How is debt divided in a divorce in SC?
Marital property is subject to equitable division in a divorce – things like real estate, cars, bank accounts, and most things of value will be divided between the parties either by agreement or by the court.
But what about debt?
Like marital property, debt is divided between the parties either by agreement or by the court at the final divorce hearing. But how is debt divided in a divorce? Is only the debt incurred during the marriage divided, or does a spouse take on the debt obligations that were also incurred before marriage?
Does it matter if one spouse didn’t know about the debt?
If you are considering separation or divorce and have questions about the division of marital assets or marital debt, contact your Myrtle Beach divorce lawyer on the Axelrod team immediately to find out how we can help you to safeguard your property and financial interests during a SC divorce.
How Is Debt Divided in a Divorce in SC?
Just as marital assets are subject to equitable division in a SC divorce, marital liabilities are also divided.
It is always best to reach an agreement before your final divorce hearing, whether that is through negotiations by the attorneys or with the help of a mediator, but, if an agreement is not reached, the court will divide your assets and debts at the final hearing…
What is “Marital Debt?”
Three very general rules apply to the division of marital debt:
- If the debt was incurred before the marriage and did not benefit the marriage, it will most likely be considered non-marital debt that is not subject to equitable division;
- If the debt was incurred during the marriage but before the beginning of the divorce proceedings, and was incurred for the benefit of both husband and wife, it will most likely be considered marital debt that is subject to equitable division; and
- If the debt was incurred after the beginning of the divorce proceedings and did not benefit the marriage, it may be considered non-marital debt that is not subject to equitable division.
In Thornton v. Thornton, decided October 23, 2019, the Court of Appeals found that a loan taken out by the husband during the marriage was marital debt subject to equitable division even though the husband did not tell the wife about the loan.
The Court found that, when a debt is incurred during the marriage and it is used to benefit both parties, it is marital debt regardless of whose name is on the loan documents:
“For purposes of equitable distribution, a ‘marital debt’ is a debt incurred for the joint benefit of the parties regardless of whether the parties are legally liable or whether one party is individually liable.” Wooten v. Wooten, 364 S.C. 532, 546, 615 S.E.2d 98, 105 (2005). Subsection 20-3-620(B)(13) of the South Carolina Code (2014) requires the family court to consider “existing debts incurred by the parties or either of them during the course of the marriage” when equitably apportioning the parties’ marital property.
If the debt is incurred before the beginning of the divorce proceedings, there is a “rebuttable presumption” that it is marital debt that should be divided between the parties. If one side says it is not marital debt, they have the burden of proof to show why it is non-marital:
Subsection 20-3-620(B)(13) “creates a rebuttable presumption that a debt of either spouse incurred prior to the beginning of marital litigation is a marital debt and must be factored in the totality of equitable apportionment.” Pruitt v. Pruitt, 389 S.C. 250, 264, 697 S.E.2d 702, 710 (Ct. App. 2010). “Therefore, when a debt is proven to have accrued before the commencement of marital litigation, the burden of proving the debt is non-marital rests on the party who makes such an assertion.” Schultze v. Schultze, 403 S.C. 1, 8, 741 S.E.2d 593, 597 (Ct. App. 2013).
What Makes a Loan Marital Debt?
Although the husband did not tell his wife that he took out the loan, and he made all payments on the loan himself, the Court in Thornton found that the loan was a marital debt that should be divided between the parties. Why?
The husband in Thornton used the money from the loan to pay marital bills and to repay loans from his parents that were used to pay marital bills like their mortgage payment:
Husband testified that in May 2012 he obtained the Loan for $27,100 for marital purposes. He admitted he did not tell Wife about the Loan. Husband presented undisputed testimony that he used the Loan funds to pay various marital bills and to repay loans from his parents that were obtained by Husband and Wife to pay marital bills such as their mortgage payment. Husband asserted he made all of the payments towards the Loan, and the current Loan balance is $12,254.95 (the Remaining Loan Balance).
More importantly, the wife did not introduce any evidence that the loan proceeds were not used for marital purposes:
Wife did not present any evidence regarding the nature of the Loan or contradicting Husband’s testimony about the use of its funds to rebut the presumption that the Loan was a marital debt. See Pruitt, 389 S.C. at 264, 697 S.E.2d at 710 (finding subsection 20-3-620(B)(13) “creates a rebuttable presumption that a debt of either spouse incurred prior to the beginning of marital litigation is a marital debt and must be factored in to the totality of the equitable apportionment”). We find Wife has failed to meet her burden of proving the Loan is non-marital. See Schultze, 403 S.C. at 8, 741 S.E.2d at 597 (“[W]hen a debt is proven to have accrued before the commencement of the marital litigation, the burden of proving the debt is non-marital rests on the party who makes such an assertion.”).
Remember, if the loan is taken out before the beginning of the divorce proceedings, there is a rebuttable presumption that it is marital debt. That means the wife can dispute the fact that it is marital debt by introducing evidence that the loan was taken out after the divorce began or that the loan proceeds were not used to benefit both parties.
If no evidence is presented that the debt was non-marital, however, the court will apportion the debt between both parties…
If you are considering separation or divorce, contact your divorce lawyer on the Axelrod team immediately. We will help you to determine what is marital and non-marital property and debt, negotiate with your spouse whenever possible, and fight for your property and financial security when an agreement cannot be reached.