Marital Funds Used To Pay Separate Debt Results in Claim to Recoup

The Appellate Division answered a common question- what happens when one spouse uses marital assets to pay a separate obligation.

It is quite common for the parties to enter the marriage with existing  financial obligations, whether it be student loans, credit card debt or even an obligation to pay child support  or maintenance from a prior marriage. It would be the norm to pay these financial obligations from current income. The problem is that the separate debt is being paid with marital assets, the current income.

In the fascinating case of Johnson v. Chapin, the husband used martial assets for his separate obligation to pay support to his former spouse. The Appellate Division pointed out this scenario gave  his second wife’ the right to recoup her share of the marital property used to pay the husband’s separate debt.

There is ample authority for the proposition that contribution to the separate assets and liabilities of a former spouse may be recouped in an award of equitable distribution. For example, in Lewis v Lewis (6 AD3d 837 [2004]) the Third Department upheld an equitable distribution award which allowed a plaintiff to recoup 50% of payments made during the marriage to reduce mortgage indebtedness on a residence deemed to be the defendant's separate property. Citing numerous cases, the Court emphatically reaffirmed the settled principle that:

" marital funds should not be used to pay off separate liabilities' and, whenever that occurs, the inequity may be remedied by permitting the injured spouse to recoup his or her equitable share of the marital funds so used. . .

Similarly, in Dewell v Dewell (288 AD2d 252 [2001]), the Second Department held that the plaintiff was entitled to recoup 50% of marital funds used to reduce a deb incurred to obtain a medical license which, in the circumstances of that case, was found to constitute the defendant's separate property. Applying this authority, the court properly held that plaintiff was entitled to recoup 50% of marital funds used to meet the husband's separate legal obligations to his former wife.

What this means is that husbands need inventory their wives’ separate debt and wives need inventory their husbands’ separate debt. To the extent that either’s separate debt has been reduced or eliminated during the marriage, the other may make a claim to recoup his/her equitable share.

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