Debt is not a subject most people openly discuss, sometimes even between spouses, which can become an issue during divorce. Debts are lumped with assets as part of a couple’s marital property, and thus, must be divided as part of the divorce. But, are all debts acquired by each spouse the potential responsibility of the other party? Indiana is an equitable division State, meaning marital property is divided according to what is fair, which may or may not be equal. There are two steps in this process – deciding what qualifies as marital property and assessing how to fairly divide assets and liabilities. Debt can be tricky to categorize, especially if it originated before the marriage, or only conferred a benefit on one spouse. A discussion of how Indiana courts decide what counts as marital property, and some complications related to dividing debt in divorce, will follow below.

What is Considered Marital Property?

Generally speaking, all property owned by either spouse up until the time of final separation, including that acquired before marriage, may be considered marital property. Furthermore, Indiana law presumes that a 50/50 split division is just and reasonable, but a court may deviate from this standard if a spouse can present evidence that such a result would be unjust. To achieve this different outcome, a court will need to see evidence of one or more of the following factors:

• How much each spouse contributed the acquisition of property, even if the property did not produce income;
• Which property was acquired prior marriage, or through an inheritance or gift;
• The economic circumstances of each party at the time of the property division;
• Whether a spouse wasted or otherwise disposed of property during the marriage; and
• The earnings capacity of each spouse.

Commingling funds and efforts between spouses can make determining which property should be kept separate, and which should be divided difficult, but drafting a prenuptial agreement that outlines how property should be classified simplifies this issue.

Dividing Debt

Divorcing spouses will be expected to divide debt to some extent, so it is important to factor this component into the financial adjustments made post-divorce. Further, depending upon the financial means of each spouse and the types of encumbered property owned, a spouse may be ordered to assume a debt while the other party keeps possession of the property itself. The family home and vehicles are common examples of this situation.

One type of debt that can be particularly troublesome is student loan and other education-based debt. Many couples enter marriage with significant student debt obligations, and a good number add to it during the course of the marriage. Determining who benefitted from the debt will have a large influence on how a court could ultimately decide property division. For example, was the debt just for tuition, fees, books, etc., or did it also include living expenses in which the other spouse shared? Additionally, the longer after graduation the marriage lasts will also indicate how much a spouse benefitted from the debt, and make holding it as marital property more compelling. Finally, the correlation between obtaining a degree and a spouse’s earning capacity as a result, can also factor into whether the student loan debt is divided or entirely assumed by one party. In other words, if one spouse has a much lower earning capacity compared to a spouse with an advanced degree, a court is unlikely to put that obligation on a party with little ability to meet it.

Consult an Indiana Divorce Attorney

Dividing property is a pivotal issue in divorce and should be reviewed by an experienced divorce attorney so that your rights and interests are adequately protected. Christopher L. Arrington, P.C. understands the frustrations and stresses of the divorce process and is here to help you negotiate or litigate to achieve the best possible outcome. Contact the Dansville office to schedule an appointment.