Division of debt is one of the issues that married spouses must address when they file for an uncontested divorce in Michigan. The principles of equitable distribution, which apply to marital property, also apply to marital debt. In the settlement agreement that is part of an uncontested divorce, spouses agree to the terms of debt division. An experienced divorce attorney can help a spouse navigate and negotiate the issues of dividing debt.
In an uncontested divorce, the spouses must agree on all issues relating to the divorce and execute a settlement agreement that contains the negotiated terms of their agreement, including property and debt division. The agreement is submitted to the court for review, after all issues are negotiated and resolved between the parties.
Equitable distribution is the legal principle that Michigan courts apply to property division in a divorce. Equitable distribution does not always mean equal division, although often it does. It means a fair and just division, based on the circumstances and various factors, including but not limited to:
In a Michigan divorce, the equitable principles and factors apply to division of both assets (property) and liabilities (debts).
Property division applies to marital property and not to separate assets of the individual spouses, and division of debt applies to marital debt and not to separate debt. Generally, marital debt includes debts that the spouses acquired at any time during the marriage. Marital debt usually does not include separate debt of the spouses that was incurred prior to the marriage, such as student loans.
In dividing debt in a divorce proceeding, a court takes into account all the same equitable distribution factors as for asset division. In an uncontested divorce, the court reviews the settlement agreement of the spouses in light of the principles of equitable distribution. As such, a couple negotiating an uncontested divorce must take all the same factors into account in dividing debt (and property) as part of the settlement agreement.
The first step in negotiating division of debt is to identify all the marital debts and financial obligations that must be divided, as well as identify separate debts of each spouse that are not the responsibility of the other spouse. Marital debts generally include all types of loans and outstanding bills accrued during the marriage, such as mortgages, vehicle loans, credit card debts, unpaid bills, utility bills, tax bills, and any other financial obligations, regardless of whether one or both names are on the account.
In cases where the spouses disagree about whether a debt is marital or separate, the spouses work together and with their lawyers to reach a resolution about dividing the debt or assigning it to one spouse in the settlement agreement. A lawyer also helps to evaluate any tax implications arising from debt division.
The process of dividing debts is an integral part of the terms of the overall property division agreement, which is reflected in the settlement agreement for the uncontested divorce. Negotiation of the terms of the settlement agreement is one of the primary reasons that legal representation is vital in an uncontested divorce.
When spouses allocate debt in a settlement agreement, it does not change the legal obligations associated with an individual debt. A spouse whose name is on a joint debt can still be held legally responsible, even if the other spouse assumes responsibility for the debt in the settlement agreement.
Failure of a party to make required payments for a marital debt assumed in a settlement agreement can still expose the non-assuming person to legal liability. For that reason, it is sometimes advisable to pay down joint debts as part of the settlement in an uncontested divorce, rather than continuing the debts and assigning them to one party in the settlement agreement.
Michigan is a no-fault divorce state, and equitable distribution of property and debts generally does not take the fault of a spouse into account. However, in a case when a spouse intentionally incurred significant debt (like credit card charges or gambling debt), that fact may influence a court’s evaluation of responsibility for a debt in a divorce. Similarly, fault or misconduct may be taken into account when spouses negotiate division of debt in an uncontested divorce, although the parties ultimately must reach an agreement to avoid a contested divorce, regardless of who incurred a debt.
In an uncontested divorce, the settlement agreement between the spouses is filed with the court. An uncontested divorce cannot proceed without an executed settlement agreement. The agreement must include all matters relating to the marriage, including division of debt. The court reviews the agreement to determine whether the property and debt division terms satisfy the equitable distribution principles.
If spouses cannot agree on debt division issues, there are options for resolving the disagreements and continuing with an uncontested divorce. The options include:
Legal guidance is indispensable in resolving differences between spouses in an uncontested divorce, including matters relating to debt division, and in navigating the process of obtaining an uncontested divorce.
If, after all efforts are exhausted, the spouses cannot agree on division of debt, the divorce can no longer be an uncontested divorce. In a contested divorce, the court decides all matters relating to the marriage, including division of debt.
If you have questions about debt division or other matters relating to a Michigan uncontested divorce, contact Henry Bergmans for a free initial consultation by reaching out through the online contact form or calling at 810-360-0090. From his office in Howell, Henry assists clients throughout Livingston County, Genesee County, Ingham County, and Washtenaw County, and in the surrounding areas.
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