How Debt Allocation Agreements Protect Spouses

Do You Need a Debt Allocation Agreement?

The average Pennsylvanian has about $40,000 in debt, which is lower than the national average but still significant. During divorce proceedings, spouses often find out about thousands of dollars in debt to which they did not agree but may still be on the hook for repaying. Many family lawyers recommend a debt allocation agreement within a prenuptial agreement in order to avoid this scenario.

Pennsylvania Is an Equitable Distribution State

Equitable distribution is a legal concept that governs how marital assets and debts will be divvied. Pennsylvania does recognize a distinction between separate and marital property. If an asset is deemed separate property, the other spouse has no inherent right to it. Examples may include property:

• Acquired prior to being married
  
• Obtained after the couple is separated
  
• Explicitly excluded by a contract
  
• Received as part of an inheritance
  

Marital property includes all assets and debts acquired during the marriage. These can include credit card balances, loans, mortgages and so forth. Equitable distribution means that the courts will distribute those items in an equitable manner — in other words, what a judge deems fair and reasonable.

What If Your Distribution Is Not So Equal?

Equitable distribution means fair but not necessarily equal. Unfortunately, a judge’s idea of what is fair may not be the same as yours. This is why prenups are so important in Pennsylvania regardless of what your financial status is at the time you enter the marriage. If your spouse spends thousands on Philadelphia Eagles or Pittsburgh Steelers season tickets without your consent, a judge is not necessarily going to view that outstanding expense in the same negative way you might.

Prenuptial Agreements

A prenup or premarital contract is a contract agreed upon by two partners before entering marriage. It can protect those individuals during the union and if it ends in divorce. These agreements are governed by general federal, state and local contract rules and must be in writing and signed by both partners. Prenups will usually cover any items found within a divorce order, such as:

• Right to property
  
• Distribution of assets and debts
  
• Spousal support
  
• Family business management
  
• Insurance policy benefits
  

Debt Allocation Agreements

When many people consider prenups, they think of them in terms of assets. There is a stereotype about wealthy individuals using prenups to protect themselves from dishonorable partners entering marriages for all the wrong reasons. But prenups help you to protect your future no matter how wealthy you are. A debt allocation agreement is an aspect of a prenuptial agreement in which both parties are free of any debt that was not made jointly or lacks a signed document asserting the joint status. Many home-related loans require joint status, but if your spouse were to open up a credit line you did not know about and go on a huge spending spree, this agreement would protect you from those actions.

Is a Pennsylvania Court Required to Uphold a Prenup?

The Uniform Premarital Agreement Act was introduced to give individuals confidence that a prenup would be enforced while still allowing judges some leeway. Pennsylvania has not yet enacted or even introduced the act, so judges have much greater leeway. Still, courts will generally enforce prenups unless a spouse can prove the agreement was not entered into voluntarily, he or she had insufficient knowledge of the other spouse’s finances and behaviors during the marriage or the other spouse did not fully disclose assets and debts.

Protect Your Future

If you’re considering marriage or in the process of being married, we strongly recommend that you seek legal representation and take steps to protect your future. Many people have an impression that prenups are just for the rich, but this is not the case at all. At Joanne Kleiner & Associates, we focus on Pennsylvania family and divorce law and welcome the opportunity to consult with you on such matters. Set up your consultation with a family lawyer today by contacting us online or calling our Jenkintown office at 215-886-1266.