The Perils of the “Soft” Loan.

By the time you finish this, we might agree to re-caption this “The Perils of Non-Precedential Opinions.” The Superior Court may have done equity but, again, they used their “abuse of discretion” standard to ignore the law. The real challenge posed by Crawford v. Crawford is that it will be cited again and again in future appellate briefs to try to muddy the waters of when a loan is a marital debt.

The facts are pretty clear and the issue fairly common. The Crawfords marry in 1995 and separate in 2018. Along the way Mr. Crawford starts to borrow money from his mother. The facts presented in the appellate decision are a veritable sea of ambiguity. To confirm that here is the language employed in the panel decision of April 3.

“….Husband’s mother testified that she loaned Husband and Wife nearly $90,000 during the marriage.  ….Husband testified that he and Wife received the money. Husband argues that he presented cancelled checks to prove that wife was aware of and had made payments toward the loans.”

Let’s stop here to examine a bit of law. But then we should add that after 45 years of the Divorce Code, the law related to marital debt has never really been refined.  Marital property is:

§          3501.  Definitions.

(a)  General rule.–As used in this chapter, “marital property” means all property acquired by either party during the marriage and the increase in value of any nonmarital property acquired pursuant to paragraphs (1) and (3) as measured and determined under subsection (a.1).

The property sections of the Divorce Code really don’t speak to marital debt although the practice has always been to treat “all debt acquired by either party during the marriage” as marital and to divide is on the bases of Section 3502 principles. In theory to this day, a litigant can argue that the divorce courts lack jurisdiction to divide debt, marital or otherwise.

Now let’s look at how weak the opinion is on the facts. We don’t know when or how the money was received. We don’t know if, when, or how wife became aware of the debt. All we know is that Husband “presented” checks showing wife was aware of and made payments on the loan. Those are some pretty vital facts. Was this a situation where year in and out wife made out or signed checks which would signal her awareness of the nature and size of the loan(s)? Or was this: “Honey, would you send my mother a check for $250. I need to reimburse her.” Wife could have been completely duped by such requests-never knowing the extent of the debt. The fact that there was a note from husband to mom, signals that this was not a pattern of payday loans but a deepening quarry of debt. The extent of Wife’s involvement with this growing debt should be fully elucidated in the opinion because it seems clear it was a marital debt.

Instead, the Superior Court does a flyover. Husband did not produce the promissory note at trial. That’s a full station stop right there. “Sir, you borrowed $90K from your mom and confirmed it with a fully executed note but no one has it?” What payments were made and when? Is there a statute of limitations issue involved? Was Ms. Crawford’s record of payment suggestive that she understood she was paying on a loan?

The central issue on appeal was the handling of the maternal loan. The trial court found either (a) it was not proved or (b) it did nor benefit the marital estate. The Superior Court affirmed. The problem with the “did not exist” theory is that wife made payments of some kind on the non-existent loan. So, was that “Honey would you send my mom $250 in connection with my/our non-existant loan.”? Worse is this “benefitted the marital estate” theory. The world of divorce is filled with miscreant debt ranging from unproductive to malicious. Examples abound:

1. A spouse borrows $70,000 to pursue a graduate degree but never finishes the program.
2. A spouse borrows $70,000 from a joint home equity line to support his mistress and her endeavors to have a baby.
3. A spouse borrows $70,000 to acquire crypto or a non fungible token (NFT) and borrows the money from mom.

Let’s take the last example. Borrowed the $70,000 and bought the digital image. If the deal is a complete bust, is the debt non-marital and wholly in one spouse’s column? Take the same facts but Unilever decides it wants the image on one of its products (e.g., Axe, Hellman’s Mayo, Lifebouy soap) and pays $800,000 for the license. Is that non-marital? Put another way. Loss is on you but a win is for us and divisible in a divorce.

We need more facts and, candidly, we need a clarification of the law. Perhaps this wasn’t even a loan. Then, there should be a ruling saying it was a gift. But the resort to references to benefitting the marital estate is what the ski community would dub a “black diamond slippery slope.” Fifty years ago Microsoft was a fantasy likely to fail. Today $2.7 trillion in value. On the opposite end is Theranos. Elizabeth Holmes took that company from -0- to $4.5 billion. Today the company is gone and she owes her creditors $25 million.  Had she married the father of her kids, is that debt marital and, if not, why not? Recall that just because it is marital does not define how it should be divided. But marital assets and marital debt should have congruent perimeters.