In as much as married couples work to divide their assets fairly during a divorce settlement, even more effort is put into an equitable distribution of the debts incurred during the marriage. Even if you’re not currently considering a divorce, it’s still critical that you understand what your legal and financial obligations are in this situation.
New Jersey is what’s referred to as an “equitable distribution” state, which means that when a married couple file for divorce that both their assets and liabilities are divided in a fair manner. Now, it’s important to understand that equitable is not the same as equal, in that you can’t expect your debts to divided 50/50. It would be preferable for couples to reach this decision amicably, but it normally falls to the courts to decide how the debts should be split up. In New Jersey marriage is considered an economic partnership so any assets or liabilities acquired during the marriage are subject to equitable division regardless of who feels they hold the title to a particular asset, or debt.
When it comes to the division of debt in a NJ divorce, you must first separate the debts into marital and non-marital. A non-marital debt is one you incurred before you were married. This debt will continue to be yours after the divorce, with student loans being a perfect example of this type of debt.
Marital debt is any debt which was incurred during the marriage, and from which both parties benefited. This can include real estate, vehicles, credit cards, personal loans, stocks, retirement funds, and other investments.
In an ideal world you would settle your debts before beginning divorce proceedings, because at least then you both know what your exact financial position will be after the divorce is finalized. This rarely happens however, leading to an ongoing debate about who owns the lion’s share of the marital debt. There are some minor exceptions in what can be considered marital or non-marital debt, but that goes beyond the scope of this article.
Once the court decides how your debts should be divided you are now obliged by law to pay that debt. If you can’t repay your court appointed debt then creditors are free to pursue you, which often results in the parties being pursued filing for bankruptcy.
Factors the court can take into account when deciding on equitable distribution of debts can include any of the following:
- Duration of the marriage
- The health and age of either spouse
- What debts either party brought into the marriage
- Any pre-nuptial agreement which exists
- Both parties’ economic circumstances
- The current value of all tangible and intangible assets
- A need for one spouse to occupy the family home for the sake of the children
Unfortunately, in NJ divorce cases one or both parties may not be fully aware of the debts incurred by the other. It’s all too common for a husband or wife to realize that their partner has several unknown lines of credit totaling tens of thousands of dollars. You could be liable for such debts if it was co-signed for, or was generated using a shared credit card, for example. Courts take a dim view of such reckless spending and will usually leave such debts as the responsibility of the person who incurred them.
It’s critical to understand your exact financial position before filing for divorce in New Jersey, so we recommend that you speak to an experienced divorce attorney before even bringing the subject up with your spouse. This can save you thousands of dollars in repaying debts that aren’t actually yours.