THE MARITAL DEBT CONUNDRUM
April 11, 2012 § Leave a comment
I posted here about allocating marital debt. Debts that are clearly for the benefit of the household are debts that the court should assign to one or both parties in a divorce, applying the equitable principles laid out in Ferguson. No distinction is made between secured and unsecured debt.
Under our case law, we treat debts the same as we do assets for the purposes of equitable division. We classify them as marital or non-marital, place a valuation (the loan balance) on them, and equitably assign responsibility for them. That approach works well in general for debts that are secured by assets that are subject to equitable distribution. The debt in most instances reduces the asset value and goes with the person who gets the asset. Fair enough.
But what about where the debt is for expenses such as day-to-day living expenses or other family expenses that do not result in an asset in the household? I’m talking about credit card debt to pay the light bill, or to buy Christmas presents, or to pay for a family weekend in Gatlinburg, or to buy groceries at Wal-Mart? None of that kind of debt produces an asset. It’s debt that produced cash that was spent up in the ordinary course of living. Had the parties lived within their means, those expenses would have been paid out of ordinary income by the parties, but they chose to incur debt for them instead.
Expenses of the types described immediately above are part of routine, everyday life. If it is reasonable to allocate marital debts for those kinds of expenses to the parties, then why would it not be reasonable to track back through the marriage and account for all expenses, whether charged on a credit card or not, and allocate them between the parties? Say, for instance, that the parties in a hypothetical case spent $30,000 in a hypothetical year on groceries, household goods, utilities, toys for the children, medicine, cable tv, internet access, yard work, medications, property taxes, and on and on and on. If they filed for divorce, why would it not be reasonable, under the same logic we apply to marital debt, to go back and investigate how much they each contributed and then charge the one who contributed less with the difference? And if it is reasonable to do that, why do we not do it in all cases, even where the parties have been married 10, 20 or 30 years or more? Why not examine each year of the marriage, reconstruct the expenditures and equitably allocate the expenditures? Imagine what it would be like to try such a case. Horrors.
As absurd as the above sounds, we take exactly that approach in regard to marital debt. There is no limit on it. There is no threshhold. Whatever the debt is, and however long it took to amass it, we allocate it equitably. As it stands now, there is no limit to how far one can go back to claim reimbursement for or an allocation of marital debt or for how much.
It is logical, of course, that the debt is merely the residue left over after the expenses have been paid. In a divorce, debt is literally the ashes of a failed marriage. The debts are still there long after the expenses have gone away, and equity requires that the parties who enjoyed its benefits should share its burden. I understand that. What I don’t understand is that we have not imposed any reasonable parameters on it.