Debts in divorce are not treated the same as assets

In the recent case of Gilliam v. McGrady, decided April 15, 2010, the Virginia Supreme Court has held that debts incurred during the marriage are not presumed to be marital, as are assets, just because they were incurred during the marriage.  The Court said that the equitable distribution statute, Section 20-107.3, treats assets differently than debts in divorce.   While the statute sets up a presumption that assets acquired during the marriage are "marital" and thus subject to division by the Court, no such presumption exists for debts----the trial court is simply authorized to distribute and allocate the debts of the parties acquired prior to the dissolution of the marriage, and is instructed to consider certain factors in doing so.   A debt is not presumed to be "marital" simply because one of the spouses incurred the debt during the marriage.

The wife in Gilliam argued that tax debts incurred by the husband in the operation of his painting business should not be presumed marital, since they were incurred as a result of husband's refusal to comply with tax law, despite wife's efforts to get him to comply.   The Virginia Supreme Court agreed.

Typically, most divorce attorneys and judges have thought of assets and debts in the same way;  i.e., if they were acquired during the marriage, they are "marital".   Gilliam changes that approach, and shifts the burden of proof to the person contending that the debt is marital.  It therefore begs the question of whether all contested divorce cases involving debts are now going to require a "trial within a trial" to determine the proper classification of those debts.