By Amy A. Edwards
I recently had a client ask what it means, exactly, to have marital debt. That’s a fair question. In North Carolina, the legal process of dividing marital assets and marital debts is called equitable distribution. Spouses or former spouses have a marital estate, and each usually gets half of the marital estate. Think of the marital estate like a pie. Marital assets and marital debts make up the pie, which is sliced and cut in half.
With several exceptions, marital assets are assets acquired by either spouse during the time the parties are married and living together. Marital assets are the starting point of the marital estate pie but if there are no marital assets, then only the marital debt is divided between the parties. Separate property includes things like inherited property or property acquired before marriage. It is not added to the pie, so it isn’t be sliced up and divided between the parties. After the marital assets are divided, the debts are taken into account and either divided or not divided, depending on whether the debts are marital.
To be a marital debt, the debt must be generated during the marriage, and exist at the date of separation. The debt must be for the “joint benefit” of the marriage in order to be marital. Usually, a joint benefit is something that benefits both parties, even if the benefit is indirect, such as using a credit card for groceries, gas in the car, something for the children, etc. If a debt is a separate debt, it does not have any impact on the pie that is the marital estate. The person with separate debt is stuck with responsibility for paying it. On the other hand, marital debt is “credited” to the share of the marital estate that the person paying the debt will receive. The marital estate is thereby adjusted to account for the payment of marital debts.
Example A (no marital debts)
Marital Assets: $100,000 (house equity, cars, etc.) ÷ 2 = $50,000 each
Husband gets $50,000
Wife gets $50,000
Example B ($10,000 in marital debt)
Marital Assets: $100,000 (house equity, cars, etc.) ÷ 2 = $50,000 each
Husband gets $50,000
Wife gets $50,000
But Wife pays $10,000 in marital debt, so she really only got $40,000. Husband would owe Wife $5,000 in assets or money so that each spouse gets $45,000 (50% of the adjusted marital estate). But if Wife paid $10,000 in separate debt (i.e., non-marital debt), she would not get any credit for paying it and each spouse would still get $50,000 in value for his or her share of the marital estate.
