When addressing the financial aspects of a divorce, one of the biggest issues is properly dealing with the marital debt. Client’s are often disappointed when they realize how debt is treated under NJ divorce law.
What’s mine is mine, what’s their’s is mine, too?
Not so fast. How the debt is titled or who incurred the debt is not determinative of who will be responsible for repayment. Generally speaking, any debt or liability incurred from the date of the marriage to the date the divorce complaint is filed will be the responsibility of both parties. It does matter whose name was on the card or whether it was in one party’s sole name as long as the charges for for expenses that typically benefit the family.
Allocation is the key
Determine what share of the marital debt each party is responsible for and structuring the payments is a critical aspect of the negotiation process. Timely repayment of debt is significant factor one’s credit rating. A good or bad credit rating can have significant long term consequences. For this reason, I try to avoid having the adverse party responsible for debt in my client’s name.
So how is the debt paid? When incomes are sufficient, the debt can be paid from this cash stream. Sometimes paying the debt requires the liquidation of assets including the sale of the home.
What if they don’t pay their share?
After the debt has been totalled up and allocated, the final piece of the puzzle is making sure that your settlement agreement contains indemnification language that can protect you in the event your former spouse defaults on the debt and a creditor comes after you for payment.
Final thoughts
Making sure that the marital debt is treated properly when resolving your divorce is crucial. Work closely with your attorney to realize an outcome that is financially feasible, apportions the debt equitably and protects you in the event your former spouse fails to make their payments.
