Financial separation is a key component of divorce. In Michigan, the equitable distribution process controls not only the division of marital property but also the allocation of marital debts. The court evaluates credit card debts, loans and medical bills alongside assets when determining a fair outcome.
Any debts acquired before the marriage are usually the separate obligation of the spouse who accrued them. In contrast, debts acquired after the marriage began are commonly classified as marital obligations. Courts focus less on whose name is attached to the debt and more on whether the obligation was incurred for the benefit of the household or the family.
However, equitable distribution is concerned with fairness. How debts are split is intrinsically tied to the financial condition of each spouse when taking into account their total assets and income. Prior judicial precedent requires judges to consider what are known as Sparks factors when dividing responsibility for debts and marital assets. These factors include
- Duration of the marriage
- Contributions to the marital estate
- Each spouse’s earning ability
- Each spouse’s financial circumstances
Among the questions to be resolved is which spouse undertook the debt in question and whether the other spouse knew of the debt or agreed to it. If one spouse borrowed large sums of money for their own benefit and without the other’s knowledge or consent, it would be inequitable to hold the non-borrowing spouse accountable to repay a portion of the debt. This is especially true if one spouse’s incurring of debts had the effect of dissipating marital assets.
Student loans incurred before marriage by either spouse may be subject to debt division in certain circumstances, such as if the marriage benefited from the resulting educational degree. If the borrowing spouse’s education significantly increased their earning capacity and the marriage’s consequent financial status, a judge may classify some or all of the loan balance as marital.
Medical bills are generally treated as joint debt for purposes of equitable distribution, regardless of which spouse’s health condition was the cause. However, a spouse’s health condition can be considered in terms of how it affects their ability to work and consequently their need for support. In some cases, the healthier spouse may be allocated a larger share of the medical debt.
It’s important to remember that even though marital debt is divided according to what a court determines is fair, the creditor is still able to pursue collection of a joint debt from either borrower. This is why a settlement agreement may be more effective in resolving these debts. An experienced Michigan asset division attorney can be integral in working out a settlement that uses marital resources to pay off as much marital debt as possible before the divorce is finalized.
Michigan spouses concerned about complex property division matters, including debt allocation, can benefit from discussing their situation with the experienced team at Dawson Family Law, PLLC. We serve clients in Oakland, Macomb and St. Clair Counties, including those in Sterling Heights and Troy. To schedule an initial consultation, call 586-514-0084 or contact us online.
