November 20, 2014
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November 17, 2014
“It’s Not My Debt – Do I Have to Pay?”: Division of Debt in Kentucky Divorce Actions
Among the most complex issues associated with divorce is the division of debt. Many couples are aware that few exceptions exist to the general rule that property acquired during the marriage is presumed to be “marital property” and is subject to an equitable division. But how does the Court treat debt accumulated during the marriage? What happens, for example, when one spouse has accumulated substantial debt for expenses such as clothing, vacations, and luxury items? The answer may surprise you.
In Kentucky, debt accumulated during the marriage is treated differently than property acquired during the marriage. The Kentucky Supreme Court has specifically held that unlike property, there is no statutory presumption that debts incurred during the marriage are marital or non-marital in nature. Instead, the Court utilizes five primary factors to determine whether a debt is marital (i.e., the debt will be equitably divided between the parties), or non-marital (i.e., the debt belongs to one party alone).
First, the Court will determine who received the benefits for which the debt was incurred. If a debt was incurred for the benefit of both husband and wife, then the Court will typically classify it as a marital debt. This often occurs with an outstanding debt on a marital residence. Importantly, however, a debt that a party incurs for his or her sole benefit is assignable to that individual alone.
Second, the Court will consider the extent of participation of each party in accruing the debt. If, for example, the Court determines that a party took out a loan without the knowledge of the other spouse, and the loan did not benefit that spouse, then the Court may assign that debt solely to the party who acquired it.
Third, the Court will consider whether the debt was incurred to purchase assets that are designated as marital property. Debts used for purposes other than those designated as marital property are less likely to be deemed marital debt. If, for example, the parties use a portion of debt for improvements and maintenance to the marital residence, then the Court will likely find that debt to be marital. If, however, one party uses loan proceeds for personal expenses, then the Court may likely assign the debt for such expenses solely to that party.
Fourth, the court will consider whether the debt was necessary to provide for the maintenance and support of the family. Where the debt is incurred primarily based upon the decision of only one party, however, the court will not assign it as a marital debt. If, for example, one party incurs debt to enroll a child in an expensive private school despite the other party’s objection, the Court may assign that debt solely to the party who incurred the debt.
Fifth, the economic status of each party is considered in assigning any debt. Where one party has a much higher earning potential than the other, the Court may assign the debt to the party who has the ability to pay such debt.
Finally, it is important to remember that the Court will consider all of the circumstances surrounding the debt, and no particular factor is necessarily determinative. As a result, and given the complex and intricate nature of debt division, it is imperative to have an attorney experienced in family law to ensure that your interests are protected.