Contingency Liability in a Divorce

By Rob Jennings J.D.

Contingent liabilities are potential debts where a party's responsibility has yet to be determined. At the time you and your spouse separate pursuant to a divorce, you may have pending situations where the outcome will depend upon future events, leaving you unable to determine for sure the amount you will owe or even whether you will owe anything at all.

Contingent liabilities are potential debts where a party's responsibility has yet to be determined. At the time you and your spouse separate pursuant to a divorce, you may have pending situations where the outcome will depend upon future events, leaving you unable to determine for sure the amount you will owe or even whether you will owe anything at all.

Tax Deficiencies

Money owed to state, federal or local governments based upon a couple's previous years' tax returns are a common form of contingent liability that arises during a divorce. Although state laws on debt division in divorce vary, debts incurred during marriage are generally considered to be "marital debts," which a family court judge has the power to assign as part of the divorce proceeding. Even if only one spouse was employed, a tax liability will commonly be considered a marital debt if the income that produced it was earned during the marriage. If the amount of the liability remains undetermined at the time the divorce is settled, the judge can assign responsibility to one party solely, or to both parties in equal or unequal shares.

Divorce is never easy, but we can help. Learn More

Repossesion of Marital Property

Financial pressures inherent in the divorce process can sometimes lead to foreclosures of real property and repossession of personal property such as vehicles or boats. When a creditor repossesses property, it will generally sell it at an auction to offset the debt. Sometimes this results in a deficiency between the sale price of the asset and the outstanding debt balance. Although the property sale may not occur before you're ready to divide your marital debts, the possibility exists that you and your former spouse may face a deficiency judgment on a joint mortgage or personal property loan. A divorce court order that gives one party the sole responsibility for a joint debt won't necessarily prevent the cosigner from being sued or having his or her property seized by the creditor if the debt is not paid.

Medical Bills

Contingent liabilities can arise from medical treatment rendered to a spouse prior to divorce. For example, under North Carolina's common law "doctrine of necessaries," you could find yourself being sued by doctors and hospitals who rendered necessary medical treatment to your spouse before the entry of a divorce judgment, even though you were separated at the time the treatment was provided. Due to pending insurance claims and unsettled disputes with providers, the precise amount of medical treatment liability, if any, may not be certain at the time marital property and debts are divided.

Civil Suits

Your responsibility for your ex's future legal judgments stemming from ongoing or potential civil suits for personal injuries, property damage, unpaid debts and breach of contract claims -- to name a few -- depends on the laws of your state. Even if the accident or event giving rise to the potential liability occurred during the marriage and appears to qualify as a marital debt under your state's laws, you may be able to exclude the contingent liability from being treated as marital debt if the act that gave rise to the liability could be classified as misconduct such as fraud, drunk driving or reckless spending.

Considerations

Contingent liabilities create problems when deciding how to divide marital property and debts because they can alter a party's financial position months or years after the divorce case is closed. In some states, even a separate debt -- one incurred before marriage begins or after it ends -- can affect how a court divides marital property and debts. The amount of contingent liability for debts also influences a party's ability to pay, or the need to receive, spousal or child support, so it is important to resolve as many contingent liabilities as possible before finalizing your divorce.

Divorce is never easy, but we can help. Learn More
Am I Liable for a Spouse's Debt Prior to a Divorce During Separation?

References

Related articles

How to Divide Things in a Divorce in Georgia

Georgia is one of the few states that allow for jury trials in a divorce -- at least with regard to issues of finances and property. If you and your spouse don't want to risk having a panel of your peers decide who gets what, you can opt to let a judge decide instead, or you can take matters into your own hands. You can negotiate an agreement with your spouse on your own.

How Is Marital Debt Divided in a Divorce in Georgia?

Georgia is an equitable distribution state, so one spouse always runs the risk of having more than half the marital debt assigned to him for payment in a divorce. Courts in equitable distribution states are not obligated to divide marital property or debts 50/50. The law gives judges the discretion to distribute debts and assets between divorcing spouses in a way that seems fair. Judges can take several factors into consideration, including the respective incomes of the parties and their ability to pay. This can result in a 60/40 distribution of debt, or even 70/30.

Divorce Laws Concerning Division of Postal Pension in North Carolina

In North Carolina, the court treats postal pensions like other retirement accounts during divorce. If contributions were made during the marriage, the court considers those proceeds to be marital property and subject to division. Unless you and your spouse reach your own property settlement agreement, the court will divide your pension equitably, based on the circumstances, which may result in an unequal split. However, the court can opt to award your spouse a greater share of marital property to offset your pension, allowing you to keep it intact.

Get Divorced Online

Related articles

Illinois Divorce Law on Credit Card Debt

Credits cards are a common way to purchase items when you need them. If you are married, you may not give a second ...

New York Divorce Laws & Credit Card Debt

A credit card balance may become a significant financial burden when spouses divorce, especially if neither spouse has ...

Divorce Laws on the Distribution of Debt

From mortgage loans to joint accounts, divorcing couples often have a lot to consider when dividing debt. If a ...

Financial Gifts in a Divorce

In many cases, if you personally receive money as a gift, it will not be affected by a divorce. Generally, gifts made ...

Browse by category