On April 11, 2006, the New Hampshire Supreme Court, in the case of Katherine F. Beal and R. Keith Beal , ruled a divorce court does not have the powers of a bankruptcy court. In the Beal case, the divorce court was asked, as is frequently done, to divide up the parties' assets and debts. The couple had assets of approximately $72,000.00 and debts of approximately $90,000.00.

Instead of dividing the assets and debts, the divorce court ordered property to be sold and appointed a commissioner to use the profits realized from the sale of the property to either pay off the couple's debt or negotiate with creditors for a lower payment. After the commissioner negotiated a payment plan with creditors or paid off the couple's debt, any remaining assets would then be divided between the parties.

The Supreme Court held that the divorce statutes only allows for property and debts to be divided between the parties. The statute does not allow the divorce court to function like a bankruptcy court, wherein a trustee is appointed to liquidate assets of the bankrupt debtor and use those liquidated assets to pay off the couple's creditors.

It is important to realize that when a divorce court orders one divorcing spouse to pay a joint debt, the divorce court does not have the power to change the contract that formed the basis of the debt. For example, both husband and wife are co-signers of a loan that was used to purchase a car. The car is awarded to the husband and the husband is ordered to pay the loan. If the husband refuses to pay the loan, the lender has the right to attempt to collect from both the husband and the wife. The wife cannot argue to the lender that the divorce order changes the terms of the loan. The wife's only recourse would be to sue the husband in a contempt proceeding for his violation of a court order.

In negotiating a dissolution of the marriage, it is important to consider whether a party who is assigned a debt has the ability to pay off the debt. If there is any doubt as to the debtor's ability to pay, one should consider asking the divorce court to order the debtor to sell the asset or to refinance the debt, therefore removing the other spouse's name from the obligation.

Andrew J. Piela is an associate attorney at Hamblett & Kerrigan, P.A. His legal practice includes civil litigation, family law, land use litigation and probate. You can reach Attorney Piela by e-mail at: apiela@hamker.com

This information is general information and may not reflect the most current legal developments, verdicts or settlements. The information provided should not be relied upon as an indication of the actual state of the law or of future developments. The information contained on the Hamblett & Kerrigan website is for informational purposes only and does not constitute legal advice. If the information referenced may be of legal importance to you, you should consult with an attorney to provide you with legal guidance and opinion as the the effect of the current law upon your situation.