When There’s No Money or Assets, What Does a Divorce Do?
Here’s an interesting statistic: the richest X Americans have as much wealth between them as the bottom 40%. It’s true! And yes, it’s true no matter what number X is. How? Because when you calculate wealth in terms of ‘assets minus liabilities’ (which is the typical way of making that calculation), it turns out that the bottom 40% of Americans have no assets whatsoever. Mostly because the very poorest people in terms of real wealth are completely mired in debt.
That’s right! There’s so much debt in the bottom 10% that it more than makes up for the total assets of the entire bottom 40%. So congratulations: if you have just $1 in assets above and beyond your debts, you alone are richer than the bottom 40% of Americans. (And weirdly, many of the bottom 40% of Americans individually are richer than the bottom 40% of Americans collectively. Aren’t statistics a wonderful thing?)
Debt in Divorce
Of course, because we are family lawyers, this makes us ask “what does division of property mean when a couple has no money and no real assets?” The answer should be obvious if you just read the last two paragraphs: it’s debt. Debt can and should be divided up between divorcees in exactly the same way assets are, seeing as they are effectively “negative assets” in nearly every respect.
Separate vs. Marital Debt
Like assets, debt is divided by the court into “separate debt,” which is debt that one partner brought into the marriage or debt that one partner incurred without benefiting the marital union (for example, gambling debt from a solo trip to Vegas), and “marital debt,” which is everything else. There are a few specific exceptions worth noting:
- Credit used for extramarital affairs is not ever martial debt, even if an argument can be made that it benefited the marital union in some way.
- Credit used to provide restitution in a criminal case is never marital debt.
- Credit gains in the form of student loans, if the education was never intended to enhance the financial well-being of the marriage and the loan money was never used to pay any marital expenses, are not marital debt.
- Debt related to a specific property (i.e. a mortgage) is generally assigned entirely to the partner who keeps the property.
The 2nd-Most Important Rule
There is a significant ‘glitch’ in the system, however: as much as Michigan family courts have every right to divide up debts between divorcees, they have zero ability to force creditors to pay attention to that division. If a creditor has a debt on file as a joint debt, it will remain a joint debt regardless of how the court assigns responsibility for that debt. In other words, you totally can get harassed by creditors for debt that the court considers exclusively your ex’s.
The difference is that if your ex doesn’t pay the debt, you can get the judge to order them to do so — or, if you end up paying it in order to get the creditors off your back, you can get the judge to order your ex to pay you back.
The Most Important Rule
Of course, the most important thing to remember in all of this is that the court’s job is to divide property equitably, which is not the same thing as equally. There are a few factors that Michigan family courts use to determine that one spouse’s equitable share is larger than the other’s. They include:
- That spouse has significantly greater ability to repay the debt.
- That spouse contributed much more to the dissolution of the marriage (i.e. cheaters get more debt).
- That spouse is getting significantly more of the assets. By balancing additional assets with additional debts, the courts can achieve a kind of equity where one spouse gets more of the good and the bad. This is often the case, for example, when the couple has paid off most or all of their home, and the spouse who gets the house is saddled with the majority of the credit card bills to achieve ‘balance.’
In general, if you walk into a divorce with no money, no assets, and a significant amount of debt, you can expect to walk away with no money, no assets, and a fair share of the debt.
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