Divorcing spouses often focus on what happens to the children, the house, the cars, and other property. These issues are depicted on TV and in a recent Netflix movie. However, you may be wondering what happens to the debt? Debt can come in various forms including credit cards, student loans, lease obligations, or businesses. Colorado divorce law treats debt similarly to an asset.
Colorado is an equitable distribution state and property “fairly,” not equally Property in a Colorado divorce includes assets and debts. In re Marriage of Jorgenson, 143 P.3d 1169, 1171-72 (Colo. App. 2006). Therefore, the court can allocate debts between the parties in the same way that it allocates assets. In re Marriage of Speirs, 956 P.2d 622, 623 (Colo. App. 1997). Colorado applies a three-step process in dividing property:
1. The classification of marital or separate property.
2. The valuation of the property; and
3. The equitable distribution of the property.
Is the Debt Marital?
The first question is whether the debt is even marital. Jorgenson, 143 P.3d at 1172. Generally, marital debt includes all liabilities acquired by a spouse during the marriage and is subject to division between the parties. In re Marriage of Femmer, 568 P.2d 81, 83 (Colo. App. 1977). Separate debt is incurred before the marriage and is not subject to division. Common items that are separate debt are student loans incurred in college (before the marriage) and business loans or debts taken out before the marriage.
If parties choose to break up and move to separate residences without a court order then any new debt acquired during this time by either party remains marital. This can place individuals at great risk, particularly if they are not aware that they may be responsible for any new debt incurred. This is most concerning when the parties are separating due to substance abuse or other related issues where the party is incurring debt at a rapid pace.
What is the Value of the Debt?
Marital debt must be valued in the same way assets are valued. Jorgenson, 143 P.3d at 1172; C.R.S. § 14-10-113 (5). Debt is interpreted broadly under Colorado. In some cases the chance of debt is so small that it is speculative and court may disregard or discount its face amount. Jorgenson, 143 P.3d at 1173. On the other hand, debt may require a formal evaluation or reservation of jurisdiction by the court so that it can be appropriately addressed.
It is important that you obtain the correct documents related to any debt and present those documents to the opposing party and court to be sure that it is considered as part of your settlement or court hearing.
Distribution of Debt
The court is not able to divide the marital assets equitably without taking into consideration marital debts. The Court has a wide discretion in providing an equitable distribution. The Court will look to all relevant factions, including:
The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as a homemaker;
The value of the property set apart to each spouse;
The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse with whom any children reside the majority of the time; and
Any increases or decreases in the value of the separate property of the spouse during the marriage or the depletion of the separate property for marital purposes.
C.R.S. § 14-10-113 (1).
While debt is not specifically identified, it is important that it be brought to the attention of the opposing party or court so that it can be taken into consideration when the court hears your case.
For example, an educational degree is not marital property, however, the loans incurred to obtain the degree may be. Speirs, 956 P.2d at 623-24. In other words, the degree is not marital property but the debt is. This allows the court to enter the most equitable distribution possible, but, simultaneously, shows the need to present strong legal arguments in your case.
Other Considerations
Not only does the issue of debt come into play when making an equitable distribution of property, it can be addressed during the pendency of a court case. For example, if an individual has concerns about payment of debt during the case then that person may request that the court order temporary payment of debts through temporary orders. C.R.S. § 14-10-108. This is often requested as most couples who are divorcing have some sort of debt that needs to be taken care of while the case proceeds. The Court will usually order the party who typically paid the debt to keep paying it to preserve the “status quo” until the case is over. Sometimes, however, the parties have too much debt and the Court may order that an asset be sold to pay off the outstanding balances.
If you have any questions about debt and divorce, the attorneys at Griffiths Law have the knowledge, experience, and expertise to help. If you want to read more about Colorado divorce, take a look at Griffiths Law’s Guide to Divorce.
Joseph Maher is a Shareholder at Griffiths Law. Joe has significant experience in all areas of family law, particularly divorce, parenting-related litigation, and other domestic relations issues.