When New Jersey couples are divorcing, they know that they will need to negotiate the division of their assets. They might not immediately focus on the division of debt. However, this can influence each of the spouse’s financial situations after the marriage ends.
Equitable distribution applies to both assets and debts
New Jersey is an equitable distribution state. This means that marital assets divided during the divorce are done so in a fair manner. In some cases, this might result in an equal division of assets, but in many other cases, the division is more nuanced, based on a variety of factors. Marital debt, or debt acquired by the spouses during the marriage, is usually divided in the same way. The factors that can impact the division include:
• Each spouse’s contribution to the marriage which can be financial or not
• The earnings capability of each of the spouses
• The current financial state for each spouse after the division of assets
• The current income of each spouse and their ability to pay off the debt
Not all debt is treated the same
Marital debt will also be divided or approached differently depending on the type. Dividing credit card debt, for example, will depend on whether the debt was incurred by one individual or jointly. Dividing a mortgage might be more complex, particularly if the mortgage is under one name only. In those cases, the court will need to review the situation to decide. Because it is not always possible to refinance a mortgage under one name when it had previously been under two, for some couples, it might be best to sell the home, pay off the mortgage and then divide any proceeds.
It is important to carefully review all debts and their conditions and for the two of you to share information as they negotiate the division. Reaching a fair solution will help you plan for your future.