Dealing with Debt in Equitable Distribution: What You Need to Know

When people think of dividing property during a divorce, they often picture splitting up assets like homes, cars, or bank accounts. However, debt also plays a significant role in the division process. Equitable distribution focuses on fairly dividing both assets and liabilities between spouses. This can involve things like mortgages, credit card debt, student loans, and any other outstanding amounts owed at the time of the divorce. Understanding how debt is handled is crucial for anyone going through this process, as it can impact financial well-being for years to come. Knowing the details of debt division can help individuals make better decisions and protect their interests during a divorce. At, Jean M. Mahserjian, Esq., P.C , we are here to guide you through the legal process and help you navigate the complexities of your case.

Jean M.
Mahserjian, Esq.

Of Counsel

 

Ashley
Mahserjian, Esq.

Managing Attorney

Joe
Capisciolti, Esq.

Associate Attorney

 

What is Equitable Distribution in Divorce?

Equitable distribution is the process of dividing marital property between spouses when they divorce. In states that follow equitable distribution laws, the division of assets and debts is not necessarily a 50-50 split. Instead, it is based on what is considered fair, taking into account various factors specific to the marriage. Courts aim to reach a division that acknowledges each spouse’s contributions to the marriage and their future needs. In New York, where Mahserjian & Mahserjian-Ortiz, PLLC is located, equitable distribution applies. This means that when a marriage ends, the court will determine a fair division of both assets and debts that have been accumulated during the marriage. It’s important to note that this only includes marital property and debt, not assets or liabilities that one spouse owned before the marriage or that are protected by a prenuptial agreement. Debts acquired before marriage or those specifically tied to one spouse are generally considered separate and not included in the division process.

Understanding Marital vs. Separate Debt

Before dividing debt, it’s essential to distinguish between marital and separate debt. Marital debt refers to any debt taken on during the marriage, regardless of who incurred it. This can include credit card balances, car loans, or even medical bills, as long as they were accumulated during the marriage. Even if one spouse took out a loan or opened a line of credit on their own, it may still be classified as marital debt if it was used for a purpose that benefited both spouses or the family as a whole.

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On the other hand, separate debt is usually any debt that one spouse took on before the marriage or after separation. This could include student loans taken out before marriage, credit card debt from an account opened in one spouse’s name before marriage, or any loans taken after filing for divorce. Separate debt generally remains the responsibility of the spouse who incurred it and is not subject to division. However, issues can arise when debts are intertwined, such as when both spouses co-signed a loan before marriage, or when one spouse took out a loan solely for the benefit of the family.

Factors That Influence Debt Distribution

When dividing debt, the court considers multiple factors. These can include each spouse’s income, earning potential, and financial resources. The court may also look at the health, age, and overall economic circumstances of each spouse. In some cases, the court may consider who benefitted most from the debt or who is in the best position to repay it. For example, if one spouse took on student loans during the marriage and is now earning significantly more due to that education, the court might assign a larger portion of the debt to that spouse. Another critical factor is the length of the marriage. In longer marriages, it’s more common for debts to be split more equally because both spouses likely contributed to the family finances in various ways over the years. In shorter marriages, the court may be more inclined to assign debt to the spouse who incurred it, particularly if it is clear that the debt did not directly benefit the other spouse.

How Credit Card Debt is Divided

Credit card debt is one of the most common types of debt divided in divorce. Whether this debt is classified as marital or separate can depend on when and how it was incurred. If the credit card was used to pay for household expenses or items that benefitted both spouses, it may be classified as marital debt. Even if only one spouse’s name is on the credit card, if the debt was accumulated during the marriage and for family-related expenses, it may still be divided. In contrast, credit card debt for personal purchases may be classified differently. If one spouse used a credit card for personal expenses or luxury items that did not benefit the family, the court might assign that debt solely to the spouse who made the purchases. Proving the purpose of specific charges can sometimes be challenging, so it’s essential to gather statements and documentation to support any claims about how the debt was incurred.

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Handling Mortgages and Car Loans

Mortgages and car loans are unique types of debt in divorce. These debts are typically tied to specific assets, such as a home or vehicle, which can complicate the division process. For example, if both spouses’ names are on a mortgage, the debt may be considered marital, even if one spouse did not make the mortgage payments. In these cases, the court may award the home to one spouse and require that spouse to refinance the mortgage to remove the other’s name. Alternatively, the home may be sold, and any remaining mortgage debt paid off with the proceeds. Car loans may be handled similarly. If a car loan is in both spouses’ names or was taken out during the marriage, it may be classified as marital debt. However, the court will often award the vehicle to one spouse, along with the responsibility for the loan payments. If one spouse wishes to keep the car, they may be required to refinance the loan to remove the other spouse’s name from the debt, protecting the other from future liability.

Student Loans and Divorce

Student loans can be challenging to divide during a divorce. In many cases, student loans are considered separate debt, especially if they were taken out before the marriage. However, if one spouse took on student loans during the marriage and the education directly benefitted the family, the court may consider those loans marital debt. This often happens when one spouse supported the other through school with the expectation that the education would lead to a higher income that would support the family. Courts may consider the financial impact of student loans on both spouses and determine a fair distribution of this debt. In some cases, the court might assign the debt to the spouse who received the education, particularly if that spouse is now earning significantly more. In other cases, especially when both spouses benefitted from the improved income, the court may decide that it’s fair to share some of the responsibility.

How Legal and Medical Debt is Addressed

Legal and medical debt can also come into play during a divorce. If either spouse incurred medical expenses during the marriage, that debt is generally considered marital, regardless of who received the treatment. Courts tend to view medical debt as a shared responsibility, especially if the expenses were for necessary treatment. Legal debt, such as fees for the divorce proceedings itself, may be handled differently. In some cases, each spouse is responsible for their own legal fees, while in other cases, the court may require the spouse with higher earnings to cover both parties’ costs. The court may also consider whether either spouse’s actions prolonged the divorce, leading to higher legal fees. In these situations, the court may order the spouse responsible for the increased costs to pay a larger share.

Protecting Your Financial Future in Debt Division

Debt division during a divorce can be complex, especially when dealing with large amounts or various types of debt. Protecting your financial future involves gathering all necessary financial documents, understanding your debt obligations, and working closely with legal counsel to advocate for your interests. Ensuring a fair division of debt can impact your financial security long after the divorce is finalized, so it’s essential to approach this process with caution. Having a clear picture of all marital and separate debt can also help you understand what financial obligations you will have post-divorce. Many people find it helpful to make a list of all known debts, the purposes for which they were incurred, and any documentation that might clarify how the debt was used. This can strengthen your case during negotiations or in court.

The Role of Legal Guidance in Navigating Debt Division

Dividing debt during a divorce can be overwhelming without the proper guidance. Working with an experienced legal team can help clarify your rights and responsibilities, ensuring that your interests are protected throughout the process. Legal professionals can assist in determining which debts are marital, advocating for a fair division, and helping you prepare for any financial obligations after the divorce. At Mahserjian & Mahserjian-Ortiz, PLLC, we understand the financial challenges that can arise during a divorce and are here to guide you through the process of equitable distribution. If you are facing debt division concerns, contact our firm today to discuss your situation. Let us provide the support you need to navigate this complex aspect of divorce and safeguard your financial future.