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Dividing Liabilities

Believe it or not, there is no specific statute in Kentucky which tells the court how to divide marital debts. Generally, the debt “follows” the asset.

But all debts incurred during a marriage are not automatically deemed to be “marital” in nature.  Courts in Kentucky have a five-part evaluation in ruling whether a debt is marital or not:

  1. Who benefited from the incurring of the debt?  If it was both parties or the family, then the debt will likely be determined to be marital.
  2. Who participated in incurring the debt?  If one party took out a loan without the knowledge of the other and only the first party benefited from the loan, then the Court will probably determine that debt to be non-marital.  The same would apply to running up a secret credit card balance, gambling debt, etc.
  3. What was the purpose of the debt?  Was it incurred to acquire something for the benefit of both parties or the whole family?  If the debt was incurred to make improvements to the marital home, for instance, then the debt would likely be considered marital as well.  If it was something that only benefitted one party (clothing, vacations, luxury items, etc.), maybe not.
  4. Was the debt necessary to support the family?  Maybe the debt was incurred purely by one spouse but the money was used to pay a child’s medical expenses.  That would probably be considered a marital debt.  But maybe the debt was the result of one spouse’s decision to acquire an asset, over the objection of the other spouse.  For instance, if one of them decided to buy a boat or a sports car and the other party objected and did not benefit from the purchase, then that debt would presumably be determined to be non-marital in nature.
  5. Which party has the greater financial resources?  If one party has more assets or more income than the other spouse, then he or she has a much higher level of exposure in being held responsible for debt incurred during the marriage.

Regardless of the above five factors, Kentucky courts still have the right to make decisions on the division of liabilities under their discretion as none of the above are considered “determinative”.  The answer to a single question about the debt does not create a hard and fast rule that the Court must obey.  That’s why having a Family Law attorney who has dealt with these complexities is so important to the equitable resolution of your divorce case.

Generally speaking, however, the debts will end up with the party that gets the attendant asset.  If you got the car or the residence, you’ll probably end up with the debt as well. Most debts are divided as equally as possible. But, as you would expect, the spouse with the greater income often ends up with greater debt.

A pendente lite (“temporary”) action to limit the accumulation of new credit and debts should be seriously considered until the divorce case is completed.

In some cases, it may be appropriate for your lawyer to immediately notify creditors about your divorce proceedings. It may also be appropriate to close certain credit card accounts to prevent new debt from been accumulated.

Every divorce should culminate in the reaching of a resolution of each party’s claims and an equitable distribution of the parties’ joint assets as well as division of their responsibilities insofar as any children and/or debts are concerned.

If you have questions about how to divide any debts you share or hold separately in your name and are contemplating a divorce, please contact our office.