Indemnification is an important concept in contract law. Most divorces are finalized by a contract which divides assets AND debts. Indemnification provides the functionality of how those debts are paid back and by whom. Debts, Divorce And Indemnification In Illinois Illinois divorce courts “shall divide the marital property without regard to marital misconduct in just proportions” 750 ILCS 503(d) “”[M]arital property” means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 503(a) (emphasis mine) “It is well settled that marital debts as well as marital assets must be distributed equitably.” In re Marriage of Lees, 224 Ill. App. 3d 691, 693 (Ill. App. Ct. 1992) The parties can agree on this division of debts or the court can order the debts to be divided equitably. Courts and parties have a great preference for assigning the responsibility for a party’s debts to the party themselves. This is because of the logistical nightmare that is required for one party to be responsible for the debts of another party. In fact, courts are inclined to order assets sold in order to pay off joint debts or debts that the other party would, alternatively, be responsible for. Parties to a divorce do not have to allow a judge to carve up their debts. They can come to mutual agreements regarding their debts and who will be responsible. This mutual contracting for debt responsibility is called “indemnification.” To indemnify is “[t]o reimburse (another) for a loss suffered because of a third party’s or one’s own act or default; [to] hold harmless….To promise to reimburse (another) for such a loss.” Black’s Law Dictionary (11th ed. 2019) The responsibility for those debts may be allocated by the final Marital Settlement Agreement but the third-party creditor does not care. The third-party creditor just wants their money. The third-party creditor does not care who they get their money from, the third-party creditor just wants their money no matter what the parties’ Marital Settlement Agreement says. Indemnification solves the “third-party creditor doesn’t care who it collects from” problem by creating an agreement between the parties that promises to reimburse the other party if a third-party creditor collects from the other party. Upon receiving a bill for a debt that was properly indemnified, the party should inform their indemnifier to pay the debt per the agreement. Failure to pay the debt per the agreement, will result in a […]
