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How Is Division Of Debt Decided In Illinois?

Division Of Debt

When people think about divorce, they often only consider the division of marital assets–who gets what property. But it is equally important to consider the division of marital debts. After all, many divorces are the result of financial problems, and debts do not simply disappear because the couple decides to end their marriage. So it is critical to understand how the division of debt works in Illinois divorce cases.

Illinois Is an Equitable Distribution State

First things first. Illinois law follows an “equitable distribution” rule when it comes to dividing both marital assets and marital debts in a divorce proceeding. Equitable does not necessarily mean equal, which is the rule in “community property” states like California. Equitable means that if the parties cannot agree among themselves on the division of debt, a judge must make a “fair” distribution based on several legal factors.

Not All Debts Are Marital Debts

Just as with assets, not all debts owed by one spouse are necessarily classified as “marital debts.” The general rule is that debts incurred by each spouse individually before the marriage remain as their individual debts. Likewise, any debts incurred by either spouse during the marriage are usually considered marital debts.

Some of the more common forms of marital debt include home mortgages, car loans, credit card debts, and student loans. Keep in mind, even if the documentation for a particular debt only lists one spouse, that does not automatically mean it is a non-marital debt. Once again, the classification of debt as marital or non-marital usually depends on when the debt was incurred–i.e., before or after the date of marriage–and not the formal title. This also means that it is possible for one spouse to incur marital debt without the consent, or even the knowledge, of the other.

Now there are some exceptions to this rule. Under Illinois law, the following debts are not considered marital debts:

  • Any debt attached to property acquired by either spouse by “gift, legacy, or descent.” For example, if one spouse inherits real estate from a relative and there is a mortgage attached to that property, the mortgage is considered a non-marital debt.
  • Any debt acquired in connection with property acquired before the marriage. Similar to the example above, if one spouse already owned their own house before they were married, any mortgage they took out on such property would be a non-marital debt.
  • Any debt incurred by either spouse after a judgment of legal separation. Legal separation is an option under Illinois law, albeit one that is not commonly used, which allows a couple to live separate and apart without obtaining a formal divorce. Note this is not the same thing as one spouse simply moving out of the house.
  • Any debt arising from a lawsuit filed by one spouse against the other spouse.

The Effect of Prenuptial or Postnuptial Agreements on Marital Debts

It is also possible for the spouses to agree between themselves that certain obligations that would normally be considered marital debts should instead be classified as non-marital debts owed by just one party. This is commonly done through a prenuptial or postnuptial agreement.

A prenuptial agreement is a binding legal contract entered in contemplation of marriage. A postnuptial agreement serves the same function as a prenuptial agreement, but is signed after the parties are already married. Both types of agreements are expressly permitted under Illinois law and may specify the division of debt in the event of a divorce.

Because prenuptial and postnuptial agreements are legal contracts, however, they must observe certain legal formalities in order to constitute a valid division of debt. First, the agreement must be in writing and signed by both spouses. A mere oral “understanding” between the parties is not sufficient. A judge may also invalidate an agreement if there is evidence of fraud, duress, or unconscionability.

With respect to that last item – unconscionability – a judge may invalidate a division of debt that is considered oppressively or unreasonably one-sided. Again, this is consistent with Illinois divorce law’s emphasis on an equitable division of marital debts and assets. At the same time, a judge will not automatically invalidate a division of marital debt just because it favors one spouse over the other. The burden is on the spouse alleging unconscionability to prove there is a problem. Furthermore, Illinois courts usually require proof that one spouse deliberately concealed a debt before finding there was unconscionability.

Addressing the Dissipation of Marital Assets

Another exception to the rule that debts acquired by either spouse during the marriage should be considered marital debts involves what is called the “dissipation of marital assets.” Basically, if one spouse intentionally wastes marital funds on a clearly non-marital purpose, any debts associated with such spending must be accounted for when making a final division of marital property.

The most commonly cited example of dissipating marital assets is spending related to an extramarital affair. For instance, let’s say one spouse runs up a $10,000 credit card bill buying gifts or traveling with their mistress. When the other spouse learns about the affair and sues for divorce, the court may consider this credit card bill a “dissipation of marital assets,” since the debt obviously was incurred for a non-marital purpose.

But affairs are not the only example of dissipation of marital assets. Debts incurred as the result of one spouse’s gambling or alcohol abuse can also fall into this category. But excessive spending in and of itself, such as on clothing, does not necessarily qualify as dissipation of marital assets, and those debts can still be treated as marital debts.

The Illinois Family Expense Act

In some cases, Illinois law also makes it clear that one spouse is liable for debts incurred by the other spouse in connection with a “family expense.” The Illinois Family Expense Act states that such debts are the responsibility of both spouses, either jointly or separately. In this context, a family expense refers to any bill incurred for the benefit of either spouse or any minor children for basic living expenses, such as rent, clothing, medical bills, wages for domestic servants, and even certain types of jewelry.

Factors Used by Illinois Court in Making a Division of Debt

Assuming the parties are unable to reach an agreement on the division of marital debts, an Illinois judge will step in and make an equitable distribution as noted above. But what makes a distribution “equitable”? There is no single factor. Rather, Illinois law directs the judge to look at roughly a dozen factors. Some of the more important ones include:

  • Whether there was any dissipation of marital assets, as described above
  • Each party’s relative contribution to the marital debts
  • How long the marriage itself lasted
  • The relative financial circumstances of each spouse, including their share of the marital assets and future earning potential
  • Any debts or obligations arising from a prior marriage, such as the need to make alimony or child support payments to a former spouse
  • Whether there was a valid prenuptial or postnuptial agreement in place, as described above
  • Whether or not either spouse is entitled to maintenance (alimony) or child support payments
  • The tax consequences for each spouse

How Can You Actually Split Marital Debts?

Even after a judge decides upon an equitable distribution of debt, there is still the logistics of actually carrying out such a split. In other words, it is not always possible to cleanly divide debt right down the middle. Let’s say one spouse receives a car with an outstanding loan. The court has to decide whether that spouse will also be responsible for the entire amount of the outstanding loan balance, and if so, then what debt can be assigned to the other spouse to effect an equitable distribution?

In some cases, it may be impossible for either spouse to separately pay off a large debt. The judge may therefore order the liquidation of assets to satisfy the debt. This often comes up with respect to the marital home: If neither spouse can separately pay the mortgage, the best option may be to sell the house outright.

Post-Divorce Marital Debt Issues

Finally, it is important to understand that a divorce settlement or judgment does not extinguish a creditor’s right to go after either spouse for a joint debt. That is to say, if both spouses incurred the debt together originally, the creditor is not bound by the divorce to only go after one spouse in the event of default. So if your ex agreed to pay off your joint credit card bill in the divorce, but failed to do so, the credit card company may still be able to come after you for the unpaid amount.

Speak with an Illinois Family Law Attorney

Marital debt is a leading cause of divorce in Illinois. An experienced Aurora division of debt attorney can review your situation and provide skilled legal representation to help you address a financially untenable marriage. Contact Keller Legal Services today at 630-505-1515 to schedule a free initial consultation.