Debt and Divorce

Jacobs Berger, Debt Division Attorneys Morris County, NJ

NJ Equitable Distribution Lawyers

Working to protect your future and finances

When it comes time to divide the financial household in divorce, both assets and debts, which are otherwise known as liabilities, can be split among the parties. The courts treat the two slightly differently, however, and there’s considerable detail involved in determining how to separate individual finances.

At Jacobs Berger, our family law attorneys have extensive experience in helping clients navigate the division of assets and debt in a divorce.

We bring a creative and solutions-focused approach to our work, and we take pride in helping clients craft strategies that work for their particular situations.

If you’re getting divorced or have questions about equitable distribution, contact us. Our knowledgeable attorneys can guide you through the process.

Understanding Equitable Distribution of Marital Debts

New Jersey is an equitable distribution state, which means that the assets and debts of divorcing parties are split equitably but not necessarily equally. Generally, debt acquired during the marriage is considered marital debt.

If the parties opt for mediation, which can be faster and less expensive than a court divorce, they aren’t bound by a court’s limitations when making determinations of equitable distribution.

However, the mediation process tends to be influenced by equitable distribution laws because if one party believes they’re getting less than they should, they can end the mediation and pursue a division of assets and debt by a court order instead.

Marital debt vs. separate debt

Marital debt belongs to both parties of the marriage. Typically, it’s debt accrued during the marriage that covered joint or family expenses. This interpretation of marital debt usually applies even when the debt is only in one person’s name, such as credit card debt for example.

Separate debt belongs to one individual only and not to the other person. Usually, this is debt someone accumulated before the marriage. If one party acted unilaterally or used funds for purposes other than joint or family expenses, the court can also consider that debt to be owed by one party only.

In a few situations, debt acquired during the marriage can be considered separate debt.

For instance, whether student loans taken out during the marriage are considered separate or marital debt can depend on several factors, including how long the parties stayed married after one person earned a degree. In particular, courts will consider the duration of time for which the fruit of the student loans—a degree—resulted in the student earning more for the marriage.

How Debt Is Divided During a New Jersey Divorce

Debt acquired during a marriage typically belongs to both people, no matter whose name the debt is under, as long as the funds were used for joint or family expenses—although there are some exceptions.

In determining what equitable distribution of debts and assets look like in a divorce, the courts consider:

  • Individual income and earning capacity
  • Individual assets, including retirement plans and businesses
  • Each party’s monetary and non-monetary contributions to the marriage (ex: childcare)
  • Length of the marriage
  • Marital agreements, including prenuptial agreements
  • Health and age
  • Each party’s future needs and responsibilities
  • Alimony

All these factors influence court decisions around equitable distribution.

Debt can include:

  • Mortgages
  • Student loans
  • Credit cards
  • Business loans
  • Car payments

However, if debt is acquired illegally or in secret, it may be considered separate debt. For example, if one party takes out a loan to pay off a gambling debt without telling the other, this loan may be viewed as separate debt.

Factors involved in the division of debt

One of the most important factors in the equitable distribution of debt is when the debt began. For example, if one party took out a car loan before marriage, then the loan may be considered separate debt.

If, however, marital funds were then used to repair the car or make the loan payments, this debt may be considered marital.

Equitable distribution laws also consider if the debt paid for joint expenses.

For instance, if one party took out a mortgage on a home before marriage and the couple then lived in the home together, the balance on the home loan may be viewed as marital debt. This can hold true even if only one person’s name is on the loan.

How an Equitable Division Lawyer Can Help You

NJ equitable distribution lawyers understand the nuances around debt division in a divorce. Whether you’re working with an attorney during the mediation process or in court, they can help you better understand your options and responsibilities—and plan accordingly.

An equitable division attorney can help you strategize for how best to seek resolutions for your debt and divorce.

At Jacobs Berger, our attorneys regularly help clients better understand and plan for debt division in their divorce settlements.

Work with Our NJ Family Law Firm

The equitable distribution lawyers at Jacobs Berger have decades of combined experience in guiding clients through the equitable distribution process. Our knowledgeable and creative team can help you protect your financial future.

We take pride in our solutions-oriented approach to divorce and the equitable division of debt. We help clients amicably and cooperatively resolve existing marital debt.

If you have questions about debt and equitable distribution or are getting divorced, contact us today for a strategic planning session.

NJ Debt and Divorce FAQs

Can separate debt become marital debt after marriage?

In New Jersey, separate debt will typically continue to be viewed as separate debt, even after marriage.

However, there are a few exceptions, most of which have to do with the intent in accruing the debt and what it was used for. For instance, if the parties charge one person’s credit card for joint expenses they both tend to enjoy during the marriage—such as a honeymoon or shared furniture—then this debt may be viewed as marital debt.

Is it better to pay off debt before divorce?

There’s no one right answer to this question. Although paying off debt before divorce can simplify the proceedings, the right answer ultimately depends on your needs and how you’ve set up your family’s finances.

If you choose not to pay off debt before divorce, keep in mind that to remove the other party from a credit account, you may have to refinance. Likewise, if one party is unable or unwilling to pay off their portion of the joint debt, the credit card company may pursue collection from the other party, no matter what the divorce agreement says.

Every situation is different, but as a general rule, it can make sense to liquidate marital assets to pay off marital debt.

How is debt valued during divorce?

During a New Jersey divorce, debt is valued according to the factors that are considered in equitable distribution.

The court will consider:

  • Whether the debt was acquired before or during the marriage
  • Length of the marriage
  • If the debt was “marital” in nature, i.e., if it went toward joint expenses
  • Whether the debt was incurred as a one-time instance or was a historical trend of the marriage to fund the lifestyle with debt

However, the factors that tend to be particularly important in valuing debt are when it was accrued, how it was managed during the marriage, and if it benefited both people in the marriage.