A liability could typically be viewed as a debt. It could be a mortgage, it could be a credit card debt, it could be a personal loan, a car loan, among other debts and liabilities. Because there’s a whole range of things that could constitute liability in the divorce context, it is recommended to bring an experienced property division lawyer into the process of dividing debts.
For example, if the parties have a business, they might have some exposure because somebody walked into the business one day and someone broke their ankle and now they are suing them in civil court for damages. That could be another liability, if the business were marital, that the parties would need to look at.
When Virginia courts look at dividing liabilities, the court is going to evaluate what is legally presumed to be a separate debt or a marital debt. The court assigns a value to the debt, how much money is owed, and then the court is going to look at all the same factors that it looks at for dividing property and decide how the debt is to be apportioned between the spouses.
The mortgage is usually handled in conjunction with the division of the equity in the home or the real property. When the court decides what portion of the equity exists in the real property and what belongs to one spouse versus the other, they have to figure out what the value is and then deduct the mortgage, that leaves the court with the equity.
Equity is what will be divided between the parties. If a property is ordered to be sold, then the court is going to make a ruling that the mortgage comes out of the sales proceeds before dividing the proceeds.
In order to divide insurance as a liability in Virginia, the insurance policies would need to have value that includes life insurance. There are two main types of life insurance policies: term life policies and whole life policies. Whole life policies are the ones that typically have cash values. People pay into them for a period of time and as they are paying, the policy holds a specific value.
Insurance policies are handled in exactly the same way as any other property item would. The court has to decide if it is presumed to be a separate or a marital piece of property and then they assign a value to it. The value is of the whole life policy will depend on how long the parties have been paying it.
The court can distribute the policy to one party and make a monetary award to the other to pay that out for their share of the value in that policy.
The fact that both spouses contributed to payments during the marriage does not necessarily make that debt a marital debt. For example, if somebody came into the marriage with student loans and brought $30,000 of student loans into the marriage. If it was incurred during the marriage, is going to be a separate loan that is not subject to being divided by the Virginia courts when dividing the debts.
In the case where the loan was taken on during the marriage, then the court may divide it between the parties but that division is going to be based on what the purpose of the loan was and how the payments were made. If a student loan was incurred during the marriage, often times the court will not divide that based on the theory that the person whose loan it was the one who gets to walk away with the degree which helps them earn more later. If it were a loan, for example, for marital expenses, like a personal loan, then the court will be dividing that.
Once the court determines which credit cards are marital cards and have marital debt on them, then the court will look at the factors set out in the code to decide how to apportion those debts. If the debts that were incurred on the credit card were for the benefit of the family, they will typically divide them between the parties.
In many Virginia cases, assuming the party’s financial circumstances are comparable, and even sometimes when they are not, those liabilities will be divided between the parties. This means one party will be responsible for about half of it and one party will be responsible for the other half in many cases.