How is Debt Divided in a Divorce in New Jersey?
Divorce involves untangling not just the emotional ties but also the financial ones. When you and your spouse decide to part ways, you’ll need to divide your assets and debts.
While most people focus on splitting assets like the house, cars, and bank accounts, understanding how debt is divided in a divorce is just as important for protecting your financial future.
Types of Debt in a Divorce
When it comes to dividing debt in a divorce, the first step is to identify whether the debt is considered marital or separate. Marital debt is any debt acquired during the marriage, regardless of which spouse’s name is on the account. This can include:
- Credit card debt
- Mortgage debt
- Auto loan debt
- Medical debt
- Student loan debt
Separate debt, on the other hand, is debt that was incurred before the marriage or after the date of separation. In some cases, debt acquired during the marriage may also be considered separate if it was used for non-marital purposes, such as gambling or an extramarital affair.
Factors Considered in Dividing Debt During a New Jersey Divorce
New Jersey is an equitable distribution state, which means that the court aims to divide marital assets and debts in a fair and equitable manner, though not necessarily equally. When determining how to split debt in a divorce, the court will consider several factors, including:
- Income and earning potential of each spouse
- Length of the marriage
- Contributions to the marriage (financial and non-financial)
- Age and health of each spouse
It’s important to note that even if a debt is only in one spouse’s name, it may still be considered marital debt and subject to division in the divorce.
Divorce Decrees in Debt Division
Once the court has determined how to divide the marital debt, the terms will be outlined in a legally binding document called a divorce decree. This decree will specify each spouse’s responsibility for paying off certain debts.
It’s essential to ensure that the language in the divorce decree is clear and specific to avoid any confusion or disputes down the line.
However, while the divorce decree is binding between you and your ex-spouse, it does not override any agreements you have with your creditors. This means that if your ex-spouse fails to make payments on a debt they were assigned in the divorce, the creditor may still hold you responsible if your name is on the account.
Exploring Various Debt Division Strategies
When dividing debt during a divorce, couples have several strategies to consider:
Equal Division
Allocate debts equally between both parties, regardless of who incurred the debt or who benefited from it. This 50/50 split ensures a straightforward and even distribution of liabilities.
Proportional Division
Allocate debts based on each spouse’s financial capacity, considering factors such as income, earning potential, and other financial obligations. This strategy aims to distribute liabilities fairly based on each party’s ability to repay.
Debt Assumption
Assign specific debts to each spouse based on their ability to manage or repay them. This customized allocation takes into account each spouse’s individual financial circumstances and capabilities.
Trade-Offs
Exchange assets or other financial considerations to offset the burden of certain debts. For example, one spouse may take on more debt in exchange for a greater share of marital assets, ensuring a balanced distribution.
At Netsquire, our experienced divorce mediators can help you explore these debt division strategies and determine the most suitable approach for your unique situation. Contact us to learn more about protecting your financial interests during your divorce.
Protecting Your Credit During and After Divorce
Safeguarding your credit is crucial during and after a divorce. Here are some steps you can take to protect your financial standing:
- Check your credit report regularly to ensure that all debts are being paid as agreed upon in the divorce decree.
- Close joint accounts whenever possible to avoid any future liability for your ex-spouse’s debts.
- Establish credit in your own name by opening new accounts and using them responsibly.
- Consider working with a nonprofit credit counseling agency to develop a debt management plan and rebuild your credit if necessary.
Special Considerations for High-Asset Divorces
In high-asset divorces, the division of debt can be particularly complicated. These cases often involve a diverse range of assets and liabilities, including business debts, investment properties, and substantial retirement accounts. In some instances, one spouse may attempt to hide debt or undervalue certain assets to avoid taking responsibility for them in the divorce.
To protect your interests in a high-asset divorce, it’s essential to work with a skilled family law attorney who has experience handling complex financial matters. Your attorney may also recommend collaborating with other financial professionals, such as a forensic accountant or a certified divorce financial analyst, to ensure that all debts and assets are properly identified and valued.
Bankruptcy and Divorce: Understanding Your Options
In some cases, the debt accumulated during a marriage may be too overwhelming for either spouse to manage post-divorce. When this happens, bankruptcy may be an option to consider.
There are two main types of personal bankruptcy: Chapter 7 and Chapter 13.
- Chapter 7 bankruptcy involves liquidating certain assets to pay off debts and can provide a fresh start for those with limited income and few assets.
- Chapter 13 bankruptcy involves reorganizing debts and creating a repayment plan over three to five years, allowing individuals to keep more of their property.
When to Consider Bankruptcy in Relation to Divorce
The timing of a bankruptcy filing in relation to a divorce can have significant implications for the division of debt and property. In some cases, it may be better to file for bankruptcy before the divorce is finalized, as it can simplify the division of debts and protect certain assets.
However, if the majority of the debt is held by one spouse and they are unable to pay, it may be better for that spouse to file for bankruptcy after the divorce to avoid saddling the other spouse with unmanageable debt.
It’s important to consult with both a family law attorney and a bankruptcy attorney to determine the best course of action for your unique situation.
Protecting Your Financial Future
Dividing debt in a divorce is difficult, but with the right guidance and support, you can emerge from your divorce with a solid financial foundation. At Netsquire, our family law attorneys are committed to guiding you through the challenges of debt division and ensuring that your rights and interests are protected.
If you’re considering a divorce in New Jersey and have questions about how your debts will be divided, don’t hesitate to reach out to our team. We’ll work with you to develop a strategy that takes into account your financial situation and goals for the future.
With Netsquire by your side, you can move forward with confidence, knowing that you have the support you need to succeed.
About the Author
John Nachlinger is a co-founder and managing attorney of Netsquire, a family law firm focused on streamlining divorces through effective mediation, settlement drafting, and court filing assistance. As a New Jersey Supreme Court Certified Matrimonial Law Attorney and Qualified Mediator, John guides couples toward equitable agreements without the cost and stress of litigation.
Recognized as a New Jersey Super Lawyer for over a decade, John’s client-focused approach aims to foster understanding during challenging transitions. With a background spanning top law journals, judicial clerkships, and boutique family law firms, John now applies his analytical skills to create workable solutions for all parties. His mediation services reshape the divorce journey by prioritizing compassion and compromise.
