Consider a counter-intuitive scenario: Before marriage, A purchases a financed house in which the spouses subsequently reside. Later, B desires a divorce, but has not told A. Substantial debt remains encumbering the house. In most cases – regardless whether marital/community funds serviced the debt – B should pay A’s debt using marital/community assets, even if B must borrow to do so. Indeed, in many cases, B should use separate property to pay A’s debt! States, courts, and academics have long wrestled with the separate-house/separate-debt serviced-by-marital-funds scenario. While many have recognized existing formula flaws, none have proposed a workable solution. This article does. As it also demonstrates, often a non-owner-spouse can generate an enormous profit from deceiving his/her owner-spouse. In California and Florida, all it takes is “Honey, I love you . . . let me pay your debt.” Who would not fall for that? Read on, with the hope that you will not. __________________ Many state property division formulas deal with debt payments, but none properly consider the financial, accounting, and economic consequences. Sometimes a state achieves a fair result, but more by happenstance than because of a valid economic formula. Often, state formulas reward bad decisions and punish good ones. Some are easily manipulated by devious (well-advised?) spouses. This article suggests an Economic Reimbursement Formula for most separate debts paid with marital funds. A spouse would owe reimbursement for the payment of separate liabilities – both interest and principal – equal to the present value of prior payments. This proposal differs from existing formulas in multiple ways: • It considers both interest and principal. • It considers the timing of payments. • It provides a reasonable return to the non-debtor spouse, using a predictable measure. • It applies to secured and unsecured loans. Additionally, the proposed formula could apply to the opposite situation: non-marital funds enhancing marital assets. The focus of the article, however, rests on the payment of separate liabilities with marital/community funds. Replying in advance to anticipated concerns: • Computations and record-keeping would be simple. • Including interest will not result in unreasonable numbers; indeed, the results will be similar to many current court-imposed results, but without the potential distortions current formulas inherently include. • Including the “return on investment” – which considers the timing of each payment – is neither complex nor unreasonable in amount.

Included in

Law Commons



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.