Divorce involves more than just dividing up your assets and dividing up your property. As well, there are debts to settle.
Perhaps you have unpaid credit cards, maybe you have a shared mortgage, perhaps you owe cash on a vehicle. You’re wondering which bills you will need to cover after your divorce.
What happens if your spouse didn’t tell you about a loan he took out? Or if they cease to pay a joint debt upon divorce?
These are typical concerns. Luckily, New Jersey has laws to help split financial responsibilities between spouses.
If you know what to expect and what to avoid when it comes to debt division in divorce NJ, you won’t encounter any surprises that could prove costly.
How Marital Debt Division Works in NJ
New Jersey operates a doctrine of “equitable distribution” for the division of marital property and liabilities.
It is a desire to make a fair distribution, not necessarily an equal distribution.
For instance, if you are both jointly $20,000 in debt, the court will not split the debt in half and then allocate $10,000 to each of you.
Rather, it takes into account your monetary situation and a number of factors such as:
- How long your marriage lasted.
- Income and earning potential of each spouse.
- Your financial needs following your divorce.
- Debts and liabilities that you owe together.
- Contributions of each spouse during the marriage.
Under N.J.S.A. 2A:34-23.1, courts must consider these and other relevant factors.
The equitable distribution of debt in NJ is based on what the court deems to be fair in your case.
Which Debts Are Considered Marital?
Not all unpaid bills will automatically be shared bills.
Generally, any obligations taken on by either spouse during a marriage for family use will be considered marital debts.
You might have been on a line of credit for home upgrades, medical expenditures, or consumer products.
Even if your husband alone signed the loan, the court may nevertheless deem it a marital debt.
But debts incurred prior to marriage are generally kept apart.
Let’s say your husband or wife took out a personal loan prior to the wedding. That debt would be theirs, but not necessarily.
However, this can get tricky if a couple merges finances or refinances the existing loans.
Hence, the time and objective of every debt are important in making decisions on the division.
In divorce proceedings, it is important to understand who is responsible for paying the credit card debt.
Credit cards can be a source of conflict since they are used for various purposes by the couple.
Maybe you had a joint credit card for food, school items, and family vacations. In the meantime, your spouse engaged in their personal shopping.
Who Pays Credit Card Debt In Divorce?
The court takes into account the time of the charges and the use of the money.
A balance on bills from your home, for instance, can be considered marital debt.
But if your husband or wife used hundreds or thousands of dollars for a personal vacation when your marriage was breaking up, what about that?
The court might wish to hold your spouse responsible for those charges.
However, you will need to provide documents that will show the whereabouts of the funds.
Also, keep in mind that your name on a credit card doesn’t always mean you are responsible for the credit card balance.
Dividing Mortgages and Car Loans
A shared loan can be more complex when both participants in the marriage signed the loan terms.
If you own a house together, and your spouse wishes to retain it.
You may be willing to give the house and to settle the mortgage. You can also refinance the loan under your spouse’s name.
The principle behind car loans is similar.
If the car is to be kept, then the divorce agreement might ask you to pay the remainder of the payment.
But giving one spouse the payment doesn’t mean the other is not responsible for the loan.
The lender could still have both borrowers on the hook.
In turn, before you sign your agreement, take into account refinancing or repayment choices.
When Personal Debt Becomes a Dispute
So what happens if your spouse has debts that you were not aware of?
You might think that you will have to cover their expenses.
A court, however, may be lenient on debts that are unrelated to the marriage.
The value of the losses from a game of some sort or a big purchase might cause problems in deciding who to blame.
The court can review the origin of the debt and whether or not it was used for the benefit of the family.
This is why bank statements, loan documents, and credit card bills can come in handy.
These documents can be used to determine if a debt was for marital use or was personal.
Does Separation Impact Splitting Up Of Debt?
Leaving home doesn’t mean you owe no more money.
In New Jersey, the date the divorce complaint is filed is typically taken into account when determining which debts are part of the marital estate.
But courts can take into account the context of certain costs.
For example, the interest on borrowed funds may be treated differently for family needs than it is for personal use.
As such, when you split up, make sure to keep track of big payments and new loans.
After A Divorce, Who Is Responsible For Debt After Divorce?
Often a question that lingers in the aftermath of the divorce is: After divorce, who is responsible for debt after divorce?
If your previous spouse agrees to pay the common credit card debt.
Several months later, the payments are no longer made and the lender calls you.
Unfortunately, that isn’t likely to be prevented by the divorce agreement you come up with.
For joint borrowers, the creditor is likely to be able to still seek payment.
This is particularly significant with regard to joint debt after divorce.
If your ex-spouse doesn’t pay, you can request enforcement of your divorce order.
But, late payments may still affect your credit during the dispute process.
Protecting Your Finances Before Divorce
Carefully review your financial situation before entering into any type of debt division.
The Office of the Comptroller of the Currency explains that joint credit account holders remain liable until the debt is satisfied or otherwise discharged.
There are some steps that can be taken:
- Review your credit reports and look for any unknown or forgotten accounts.
- Make a list of your debts, such as loans and credit cards.
- Check joint accounts to identify those that are held jointly.
- Talk about refinancing your mortgage and car loan.
- Maintain financial records (balances and payments).
- Ask for specific payment terms in your divorce agreement.
The most important thing above all is not to depend on promises made verbally.
While a written agreement won’t necessarily impact your liability to creditors, it can help avoid arguments.
Get Legal Help With Debt Division in New Jersey
Dividing debts isn’t always straightforward. You may need to address shared loans, personal spending, and financial responsibilities that continue after divorce.
At The Law Office of Jennifer J. McCaskill, LLC, we help New Jersey families understand their financial options during divorce.
Call us at (732) 747-1882 or Get Your Free Case Evaluation.