Friday, June 17, 2011
The settlement of a couple’s financial affairs at the time of divorce often requires the resolution of debt issues between them. Specifically, responsibility must be allocated between former spouses for repayment of their outstanding debts. This article analyzes the laws in common law property states that govern the judicial authority to reallocate responsibility for the repayment of individual and joint debts at the time of divorce.
The topic of debt allocation in divorce proceedings is of great importance to many divorcing couples. However, the rules of law in this area in many common law property jurisdictions are not as well-articulated as the corresponding rules governing asset distribution. Furthermore, the (largely judicial) rules that have been formulated often reflect a reluctance to establish judicial authority to reallocate responsibility for the repayment of debts of the marriage. No clear explanation has been offered for this reluctance to include liabilities as fully as assets within the conceptual framework of the economic partnership of marriage at the time of dissolution.
This Article examines the existing rules that govern equitable distribution of debts at divorce in the common law property states and speculates about the reasons for withholding full recognition of debts in equitable distribution law. The Article also analyzes the current state statutes and case law and the provisions of the recently promulgated Principles of the Law of Family Dissolution by reference to the general goals of equitable distribution law in the common law property states, relating to a fair winding down of the spouses’ economic affairs at the end of marriage. It concludes that certain restrictive debt allocation rules, such as the joint purpose doctrine and rules excluding student loans from distribution in all cases, are inconsistent with the basic equitable goals in this area of law.