§6.6 Debts

JurisdictionOregon
§ 6.6 DEBTS

§ 6.6-1 Generally

"As part of its authority to divide property, a court may divide the debts that the parties incur[red] during the marriage." In re Marriage of Kirkendall, 211 Or App 566, 571, 156 P3d 84 (2007). See also In re Marriage of Shlitter, 188 Or App 277, 283, 71 P3d 154 (2003). The allocation of marital debts between the parties is just as important as allocating the marital assets and is a task that the court cannot ignore. See In re Marriage of Nolan, 20 Or App 432, 436, 532 P2d 35 (1975).

Debts acquired during the marriage, as with assets acquired during the marriage, should be subject to the presumption of equal contribution (and divided evenly in the absence of rebuttal). See ORS 107.105(1)(f)(C). Similar to assets, the court can consider debts incurred while the dissolution case is pending. In re Marriage of Berg, 250 Or App 1, 279 P3d 286 (2012). However, as with all assets, the ultimate division of each debt is guided by consideration of what is just and proper. ORS 107.105(1)(f); In re Marriage of Branscomb, 201 Or App 188, 200, 117 P3d 1051, rev den, 339 Or 544 (2005). "Equitable division is not necessarily equal division. . . . Each case depends on its particular facts." In re Marriage of Uwimana & Rwangano, 209 Or App 693, 696, 149 P3d 257 (2006) (internal citation omitted).

For an example of the court rendering a property-division analysis on a marital debt, see In re Marriage of Morton, 252 Or App 525, 540-41, 287 P3d 1227 (2012). In Morton, the husband appealed the trial court's order that he be solely responsible for a debt to his employer that he claimed he incurred making draws on his employment income to benefit the family. The appellate court upheld the trial court's decision to exclude consideration of that debt based on a just and proper analysis. The trial court could have found that, in the broader context of the parties' respective financial circumstances, it was equitable to order the husband to pay the debt to his employer. Citing a concern for "economic self-sufficiency" for the wife after judgment (see § 6.2-1 applying this concept to assets), the court upheld exclusion of the debt (though it was incurred during the marriage and was arguably for marital purposes) from the overall property-division analysis based on a just and proper determination. Morton, 252 Or App at 540.

PRACTICE TIP

The lawyer should always consider the impact on the "just and proper" distribution of assets and liabilities of the interest that will accrue on the liabilities that a party assumes, for example, when the net distribution may be equal but the husband has all the liabilities, each of which accrues interest at 18 percent per annum, and the parties know he cannot afford to pay off the liability without accruing a significant interest debt.

Similarly, the court has held that it may be unfair to award one party all the assets and the other the debts, even when there are limited assets but seemingly unlimited debts. For example, in In re Marriage of Moore, 56 Or App 90, 93, 641 P2d 74 (1982), the court refused to award the family home, which was the only major marital asset, to the wife and all the debts to the husband. The court ordered that the home should be sold and the equity used to satisfy the debts. But see In re Marriage of Kime, 57 Or App 362, 365, 644 P2d 638, on recons, 58 Or App 71, 647 P2d 478, rev den, 293 Or 521 (1982), in which the court deemed it proper to order the husband to pay the mortgage on the family home that was awarded to the wife.

PRACTICE TIP

It might be good practice to require the party assuming the debt to indemnify and hold the other party harmless from that debt. This creates a right to seek recovery if the debt is not paid as ordered and the nonobligated party is required to pay the debt. However, this action could adversely affect the ability of a party to declare bankruptcy.

One goal that the court has expressed is to disentangle the parties' finances to the greatest extent possible. With that stated goal, the Court of Appeals, in Mallorie & Mallorie, 200 Or App 204, 223-24, 113 P3d 924 (2005), rev den, 340 Or 18 (2006), ordered that a certain marital debt should be paid entirely by the husband rather than requiring each party to pay one half of the debt as the trial court had ordered.

Cases have also recognized a distinction between marital debts and debts that benefitted only one of the parties. In determining the nature of a...

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