Opinion | Vail Law: Understanding marital debt

“Let us be lovers, we’ll marry our fortunes together…” — Paul Simon, 1968

What’s yours is mine. And what’s mine is yours.

That pretty well sums up the financial equation when you marry; your fortunes — or lack thereof — merge. At least in part.

We’ve all heard about people marrying for money; May-December couplings come to mind. But most folks likely don’t much think about the opposite; rather than marrying for money, what about marrying for debt? Um, why would you?

I suppose there are a couple of potential answers; love is blind; who you married didn’t start out in debt; or, even if s/he was up to his/her eyeballs when you said your “I dos,” you were convinced that things would soon get better. Maybe there are other reasons as well.

Support Local Journalism

Donate

A good place to start is with an understanding of what, financially, is marital property and what is not. How, when you marry, are your fortunes inexorably braided together?

In the absence of a pre-marital or prenuptial agreement, the general rule in this state is that whatever comes into the marriage — however it comes into the marriage — except by way of inheritance or gift to one but not both of you — is marital. Earnings, other income, investments — all of it is thrown into one unified marital melting pot. What you had before marriage though, unless “transmuted” into marital property, remains your own. An example or two here might help.

Say the day before your marriage, you owned a home. Say further that on that date the home had equity in the amount of $500,000. That, unless you affirmatively change its character from separate property to martial, should you one day split, remains your own. But say on the day the two of you divorce, the home equity is now $750,000. As $250,000 of that gain happened during the marriage, it is jointly owned. You keep your original $500,000 and you split the gain. Similarly, let’s say your 401(k) or other investment vehicle is valued at $200,000 the day before you marry and, on the day you split is worth $500,000. The $300,000 gain is both of yours. This is true even if only one of you contributed to it or if one of you outearns the other (or even if the other is a stay-at-home parent). By the way, for purposes of allocating the martial estate, it doesn’t matter how things are titled. For example, if the marital home is titled only in one name it is still jointly owned — at least as to the appreciation of the value.

Although it is perhaps less thought about, the same is true of debt. Premarital debt is separate. Debt incurred during the marriage — even if only one of you was profligate with credits cards — is both of yours.

Two other things are worth mentioning. First, you can change the character of separate property. For example, your inheritance, while it started out as only yours, can become both of yours if you place it in a joint account. The same with real estate and/or investments; although the pre-marital value is separate, you can change that by certain affirmative acts disavowing its separate character.

Even though the general rules of what makes up marital property and debt are what they are, the parties can agree by a pre-nuptial (or, equally, a post-nuptial agreement) to alter those presumptions. The parties can agree — as but one example — that all growth on prior-owned investments will remain the separate property of that party. Or whatever income each party earns will remain his or her separate property unless co-mingled.

Same with debt. While debt accrued during marriage is a joint liability, you can agree to make it otherwise. That said, however, creditors may not agree. If, say, you hold a joint credit card, Cap One, or whoever else the issuer might be, will likely look to both of you for repayment, your pre-nup agreement be damned.

Love and marriage, prosperity and debt. How does the old ditty go? “…go together like a horse and carriage.” Perhaps with debt at least, it is the beast of burden allusion in that simile that is ultimately and truly poignant.

Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley with the law firm of Caplan & Earnest LLC. His practice areas include business and commercial transactions; real estate and development; family law, custody and divorce; and civil litigation. Robbins may be reached at 970-926-4461 or Rrobbins@CELaw.com.