Debt and Divorce

In Separation & Divorce by Elizabeth Stephenson

In a division of property upon divorce, North Carolina courts are tasked with determining an equitable division of marital property. Marital property is generally any property acquired during the marriage, with a few defined exceptions. Classifying property as marital or separate can be a hotly contested matter as separate property is not subject to a division. Like with property, debt is also a source of controversy when a court divides property. Unfortunately, the laws regarding marital and separate debt can be trickier to sort out.

This is because unlike marital property, debt assumed during a marriage does not necessarily constitute marital debt. Instead, only debt that is assumed for the joint benefit of the married couple is considered marital debt that is subject to division. When determining whether a debt is marital debt, it must:

(1) have occurred during the marriage;

(2) it occurred before the date of separation; and

(3) have been for the joint benefit of the married couple.

What Does “Joint Benefit” Mean?

“Joint benefit” has no legal definition, making this a frequently contested issue. Just because a husband opens up a credit card or takes out a loan during a marriage does not necessarily mean that the debt is automatically marital debt that has to be divided between the spouses. In addition, a debt does not have to be in both partners’ name to provide a joint benefit to the marriage. Instead, trial courts and courts of appeals look to how the money is used and whether there is an actual benefit.

For example, a business loan taken in one spouse’s name does not necessarily exclude the debt from a classification as marital debt if the proceeds from the business have benefitted the marriage. In addition, in Warren v. Warren, 773 S.E.2d 135 (N.C. App 2015), an influential case out of the North Carolina Court of Appeals, the Court determined that a wife’s student loan constituted marital debt, because the increased income she received after she graduated benefitted the family.

In contrast, student loans have also been determined to be separate property if no degree was earned, there was no additional income or benefit that came from the loan, and the loan money was not used for family expenses. Again, the court looks to how there was a joint benefit for the family from the debt.

New Direction Family Law

Marital debt is an undefined and complex subject, yet almost all married couple carry some sort of debt. If you are separating with the intention of divorcing, contact New Direction Family Law. With years of legal experience in Family Law, we can help you sort through these complicated issue and aggressively advocate for your legal and financial interests. We serve Wake, Johnston, Lee, Harnett, Cumberland, Nash, Granville, Franklin, and Durham counties. Call New Direction Family Law today at (919) 719-3470 to arrange an appointment, or visit us online at our website.