How Does Debt Get Handled in a Divorce?

It’s helpful to understand how the courts in New Jersey handle all debts and, in particular, credit card and college loan debts in the event of divorce.

During a divorce, you must consider many aspects of the partnership. One of those is the debt incurred during the marriage and how that will be distributed. It’s normal to wonder and worry if you’ll end up in a situation where you have to pay for the debts of your soon-to-be ex. Questions like, will I get saddled with my partner’s credit card or college debts, are totally normal, and you should explore them with an experienced attorney. 

That’s why It’s helpful to understand how the courts in New Jersey handle all debts and, in particular, credit card and college loan debts in the event of divorce.

What’s Considered an Equitable Division?

In New Jersey, the law clearly states that all marital assets and marital debts must be split equitably between the two spouses. This doesn’t necessarily mean an even 50-50 split right down the middle. 

This means that the court will review the assets and debts and then “fairly” split them between the two parties. These terms—equitably and fairly—are open to interpretation by the judge, so there’s some leeway here.

With debts, one of the first things that happens is to classify the debt as either separate or marital. A marital debt is anything accrued during the marriage. For instance, if the couple bought a house together or took out a personal loan, then that debt will be equitably split by the judge between the two. These debts are considered “for the benefit of the marriage.” 

If, however, one spouse took out a loan before the couple married (or even after they separated), then that’s a separate debt and is solely the responsibility of the spouse who took it on. Additionally, if a spouse misused the family assets (such as through gambling), then the judge can use his or her discretion to decide if that debt is marital or separate.

Here’s What Equitable Division of Assets Can Look Like in New Jersey

One of the most confusing terms to understand is the aspect of “equitable distribution.” As we explained, this doesn’t mean an even split, but it does involve multiple factors that a judge can consider before making a final ruling. These factors include:

• How long the couple has been married;
• The couple’s ages and current health status;
• The assets each spouse added to the marriage (both income and property); and
• The couple’s standard of living during the marriage.

If you do have marital debts that must be divided, then you also have some options. These include:

• Give the accompanying debt to the person who takes on a property: For instance, if one spouse gets the house, then they’ll take on the debt accompanying it.
• Balance out the debt-to-asset ratio: The spouse who takes on the largest portion of the debt should also receive the greatest number of assets to balance this out.
• Pay off the debts using the shared assets: If you have enough shared assets, you can pay off the debts and then split whatever assets remain.
• Work together to pay off debts: If the divorce is amicable, some spouses consider paying off the debts together. However, there’s no legal obligation to do this and if an ex stops making payments, then it can seriously impact the other spouse’s credit rating.

The Best Advice: Leave No Debt Behind After Divorce

The best advice that we can give to any divorcing couple is to completely sever all shared debt, if that’s possible in your specific financial circumstances. If you try to continue to pay off debts together, then you’re possibly setting yourself up for trouble and complications later. If you have joint credit card debt, pay it down as much as possible and then have it split into separate accounts. Or, you can have one spouse take on that particular card if you take on another. Just make sure that you’re removed from the account and your ex indemnifies you in the process. Your attorney can advise you further in this area.

When Debt Is Still a Factor Post-Divorce, Things Get Messy

The reality is that your finances will be affected if you get a divorce. If you can’t pay off your debt upfront, then it may be necessary to set up a payment plan or talk to the credit card company or lending bank to see what your options are. There are also tax implications for paying down debts or having one person assume the debt. This is why it’s important to talk to an experienced attorney and accountant to help you negotiate the best debt settlement with your ex-spouse.

An Experienced Family Law Attorney Can Ensure You Make the Best Decision

Money problems are already one of the top reasons why many marriages fail. But if you’re divorcing, it’s important to protect yourself so you only take on the debt you should reasonably expect. If your ex brought in a lot of debt to the marriage, such as credit cards or student loans, it’s most likely not your responsibility to pay those off. An attorney can help you reasonably calculate which debts you are liable for and which you are not. 

Contact Our Experienced Woodbury, NJ Equitable Distribution Lawyers to Learn More

At Smedley Law Group, we take a practical, results-oriented approach to helping our clients achieve their goals. Our mission is to help you navigate through the challenges of divorce so that you can get to the other side, where a bright new life awaits.

To learn more about our legal practice and how we can help you with equitable distribution in a divorce, contact our New Jersey family law attorneys today.  We’ll arrange a time to sit down and discuss your unique situation and goals.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.