New Jersey couples who divorce are tasked not only with dividing their marital property and assets, but also with untangling their shared debts. Married couples often have a complex web of intertwined debts, and it can be difficult to ensure that debt division is handled fairly and appropriately during the divorce process.

For example, is your name on your spouse’s auto loan? Do you and your spouse use a shared credit card for major or everyday expenses? Did you or your spouse bring personal debt into the marriage? Factors like these make the debt division process anything but black and white.

Determining who should be responsible to pay what, however, is just half of the battle. Individuals must work to help ensure that debt is divided in a manner that will protect them, to the extent possible, from future liability for debts that are assigned to their exes. Creditors do not automatically update the names on accounts to reflect the terms of divorce settlements. If a woman has a Discover card in her name, but a divorce settlement states that the balance will be paid by her ex-husband, she might still be held responsible by the creditor for the debt should the man fail to pay it.

To avoid that predicament, parties should work with their family law attorneys to make sure that their names are no longer tied to debts that are assigned to their exes in divorce, when this is possible. In some cases, this might entail paying off certain debts before the divorce is final. In others, the lawyers may structure the deal to include indemnification and hold harmless provisions, requiring the responsible party to pay the other party back if the other party is required to pay the debt, along with counsel fees and costs of defense or enforcement.  If there is a risk of a financially responsible party filing for bankruptcy, the other side’s careful lawyer will require inclusion of settlement agreement language that protects against discharge of marital debts.

The optimal way to divide debts depends on the circumstances of the divorce, the parties’ likely post-divorce financial state, and the liabilities involved. Often, use of credit experts, CPA’s, and financial planners will enhance the likelihood of post-divorce financial healing and of parties’ adherence to the deal they struck.  New Jersey residents need to be aware that the divorce decree in and of itself does not absolve the parties of creditors’ contractual rights or bind creditors to the parties’ deal.

Having the assistance of knowledgeable and experienced legal counsel promises the best solution to the complex marital estate, including an estate that contains more debts than assets.

Source: Huffington Post, “What Your Divorce Attorney Won’t Tell You About Marital Debt,” Cathy Meyer, March 2, 2014