The Better Chancery Practice Blog

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.

Chancellors are often called upon to adjudicate issues of marital debt between warring divorce combatants. Many times the debt is secured by an asset, such as a car, or a home, or an appliance, and the debt often follows the asset with the effect of reducing its value in equitable division.

More and more frequently, though, I am seeing cases where the court is asked to divide marital debt that did not result in the acquisition of an asset. Some examples: Credit card debt for living expenses; credit card debt for a trip to Disney World; a loan to pay off pre-marital debts; or an IRA loan that paid a spouse’s credit card.

So what exactly is the state of Mississippi law vis a vis allocation of credit card debt in a divorce? Here are some cases that I think aptly set out the law on the point:

• “The courts of this state have consistently held that expenses incurred for the family, or due to the actions of a family member, are marital debt and should be treated as such on dissolution of the marriage.” Shoffner v. Shoffner, 909 So.2d 1245, 1251 (Miss.App. 2005). In that case, the court affirmed the trial judge’s order that Mrs Shoffner pay $6,486.04 of marital credit card debt based on extensive lists, prepared and offered into evidence by Mr. Shoffner, showing expenditures for automobile maintenance, holiday gifts for the family, gasoline, meals for the family, and so on.
• In Turpin v. Turpin, 699 So.2d 560, 565 (Miss. 1997), the Mississippi Supreme Court upheld the chancellor’s order that each party pay one-half of the marital debt in the absence of evidence that the debt primarily benefitted one or the other.
• In Bullock v. Bullock, 699 So.2d 1205, 1212 (Miss. 1997), the court affirmed an order for the husband to pay the wife’s credit cards where they had been used to purchase a television, sheets and other household items for the marital dwelling, and to pay for two nights in a hotel when he locked her out of the house.
• In Harbit v. Harbit, 3 So.3d 156, 161 (Miss.App. 2009), the court of appeals upheld the chancellor’s order classifying the debt in the wife’s name on her vehicle as marital, since she had borrowed the money to pay household expenses during a period when the husband was unemployed.
• There is a presumption that all debt is marital, since there is a corollary presumption that all assets are marital. Horn v. Horn, 909 So.2d 1151, 1165 (Miss.App. 2005).
• The fact that the spending may have been unreasonable or out of control is not dispositive. Wasteful spending and negligence in financial affairs are factors that the chancellor may consider in dividing the marital estate, but they are not controlling. Prescott v. Prescott, 736 So.2d 409, 418 (Miss.App. 1999).
• Debts incurred by a spouse pursuing goals other than the general welfare of the marriage are considered separate, and not marital, debt. Garriga v. Garriga, 770 So.2d 978, 984 (Miss.App. 2000).
• Debt incurred to pay a spouse’s gambling debts is separate debt. Lowrey v. Lowrey, 25 So.3d 274, 289 (Miss. 2010).
• Debt incurred to pay off a party’s pre-marital debt should be classified as non-marital. Fitzgerald v. Fitzgerald, 914 So.2d 193, 197 (Miss.App. 2005).
• Post-separation debt to pay pre-separation obligations may be considered marital only if there is adequate evidence to support a finding that the underlying debts were, in fact, marital. Phillips v. Phillips, 45 So.3d 684, 698-99 (Miss.App. 2010).
• In making a determination of how to allocate the marital debt, the court has to apply the Ferguson factors. Pulliam v. Smith, 872 So.2d 790, 796 (Miss.App. 2004).
• In Gambrell, v. Gambrell, 650 So.2d 517, 522 (Miss. 1995), the court said that “The liabilities as well as the assets of the parties must be taken into consideration when the chancellor effects an equitable distribution of marital [assets] and any other relief that may be appropriate such as alimony or child support.”

So, in a nutshell, our law is that the debts that are clearly for the benefit of the household are debts that the court should assign to one or both parties, according to the equitable principles laid out in Ferguson.

For my part, I question the wisdom of treating marital debt for living expenses the same way we do assets, but that’s the subject of another post. For now, as they say, it is what it is.