Most couples vow to remain true until death do them part. But it might be more accurate to have couples pledge to support one another until debt gets in the way. 

Attorney Bob Matteucci has noticed that a growing number of couples in the Albuquerque area are getting divorced for financial reasons. In many of these cases, dividing up their assets, calculating child support payments, and figuring out if alimony or spousal support payments are appropriate is no problem, but determining who is walking away from the marriage with the couple’s debt becomes contentious. 

One of the reasons things can get heated is that New Mexico’s community property laws presume that all debts accumulated during a marriage are shared debts. This means one partner can end up on the hook for money they didn’t even know their then-spouse was borrowing. 

Bob steps in to help divorcing couples descale debt-based disputes and figure out a way to move forward that is fair to everyone involved. 

Dividing Up Debts

Under New Mexico’s community property laws, almost all the assets and debts accumulated during the marriage must be divided 50/50 at the time of divorce. 

Most couples understand they will need to divide responsibility for debts they jointly agreed to incur. This includes shared debts like:

  • Mortgages,
  • Loans for home repairs or renovations,
  • Car loans, and 
  • Their child’s student loans.

But some partners chafe at taking responsibility for paying off debts their partner racked up on their own. Things like:

  • the loan one partner took out to start or grow their business, 
  • the payments due on a motorcycle/boat/sports car that only one partner agreed to purchase, and 
  • shopping sprees and solo vacations that went on a credit card.

However, our state’s community property laws, combined with our no-fault divorce law — which says neither partner should be blamed for the couple’s split — means a former spouse will often be stuck paying off debt they never explicitly agreed to be held responsible for. 

In the eyes of the law, all the couple’s debt is marital debt even if it was not technically shared debt. 

Why Does New Mexico Classify Most Debt As Marital Debt?

At first blush it seems unfair that spouses can burden one another with debt the other did not co-sign for. 

But proponents of community/marital/shared property argue that if couples were legally required to consult with one another before taking on any debt there is a risk that one would be shut out of the decision-making process or lack the authority to access the funds needed to escape an unsafe or unsatisfying marriage. 

Furthermore, saddling one partner with all the marital debt — even if they willingly incurred it — puts financial handcuffs on debtors in unhappy marriages. 

It is also important to note that if a divorcing couple were to stay together, all of the debts would likely be paid off with marital assets, no matter who took on the debt. 

Most but Not All Debt is Marital Debt

If you noticed there is a little wiggle room in what is considered marital debt you are correct. There are three types of debt that are considered separate debt. The partner who incurs a separate debt typically remains solely responsible for paying it off post-divorce. 

The three types of separate debt are:

  • Debts incurred outside of the marriage.
    • Any debt that a person accumulated before tying the knot typically remains his or her separate property if the couple continue to treat it as separate property. 
    • The same is true of the debt incurred by each party as they are in the process of divorcing. This is why it is a good idea to set up separate bank accounts as soon as you know you are headed toward divorce. 
  • Marital waste. When one partner spends the couple’s money in a way that is clearly not for the benefit of the marriage, that person may be responsible for paying back that money post-divorce. Some examples of this type of spending, which is formally known as marital waste, include funds spent on extramarital affairs or drugs and alcohol. 
  • Gambling debts. Gambling debt is a specific type of marital waste that New Mexico lawmakers have explicitly defined as a separate debt. Gambling debts always belong to the individual who incurred them.

It is also possible for a couple’s pre- or post-nuptial agreement to address the couple’s debt and classify some of it as separate. 

One of the first steps Attorney Matteucci takes when trying to help clients negotiate a divorce settlement is examining their debts to see if there are any that should be considered separate rather than shared or marital. This is often more difficult than you would expect. 

Transmutation Transforms Debts

It is important to identify separate debts so the non-responsible spouse does not end up paying them off, but this is easier said than done. Even when a debt was clearly a separate debt to begin with, over time it may become a martial debt. This is known as transmutation.

Transmutation occurs when separate and marital debts and assets are commingled to the point that it is impossible to prove a specific debt is separate debt. This happens in various ways, typically over many years.

  • Some couples consolidate and refinance debts in order to make paying them off more straightforward or to take advantage of low-interest rates. 
  • Many couples use marital funds to pay off separate debts. This can transform a separate debt into a marital debt, particularly if it is tied to an asset and the marital funds are building equity. 

Few couples think they should be wary of mingling their finances because they do not plan to get divorced, so this is a common issue. 

Serving Families with Dignity & Compassion 

Disagreements over debt cause divorce and make divorce more difficult for many New Mexico couples. Working with an experienced family law attorney like Bob Matteucci, who also has a strong financial background, can help you and your former partner come to an agreement over the division of debt that will allow both of you to move forward. If you have questions about shared, martial, and separate debt, or any other family law concern, please contact Bob today to schedule an initial consultation.