E05: Divorce & The Balance Sheet—Debt Division

When the marriage ends, the bills don’t just disappear—they get divided. In this episode, we tackle the "heavy" side of the balance sheet: liabilities. From mortgages and credit cards to the complexities of student loans and family "loans" that were meant to be gifts, we explore how debt is equitably allocated under Illinois law.

Learn why "equal" doesn’t always mean "equitable," how to handle post-separation spending sprees, and why a simple promissory note could save your inheritance. Whether you’re dealing with Section 513 college expenses or business debts, this episode provides the roadmap for navigating the financial fallout of divorce.

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Disclaimer: This podcast is for educational and informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by listening to this show. Every family’s situation is unique; please consult with a qualified legal professional regarding your specific case.

Transcript

SPEAKER_01 0:00

So to continue on our balance sheet, which we were talking about, we left off one very important thing. Very liabilities.

SPEAKER_00 0:09

Debts. They're divided much like the estate.

SPEAKER_01 0:12

How's that?

SPEAKER_00 0:14

Those factors that we talked about earlier: age, health of the parties, duration of the marriage, lifestyle established during the marriage. All those factors have to be taken in consideration by the court when determining what to divide and how to divide it, if to divide it.

SPEAKER_01 0:31

So most people will have a mortgage or typical liabilities, you know, more credit cards. Maybe a yeah, maybe a car payment or that. But then we have those people who have just a large amount of debt. Is that true?

SPEAKER_00 0:46

Right. And that's got to be determined as well. Is it marital debt? Was it incurred during the marriage? Is there a presumption that it's marital? Or for instance, did one of the parties bring in their student loans?

SPEAKER_01 0:59

Right. So let's stay with student loans for a second. There's two different kinds of student loans that we really deal with in divorces. One is the party student loans that they incurred for their education. Or then the second one is when the parties have children who are in college and maybe there's parent plus loans or other student loans that they're responsible for.

SPEAKER_00 1:24

Right. We call those 513 expenses because it's governed by section 513 of the Illinois Marriage and Dissolution of Marriage Act.

SPEAKER_01 1:32

And that in 513 deals with college expenses and or disabled children expenses.

SPEAKER_00 1:39

Exactly.

SPEAKER_01 1:40

And we'll talk more about that.

SPEAKER_00 1:41

In each instance, you have to file a petition in order to get the relief.

SPEAKER_01 1:45

Okay.

SPEAKER_00 1:45

Doesn't come automatically.

SPEAKER_01 1:47

And we'll talk about that more when we to talk about support, right? And get into great detail about that, because college could be a doozy of an argument. Absolutely. Who's going to pay? So, but if we stay with the actual student debt, now let's assume it's incurred. Um, when would a parent be responsible for debts involving their children's student loans?

SPEAKER_00 2:10

So if one of the parties files a 513 petition for contribution to college and related expenses, that's when it would come into play. Okay. And the court looks at each party's income and assets and ability to pay along with the child's ability to go to school. Do they have the grades, etc.?

SPEAKER_01 2:29

Okay. And so those debts can be allocated based on that.

SPEAKER_00 2:34

Right. And there's a trend to have the child have some skin in the game. So it's usually a percentage division.

SPEAKER_01 2:42

Okay. So let's go to now it's the husband or wife, the spouse who has student debt. Is that marital?

SPEAKER_00 2:51

If it was incurred prior to the marriage, it's non-marital. If it was incurred during the marriage, it's marital, is the presumption.

SPEAKER_01 2:57

Okay. So let's say that it was acquired before the marriage, but it was paid for marital assets during the marriage. Is there a reimbursement claim like we talked about before?

SPEAKER_00 3:09

Maybe. I can't be definitive, but maybe when you take into consideration all the other factors, would that be equitable? Because again, when you're dividing debt, it's equitably, not equally necessarily.

SPEAKER_01 3:26

And we seem to be saying maybe a lot. Um we have a statute, but every judge interprets it slightly different, don't they?

SPEAKER_00 3:35

They do, and there's different fact patterns that give rise to the obligations. That would be fun.

SPEAKER_01 3:52

But for right now, where we are is that we've still gone back to debts. So, okay, so we've got the student loans is one kind, and then we have like your your mortgage debt against real property, which would just affect the equity, right?

SPEAKER_00 4:07

It just affects the equity and usually follows the asset. And what I mean by that is if say the house is awarded to mom, she get awarded the mortgage that goes along with it.

SPEAKER_01 4:18

Okay. And um let's talk about debts that aren't, you know, affiliated with an asset. So um, because your student loans are kind of against your education, which is given an asset. But um, you know, if we move to like credit cards, to uh personal loans from family members, things like that, how are those allocated?

SPEAKER_00 4:43

We get that a lot, especially the personal loans from family members, say for instance, to pay attorney's fees or to pay for one of the children's private education tuition, things of that nature. Those would be divided equitably if they were incurred during the marriage.

SPEAKER_01 5:01

Okay. And if you borrowed money from your parent, so in other words, the parents of the parties getting divorced, um, isn't it true that money from a parent to a child is presumed to be a gift?

SPEAKER_00 5:16

It is, and there's more difficulty determining which is a gift. Is it really a loan and should it be awarded to that litigant?

SPEAKER_01 5:26

So if you're gonna borrow money from one of your parents to buy a house to put your child through a college, put it in writing. Put it in writing.

SPEAKER_00 5:34

Promissory note minimally. You have a pro I've got that going in two cases right now. It's ruining my case.

SPEAKER_01 5:40

And it could be hundreds of thousands of dollars, even millions of dollars, where you know, you may have a wealthy parent who helps you fund your your house, and they the the deal was you would pay them back.

SPEAKER_00 5:53

Right. And you have the added problem of what's called the statute of frauds, where everything related to a piece of real property has to be in writing in order for it to be enforceable.

SPEAKER_01 6:03

So, you know, be careful. If any of you out there are listening to this and you're a parent thinking of buying your child a house, or a grandparent, you know, thinking of helping out the kids with their college education, you know, think about making sure that you get a note to ensure that you do get paid back in the event that assets are sold or there's a divorce or whatever. Is that good advice?

SPEAKER_00 6:27

Great advice.

SPEAKER_01 6:28

Okay. So um, because I've seen that so often.

SPEAKER_00 6:32

I have it going right now where the parents bought the kids a house, then they went to a bank, had one meeting, then the kids opened up an LLC, then the kids filed for divorce, and the son-in-law's got his hand out. Where's my equity?

SPEAKER_01 6:46

Right. And it's really when parents are loaning their children this money, it's really like an advancement of their inheritance, is what they're thinking.

SPEAKER_00 6:57

True.

SPEAKER_01 6:58

But in a divorce, it could be divided, and I don't think you really intended to bequeath to your notes.

SPEAKER_00 7:06

Soon to e ex-son-in-law, or daughter, all this equity in the house. Yeah.

SPEAKER_01 7:11

Or daughter-in-law. Yeah. I mean, you know, same thing with you know, when people start a business, we have those liabilities. So let's say that the parties, one of the parties has a business and there's liabilities uh, you know, incurred due to the business. How are those allocated?

SPEAKER_00 7:28

They usually follow the business. So if the business is awarded to husband, say in this example, then he would get that debt.

SPEAKER_01 7:36

Okay.

SPEAKER_00 7:36

But what And then it's up to the attorneys to quantify that. You know, is it the amount of the debt? Is it set off against equity in the business?

SPEAKER_01 7:47

Yeah. Um credit cards. How many times have you seen it where you know the parties may have some credit card debt, and then one party or the other, as soon as there's a separation, is out front and off the credit card. Right. But it's during the marriage, so it's marital debt.

SPEAKER_00 8:03

Right. But therein lies our little safety measure of uh dissipation. It's one potential.

SPEAKER_01 8:12

Yeah, that's one way of doing it. But what about if it isn't dissipation? What about if it's just buying clothes, buying furniture for the new, you know, apartment or home, you know, things that aren't on a third party.

SPEAKER_00 8:25

You make the request that the individual who incurred it has to be responsible for it. Yeah.

SPEAKER_01 8:30

And but is does is that always followed?

SPEAKER_00 8:33

No.

SPEAKER_01 8:33

Okay.

SPEAKER_00 8:34

Not at all.

SPEAKER_01 8:35

Is this again a maybe?

SPEAKER_00 8:36

It's again a maybe, depending on the judge you have. I'm sorry, to report, or just the behavior of the parties. You know, how did they behave with their credit cards up to the filing of the divorce? And now it has there been a spike in it.

SPEAKER_01 8:52

Yeah. I mean, it's always seemed unfair to me that one party is paying the debt to furnish the new ones home. I mean, that just doesn't make any sense to me. But it happens and it happens all the time.

SPEAKER_00 9:05

Yes, it does.

SPEAKER_01 9:07

Um, what about, you know, where someone does start spending? We kind of talked about this a little bit in dissipation, outside the norm, not for a non-marital purpose, but outside the norm. They would normally have bought a hundred dollar belt, but now they're buying a Gucci belt for $1,000. Um, is that dissipation?

SPEAKER_00 9:30

No, but again, in that circumstance, you would seek to have whoever purchased the item responsible for the debt.

SPEAKER_01 9:38

Okay. Um, so when we talk about liabilities, it's really just another entry on the this balance sheet we've been working on, right?

SPEAKER_00 9:46

True.

SPEAKER_01 9:47

And isn't the beginning point of all this to take us back to when we were here a few days ago, isn't that all about that financial affidavit that you have to start with?

SPEAKER_00 9:59

Absolutely. And that's required of all Illinois litigants.

SPEAKER_01 10:03

And as we talked about, you've got to be honest on that. You can get you can get penalized by a court, you can be sanctioned by a court, the lawyers can be sanctioned by a court if you're not, you know, being forthcoming.

SPEAKER_00 10:17

Right. And you may not know everything, so leave it as an open item on your financial affidavit.

SPEAKER_01 10:22

Don't guess.

SPEAKER_00 10:23

Don't guess, don't volunteer. But investigation continues does work.

SPEAKER_01 10:29

Right. And when you say investigation continues, those are the buzzwords that lawyers use when we're doing discovery, which we'll talk about a little bit later, or when we're responding to a pleading or something like that, where we don't know the answer. And what we're telling the other side or the court is we're not sure yet, but we're going to continue to investigate. And when we get through with our investigation, then we'll come back and answer this again.

SPEAKER_00 10:56

Exactly. Modify the financial affidavit once the information becomes clear via discovery.

SPEAKER_01 11:01

Right. So when you see, you know, investigation continues, it's not a big deal, right?

SPEAKER_00 11:06

Right.

SPEAKER_01 11:07

Okay.