When most New Jerseyans think about divorcing, they focus on the “big ticket” items, like child custody and parenting time, child support, alimony, and division of
assets. Here is an important topic that isn’t as attractive or compelling to most people: allocation and division of debts.

Under New Jersey law, marital debt is divided between the parties as part of the equitable distribution process, which splits up assets and debts in what should be a fair manner. But equitable does not necessarily mean equal.  Separate, non-marital debt belongs to the individual who acquired it; it is not divided. Whether a debt is marital or separate can be a major point of contention.

Marital debt is typically incurred from the start of the marriage to the divorce filing date.If the debt benefited both spouses, then paying it should be divided between
them, too. The focus is not in whose name the debt was created. One spouse mayhave incurred the debt for convenience, or it may have been cheaper and easier for one spouse to get a loan because of a better credit score or higher income.

Non-marital debt is incurred either prior to the marriage, after the divorce is filed, or for some purpose that has no benefit to the marriage.

Credit card debt may be distributed equally if it was incurred during the marriage for a marital purpose, or if the best source of repayment is at out of house closing proceeds or liquidation of another asset. If credit was used for living expenses and to support the spouses’ lifestyle, then such debt may be divided based on the individuals’ respective incomes. The higher earning spouse may get more of the credit card debt to repay.

Credit card debt incurred after the divorce filing may get split between the parties if it was used to maintain a home and for a child’s welfare, pending interim motion practice or settlement. Otherwise, if a party goes into debt after the divorce filing, it’s considered non-marital and is the responsibility of the individual to repay.

One spouse may create bogus debts to decrease their net worth on paper so they can claim more assets for themselves. Money sent to a spouse during the marriage by family or friends with no expectation of repayment may, when a divorce appears on the horizon, suddenly turn into “debts”, as people providing financial help suddenly insist there be repayment.  An
example is a long-term marriage in which one party’s parents contributed a large down payment many years ago, when divorce was never on either party’s mind.  At the time of divorce, that party may declare a “debt” owed to his or her parents, even though the result would be a radical reduction in divisible home equity. If there is no paper trail establishing a proper debt in those circumstances, then the “debt” is most likely going to be ignored and declared the responsibility of the “obligor”, if there really is an obligor.

A word of advice:  The parties should pay off as much joint debt as possible before the divorce begins. Divorce almost always results in a worse financial situation for both parties. It may be harder and it will take longer to pay down joint marital debt after the couple splits, thereby increasing and delaying costs. Credit scores can drop and interest rates could increase. You will need to rebuild your credit history.  Falling behind in debt repayments will make that goal difficult — maybe impossible — to achieve.

If you are considering a New Jersey divorce or have questions about equitable distribution, please call the family law experts at Kingston Law Group.  We will listen to your facts, explain the law, and suggest approaches that are just, right, and reasonable for you.  We are compassionate counsel and tough advocates.  Call us at 609-683-7400, or contact us online, to make a near-term initial consultation at a reduced fee.  We are conveniently located in Central Jersey’s Kingston community. Call today.  You will be glad you did.