Although divorce encompasses many different aspects of household dissolution, the identification and disposition of marital debt remains an ambiguous and complex matter. Debt is a common element in nearly every relationship, and courts have been addressing its presence for decades. However, only since the late 20th century have statutory provisions been implemented in most states. These laws are general in nature, as the specifics vary for each marriage.
The most widely held premise regarding marital debt is that it is debt incurred during the course of the marriage and/or for a marital purpose. In 2008, Tennessee's Court of Appeals (one of the few states to attempt a definition) used this approach, omitting the marital purpose. Typically, debts that are incurred prior to marriage or postseparation are the responsibilities of the debtor and are labeled nonmarital debt.
Differences in States
Because each state has different laws regarding dissolution of marriage, each method of identifying and dealing with debts arising from marriage varies, depending on the state of residence. Most states follow the perspective of Kentucky's Supreme Court, which considers such factors as purpose of the debt, who was involved in the creation of the debt and who benefited. Following this logic, for example, student loans are typically assigned to the student, as he will benefit from the education, provided all the funds were used for that purpose. Some states, such as Florida, differ by saying that no matter who benefits, the student loan will be divided equitably as with any other marital debt.
The importance of knowing a state's stance on marital debt becomes clear when you consider that nearly every facet of its adjudication in at the court's discretion. Once a debt is determined to be marital, the assignment of that debt is still a court's decision based on what is "equitable," which is different than "equal." When determining an "equitable" division of debt, the court considers the income of the parties, beneficiaries of the debt, the debt's involvement with assets and each party's participation in the creation of the debt.
A common misconception is that, once a debt is adjudicated to the opposite party, it never has to be addressed again. Consider a mortgage in both parties' names. Upon divorce, Party A is assigned the house and applicable debt. Party A goes in default with the bank, and the bank pursues both parties, as both names are still attached to the loan, giving little credence to the divorce decree. In such cases, the adversely affected party is only able to seek relief in the form of contempt motions in the divorce court.
Some preventative measures can be taken to avoid an erroneous assignment of debt. During the marriage, it is prudent to avoid comingling nonmarital debts with funds used for marital purposes. Excess student loan funds deposited into a joint account and used for marital household expenses make it difficult for a court to determine that only the student benefited from the debt. During divorce, an order or agreement containing language that requires the person assuming the debt to refinance into the sole name can prevent creditors from seeking out both parties should one party fail to make payments.