Posted on April 14, 2022

Debt And Divorce In Illinois

While a divorce is usually about who gets what asset, most people have a mix of assets and debts. A married couple’s debts are also divided in an Illinois divorce.

Illinois divorce courts “shall divide the marital property without regard to marital misconduct in just proportions” 750 ILCS 503(d)

“It is well settled that marital debts as well as marital assets must be distributed equitably.” In re Marriage of Lees, 224 Ill. App. 3d 691, 693 (Ill. App. Ct. 1992)

“”marital property” means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 503(a) (emphasis mine)

Not all debt will be divided in an Illinois divorce. Some debt will be labelled as “non-marital” and, therefore, be assigned to the party’s whose name is associated with that debt.

The Illinois Marriage And Dissolution Of Marriage Statute uses the word “property” when discussing the distribution of assets and debts. I have substituted the word “property” with “debt” below for clarity as we are discussing debts.

“[T]he court shall assign each spouse’s non-marital [debt] to that spouse.” 750 ILCS 5/503(d)

“(3) [debt] acquired by a spouse after a judgment of legal separation;

(4) [debt] excluded by valid agreement of the parties, including a premarital agreement or a postnuptial agreement;

(6) [debt] acquired before the marriage…

(6.5) all property acquired by a spouse by the sole use of non-marital property as collateral for a loan that then is used to acquire property during the marriage; to the extent that the marital estate repays any portion of the loan, it shall be considered a contribution from the marital estate to the non-marital estate subject to reimbursement;

(7) the increase in [amount] of non-marital [debt]…” 750 ILCS 503(a)

99% of debt determined to be non-marital will be because the debt was accrued before the marriage.

Marital debt will be divided but, in my experience, it is usually not divided the way assets are divided.

Illinois divorce courts can divide assets and debts in any way they find to be fair.

“The [Illinois Marriage and Dissolution of Marriage] Act does not require an equal division of marital property, but an equitable division” In re Marriage of Jones, 543 NE 2d 119 – Ill: Appellate Court, 1st Dist. 1989

“An equitable allocation of debts need not be mathematically equal.” In re Marriage of Hamilton, 128 NE 3d 1237 – Ill: Appellate Court, 5th Dist. 2019

An Illinois divorce court will divide debt after considering “each party’s contribution to the acquisition, preservation, or increase or decrease in value of the marital or non-marital [debt]…whether the contribution is after the commencement of a proceeding for dissolution of marriage or declaration of invalidity of marriage” 750 ILCS 5/503

In my experience, this means that a court will saddle each party’s debt accrued after the filing of the Petition For Dissolution Of Marriage.

In today’s world, it is rare to have a fixed asset that is not associated with some kind of debt. For most, buying a house requires a mortgage or buying a car requires a car loan. People even buy jewelry on collateral credit. If one party is awarded a property with a fixed debt associated with the property, that party is also going to be awarded the debt associated with the property…because the alternative would be impractical and absurd.

Likewise, student loans are usually allocated to the person who acquired them. After all, the student loan borrower has all that valuable information still in their head.

Practicality is the strongest consideration in awarding the responsibility for a debt. So, debts are often awarded to the person who can actually pay them. Otherwise, the unpayable debts would spiral out of control until the party who cannot pay the debts is driven into bankruptcy.

“Where one party is substantially responsible for the creation of the debt and has a substantially greater capacity to earn money, it is not an abuse of discretion for the trial court to assign the overwhelming majority of debt to that party.” In re Marriage of Werries, 247 Ill. App. 3d 639, 649-51 (1993)

In exchange for taking on more payable debt, a party will usually be awarded more assets.

A party will “receive[] the bulk of the marital assets because [they] had the duty to repay marital debt.” In re Marriage of Hart, 551 NE 2d 737 – Ill: Appellate Court, 4th Dist. 1990

While courts have great flexibility in their capacity to assign each divorcing party particular debts, courts hardly ever order parties to pay particular debts not in their name.

Assigning a debt to a particular person when the debt is not in that person’s name is terribly impractical. The creditor is not a party to the divorce and the creditor is not bound by the divorce decree. The creditor will collect from the person they have a debt contract with…no matter what the divorce decree says.

If a debt is ordered paid by a divorcing party who does NOT have that debt in their name, the party whose debt is in their name must still pay the debt…while the other party reimburses them.

The point of a divorce is to separate the party’s mutual financial obligations…not to further entangle the divorced parties financially.

How Debt Really Gets Divided In An Illinois Divorce

99% of the time the parties to an Illinois divorce divide the debt by agreement. The parties entere into a Marital Settlement Agreement which allocates all of their assets and debts.  

“A [Marital Settlement Agreement] is  a  type  of  contract, to  which  the  normal  rules  of  contract  interpretation apply” In Re Marriage of Solecki, 2020 IL App (2d) 190381

This allows the parties to take on debts based on the benefit of each party. This always means the party who keeps an asset will keep the debt associated with the asset. Debts assigned to each party will be accompanied by a promise to indemnify the other party.

Indemnify means “[t]o save harmless; to secure against loss or damage; to give security for the reimbursement of a person in case of an anticipated loss falling upon him.” Black’s Law Dictionary (10th ed. 2014)

Typically, the parties indemnify each other from any duties for the debts in their own names with language such as “Each party shall each shall indemnify and hold the other party harmless on all debt held in their name.”

Parties may indemnify debts not in their own name…but this is impractical and irrelevant to the creditor (as discussed above)

In lieu of dividing debts, parties often sell assets and pay off the debts, thereby eliminating two issues in their divorce simultaneously.

Debts accrued after separation are usually deemed the responsibility of the party who incurred that debt. Courts presume that all debts incurred after the separation are for a “purpose unrelated to the marriage at a time when the marriage is undergoing an irreconcilable breakdown [and are therefore non-marital]” In Re Marriage of Tietz, 605 NE 2d 670 Ill Appellate Court, 4th Dist. 1992

Illinois courts only regularly get involved in debts on a temporary basis in order to sell assets to pay debts and current marital obligations…or make new debts to pay current marital obligations.

Creditors And Debts In An Illinois Divorce

Creditors (the people that are owed the money) don’t really care about how the debt is divided or who indemnifies who. Creditors want their money and they will get it from whomever they can.

If the debt was for a clearly marital expense, the creditor can sue either the husband and/or the wife (or the wife and/or the wife or the husband and/or the husband).

“The expenses of the family and of the education of the children shall be chargeable upon the property of both husband and wife, or of either of them, in favor of creditors therefor, and in relation thereto they may be sued jointly or separately.” 750 ILCS 65/15(a)(1)

Otherwise, the creditor can only pursue the spouse who actually contracted for the debt.

“No creditor, who has a claim against a spouse or former spouse for an expense incurred by that spouse or former spouse which is not a family expense, shall maintain an action against the other spouse or former spouse for that expense except:

(A) an expense for which the other spouse or former spouse agreed, in writing, to be liable; or

(B) an expense for goods or merchandise purchased by or in the possession of the other spouse or former spouse, or for services ordered by the other spouse or former spouse.” 750 ILCS 65/15(a)(2)

Creditors can’t even bother the spouse or ex-spouse who isn’t personally liable for the debt.

“No creditor shall…engage in any collection efforts against the other spouse or former spouse, including, but not limited to, informal or formal collection attempts, referral of the claim to a collector or collection agency for collection from the other spouse or former spouse, or making any representation to a credit reporting agency that the other spouse or former spouse is any way liable for payment of the claim.” 750 ILCS 65/15(a)(4)

Temporary Orders To Pay Debts Or Borrow In An Illinois Divorce

During the course of the divorce parties can request that assets be sold for expenses (such as debts) or that new debts be acquired in order to pay expenses.

““Either party may petition or move for…other appropriate temporary relief including, in the discretion of the court, ordering the purchase or sale of assets and requiring that a party or parties borrow funds in the appropriate circumstances.” 750 ILCS 5/501(a)(3)

Don’t be surprised if an Illinois divorce court gently nudges the parties to sell sufficient assets to pay off all marital debts and, thereby, simplify the divorce.

Bankruptcy And Debt In An Illinois Divorce

At any time during the conversation regarding debt, a party to an Illinois divorce may completely upset the apple cart and say “I’m not paying any debt, ever. I’m filing for a Chapter 7 bankruptcy.”

First, this freezes the divorce process entirely until the bankruptcy is complete (with exceptions for child support, maintenance and parenting issues).

“[A] petition [for bankruptcy] operates as a stay…any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate” 11 U.S.C. §362(a)(3)

A bankruptcy will discharge all debts to third parties by the spouse that filed for bankruptcy. A bankruptcy will not eliminate the debt or obligation of one spouse to another…including indemnifications from third party claims.

 “The divorce decree does not create a debtor/creditor relationship between the debtor spouse and the nondebtor spouse.” In re Brown, 168 BR 331 – Bankr. Court, ND Illinois 1994

 “A [bankruptcy] discharge under section 727, 1141, 1192 [1] 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt

to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;” 11 U.S. Code § 523(a)(15)

To reiterate, bankruptcies eliminate third party claims against the party who filed for bankruptcy. But bankruptcies also put any assets that are held jointly or in the bankrupt party’s name at risk of seizure by the trustee for distribution to creditors.

Debts To Attorneys At The End Of A Divorce

At the end of a divorce, the parties often have debts to their respective attorneys’ fees. Attorneys’ fee debts were incurred during the marriage and presumptively marital…thus divisible.

Most parties agree to be responsible for their own attorney’s fees in the final Marital Settlement Agreement. But, if the divorce case was contested to the point of trial, the parties get one last separate trial regarding their debt to the attorneys.

“After proofs have closed in the final hearing on all other issues between the parties, a party’s petition for contribution to fees and costs incurred in the proceeding shall be heard and decided.” 750 ILCS 5/503(j)

Rest assured that you and your spouse’s divorce attorneys will demand a judgment for their fees after their work is done.

I always file a fee petition against my client (and the opposing party if there wasn’t an agreement for each party to be responsible for their own fees). As Michael Corleone said in The Godfather, “It’s not personal…it’s strictly business.”

Illinois divorce attorneys get to collect our fees in the very divorce case we litigated.

“The attorneys for the litigants in a dissolution proceeding are considered as parties in interest in an action for attorney’s fees to the extent that while such fees are generally awarded to the client, they properly ‘belong’ to the attorney.” In re Marriage of Baltzer, 150 Ill. App. 3d 890, 893 (1986)

A rich relative once told me “nobody ever got rich unless they first walked into a bank and asked for a loan.” Debt is scary but manageable as a business person, an investor, a homeowner, a student and even a driver. Debt should also be manageable in a divorce.

If you are concerned about what will happen after an Illinois divorce to the debt that you and/or your spouse carry, contact my Chicago, Illinois family law firm to consult with an experienced Chicago divorce lawyer.

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Russell Knight

Russell D. Knight has been practicing family law as a Chicago divorce lawyer since 2006. Russell D. Knight amicably resolves tough cases while remaining a strong advocate for his client’s interests.

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