Equitable Distribution of Liability
Just as assets are equitably divided in a divorce matter, so too are debts and liabilities. Since New Jersey is an equitable distribution state, the liabilities which exist may not be divided evenly between the parties, although this is most frequently the case. Where circumstances warrant, some liabilities may be divided between the parties proportionate to their respective incomes. In other cases, if debt incurred during the marriage served no marital purpose, such as gambling debt incurred by one party, the party that incurred the debt may be entirely responsible for it. However, for most purposes, marital debts are defined as those debts acquired between the date of marriage through the date of the filing of the Complaint for Divorce, regardless of whose name the debt may be in. Debt acquired before the marriage, such as credit card or student loan debt, would not be divided in a divorce and would remain the responsibility of the party who incurred the debt.Typical debts and liabilities to be divided in a divorce include the following:
Mortgage(s) and Home Equity Loans. Typically, any mortgages and/or home equity loans which exist, either on the marital home or other properties, will be satisfied at the time the property is sold before any net proceeds of sale are divided between the parties. If both parties are jointly liable on a Mortgage, and one party is retaining the property as part of a settlement, that party will most likely be required to refinance the existing mortgage so as to remove the other party’s name from the underlying obligation. This way, if there is a mortgage default in the future by the party retaining the party, the party who is not retaining the property will not suffer any negative credit consequences. In cases involving a foreclosure or a “short sale” (selling the home and not receiving enough sale proceeds to satisfy the mortgage in full), the parties may each be required to share in some proportion any deficiency judgement or other liability which arises in the future. (Oftentimes in a short sale, the Lender will forgive any additional monies owed by the parties as a condition of the short sale approval.)
Auto Loans and Auto Leases. Usually the party who is keeping a particular automobile will assume responsibility for any remaining charges associated with that vehicle, such as monthly lease payments or finance charges. If a particular finance charge or lease payment is too high for one party to assume, as sometimes happens, the parties may investigate whether or not the vehicle can or should be surrendered back to the dealer or finance company, with any resulting liability as a result of the surrender allocated between the parties as part of their final settlement. If a car has a greater value than the amount owed on it, the parties might decide to sell the vehicle, satisfy the auto loan, and then divide any remaining proceeds.
Revolving Charges/ Credit Card Debts. Contrary to popular belief, just because a credit card debt may be in a spouse’s name does not necessarily mean that the other spouse is not responsible for a portion of the debt in a divorce case. While the creditor can only collect the debt from the party whose name the credit card is in, the Family Court has the authority to allocate the debt between the parties. For example, the party whose name the debt is in may transfer a portion of the credit card debt to a credit card in his or her spouse’s name. As an alternative, the other party may have to contribute a monthly amount until the debt is satisfied. Debts incurred for items such as food, clothing, gas, and day to day living expenses are generally considered marital in nature, with both parties obligated to repay same. Exceptions to this rule do apply. For example, if one party charges a vacation to a credit card, even during the marriage, which the other spouse or family members did not take part it, the party incurring the debt might be solely responsible. Similarly, if one party goes on what looks like a spending spree shortly before a Complaint for Divorce is filed, that debt might also remain the sole responsibility of the party that incurred it.
Medical Expenses. Liabilities for heath care costs which were accrued during the marriage would almost always be allocated in some proportion between the parties as part of their divorce.
Student Loans for the Parties. Generally, student loans taken out before the marriage remain the responsibility of the party that incurred the debt. Student loans taken out during the marriage are subject to equitable distribution, however each case is decided on its own facts. Sometimes, a party who assumes responsibility for his or her own student loans, without contribution from the other party, may pay less alimony as a result. The Court may look at the duration of the marriage as well as when during the marriage the student loan debt was incurred. In a short term marriage, where one party received little, if any, value, from the student loan debt incurred by the other party, the party that incurred the debt may be solely responsible for it.
Student Loans for the Children. The parties will generally share responsibility for any student loan debt for which one or both of the parties is a co-signor. The children may be required to assume responsibility for all student loan debt in their names.
Contingent Liabilities. These are potential liabilities. For example, if a Husband and Wife are being sued by a third party, but the case has not been resolved yet, the final divorce agreement might take into account how the parties will share the liability, if in fact any monies may be owed in the future.