Divorce does not have to cost more than the debt at issue! The sooner financial information is exchanged and reasonable negotiations are begun (or mediation scheduled), all the better for the preservation of family resources and the emotional health of all involved.

 

 

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