Indiana Court of Appeals: Creditor Agreement with Husband Does Not Impair Joint Obligation Owed by Ex-Wife
Where a creditor has an agreement with two or more debtors that make them jointly and severally liable for the same debt, the creditor is permitted to enter into an agreed judgment with one debtor without that agreement barring the creditor’s recovery against the other debtor(s). That was the issue in the case of Lori Nicklas v. Von Tobel Corporation (pdf) decided by the Indiana Court of Appeals.
Lori and her then-husband, Shawn, had entered into a promissory note with Von Tobel whereby they agreed to repay $35,000. They apparently defaulted on the promissory note with about $30,000 still owing and Von Tobel sued them both. By the time of the lawsuit the couple had separated and defended themselves separately. Shawn entered into an agreed judgment. Lori argued that the effect of that agreed judgment was to preclude Von Tobel from recovering against her. Her argument seems to be that the settlement with Shawn fully compensated Von Tobel, that the underlying debt merged into the judgment against Shawn and was no longer available to pursue Lori.
Citing Indiana Trial Rule 19(E)(1) concerning joint obligors and 20(A)(2) concerning permissive joinder, the Court of Appeals observed that the agreed judgment with Shawn did not impair Lori’s obligations to Von Tobel. The Court said that Von Tobel was able to obtain judgment against one or both of the debtors even if it was only entitled to collect once.
In other words, the creditor can get a judgment against Debtor 1 for $30,000 and against Debtor 2 for $30,000, but when Debtors 1 and 2 combined pay that $30,000 (e.g. Debtor 1 pays $10,000 and Debtor 2 pays $20,000), they are entitled to a release of judgment.
I don’t know any details of the Von Tobel case beyond what is mentioned by the Court of Appeals. However, I will observe that in collection matters it is not uncommon for a married couple to incur a debt jointly, get divorced, and then resist the idea that they are jointly responsible for the full amount. After all, it’s unpleasant to have to pay money to a third party for something you believe benefited only your ex-spouse or where you believe you are paying more than your fair share. Often, however, the fairness of the post-divorce financial situation is not a legal concern of the third party creditor. Rather, if one former spouse ends up paying more than his or her fair share to a creditor, it’s up to the “overpaying” spouse to collect the difference from the “underpaying” spouse.
Of course, when confronted with this reality, the “overpaying” spouse will not infrequently complain that the ex-spouse is a deadbeat. Which is exactly why the creditor often required a joint obligation in the first place.