When Helping Can Hurt: How The Court Views Gifts, Debt, and Other Considerations In a Divorce

When it comes to a divorce resolution, the general assumption is that assets will be divided equitably — a 50-50 split of all property accrued within the duration of the marriage. But, like many things in a civil legal dispute, what is and what is not considered a shared asset or debt can vary from case to case. All assets and debts acquired during a marriage are subject to a rebuttable presumption that they belong equally to both parties upon divorce.

What is a rebuttable presumption?

Similar to the concept that a person is “innocent until proven guilty,” a rebuttable presumption in a legal concept that is initially presumed to be true. Specifically, in a divorce, all possessions acquired during a marriage are presumed to be subject to an equal division unless one party can prove that a specific piece of property, or debt, should be assigned to one party alone. These arguments could be applied to something like the marital appreciation on a premarital retirement or bank account, an inherited piece of property or a loan that only benefits one party. These are difficult arguments to win and the court might see it either way, depending on how the evidence and facts of each case. 

As a starting point, the court wants to make sure that parties to a divorce have disclosed all assets and debts. When it comes to determining a “fair” divorce settlement, generally everything will be equally divided no matter how particular assets or liabilities are titled. However, there are instances when the court will award an unequal division of a marital estate.  A party seeking to receive an unequal division has the burden of proving that there is a good reason to rebut the presumption of equal contribution. 

How aware are you about your family’s finances?

It is not unusual in many partnerships for there to be a division on labor where one party takes on the majority of tasks related to household finances. If you don’t have clarity regarding your personal finances, we recommend keeping track and gaining access to all bank and credit card accounts, loan information, retirement and investment accounts-basically any documentation that supports you or your spouse’s financial standing. While it is not uncommon for one party to a marriage to have more involvement in the marital finances, being in the dark can leave you at a disadvantage heading into a divorce. You deserve to have a full and fair understanding of your family’s financial picture.

How are gifts evaluated by the court in a divorce settlement?

It is not unusual for parents of one spouse to have given cash or other valuables as gifts during the course of a marriage. Though during the marriage, the concept of which spouse actually owns an asset gifted by a family member, these items can be perceived much differently during divorce proceedings. In these instances, it can become significant if the gifts in dispute were given to you before the marriage; during the marriage but intended solely to you; or received via an inheritance and held separately. In some cases, these facts can be used to support an argument that you have rebutted the presumption of equal contribution and these assets should be awarded to you alone.

How do you do this? You’ll need documentation. In the case of inheritance, a will or other legal documents can often illustrate the specific intent of the donor. In the previous two examples, letters or cards that accompanied a gift can be helpful in supporting an argument that a gift was intended for one party alone. It also very much depends on how the gift was used during the marriage. If the gift or inheritance was incorporated into the general marital finances, it will be harder to convince a court to award that asset to one party alone.  However, if you can prove a gift or inheritance was intended for you alone and largely held separately from other marital assets, then the court may deem this as being separate property. If not, it will likely be split equally. 

How does the court look at the distribution of debt?

Though the goal of a divorce settlement is a typically an equal distribution of assets and liabilities, this does not always mean that every debt will be split 50-50. There are numerous factors that will contribute to this determination. It might be a 50-50 split. It might be 70-30. If you are asking the court to award debt to the other party alone, there should be a good reason for the court to rebut the presumption of equal division.  What documentation do you have that supports your position that should not be equally responsible in repaying this debt?

Personal or business loans, credit card debt, tax debt, car loans, mortgages, and other types of both secured and unsecured debt are presumed to be equally divided among spouses, even if you were unaware of them when they were taken on. However, there can be exceptions in rare circumstances such as a large gambling debt that was hidden from the other spouse, or credit cards that were opened covertly and used for illicit, non-household purposes. Generally, most debts acquired during the marriage will be considered the equal responsibility of both parties upon divorce.

An important distinction to remember is that unpaid debt taken on prior to your marriage, like credit cards or student loans, likely won’t be split in your divorce settlement, but there can be exceptions. Be prepared. Timing matters when it comes to these considerations, but so does your ability to prove your case. 

I loaned my spouse money. Can that be awarded to me in our divorce settlement?

This is a tricky question as it is unlikely that a court will consider money exchanged between spouses to be a valid debt, subject to repayment once there is a divorce. Many couples, not assuming that they’ll even enter into a divorce, might agree to loan each other money during a relationship. Once a divorce is filed, people can call into question the true nature of the exchange, where one party classifies it as a loan and the other classifies it as a gift. Because all assets of a marriage are presumed to be joint, it can be a difficult argument to make that money was lent and intended to be repaid between spouses. Absent a specific and clear signed loan document outlining the terms of a loan and demonstrating that monies lent were non-marital, it is unlikely the court will order one party to pay the other back.

How do these situations affect my divorce settlement?

We feel it’s important for you to be aware of these issues as they can affect important decisions about things like spousal support, the distribution of assets, and other important things that affect your financial future. We suggest that if it is safe do so, spouses should seek as much financial transparency as they can within the bounds of their marriage. We encourage everyone to familiarize themselves with what assets exist and make sure that there is a good paper trail for gifts, loans, and inherited assets. It might not feel good to keep track of such things, but such clarity can benefit you in the long run and can help assure a just and equitable division of assets and debts upon divorce.