What Happens to Debt in New York Divorces?
When it comes to divorce, many individuals focus on the division of assets, such as homes and retirement accounts. However, debt is an often overlooked, yet equally important part of the divorce negotiations. Debt plays a crucial role in the financial settlement of divorcing couples, especially in states like New York, which follow equitable distribution laws. If you are seeking the assistance of an experienced divorce attorney in New York, it is critical that you select an attorney who understands how debt is treated in a divorce and how debt can make a significant difference in your financial future.
In this week’s blog, we will explore what happens to debt in a New York divorce, what courts consider when determining debt division, and what steps you can take to protect your financial well-being during the divorce process. This information will be invaluable as you prepare to meet with a New York divorce lawyer.
What is Equitable Distribution
As we have discussed in previous blogs, such as our hidden assets blog, it is essential for anyone facing or considering a divorce to understand the concept of equitable distribution. Unlike other states, which may divide all assets and debts equally, or down the middle, between spouses, New York uses equitable distribution. This means that property and debts are divided fairly between the spouses, not necessarily equally.
Equitable distribution considers several factors to determine what is “fair”, including:
- The income and property of each spouse at the time of the marriage and at the time of the divorce;
- The duration of the marriage;
- The age and health of both spouses;
- The need for a custodial parent to occupy or own the marital home and use its contents;
- The loss of inheritance or pension rights upon the dissolution of the marriage; and
- Any wasteful dissipation of marital assets by either spouse.
A knowledgeable divorce attorney can help explain how these factors apply to your case and what a “fair” distribution of debt may look like in your specific situation.
Marital vs. Separate Debt
In New York, just like assets, debts can be classified as either marital or separate. Determining whether a debt falls into one of these two categories is essential for determining how it will be divided during the divorce.
- Marital debt: Marital debt includes any obligations incurred during the marriage, regardless of which spouse signed for the loan or used the credit supplied by a lender. This can include credit card debt, car loans, and mortgages. In New York, marital debt is subject to equitable distribution, meaning that both parties may be responsible for a portion of the debt.
- Separate debt: Separate debt includes any debt incurred by one spouse before the marriage or after the date of legal separation. Separate debts are typically the responsibility of the spouse who incurred them and are not subject to division. This may include student loans taken out before the marriage or personal loans unrelated to the couple’s joint financial situation.
A skilled New York divorce lawyer can help determine which debts are marital and which are separate, guiding you through the complexities of debt division.
How Courts Divide Debt in New York Divorces
Once the court has determined whether a debt is marital or separate, the next step is to decide how the marital debt should be divided. Courts consider various factors to ensure an equitable outcome, and a knowledgeable divorce attorney can help you to understand how these factors may influence your case.
- Income and earning capacity: One of the primary factors the court will consider is the income and earning potential of both spouses. If one spouse earns significantly more than the other, they may be asked to take on a larger portion of the marital debt. A divorce lawyer can help ensure that debt is allocated fairly based on your financial situation.
- Who benefitted from the debt?: The court will also consider who primarily benefited from the debt. For example, if one spouse took out a loan to start a business and the business is still operational, that spouse may be required to take on the bulk of the debt. Similarly, if debt was incurred to support one spouse’s educational advancement, that debt may be assigned to the spouse who received the education.
- Debt accrued due to misconduct: In some cases, on spouse may have accumulated debt due to reckless spending, gambling, or infidelity. If the court finds that the debt was incurred irresponsibly by one spouse, that individual may be held solely responsible. A divorce attorney can help present evidence of financial misconduct if this applies to your case.
- Household responsibilities: The court will also look at the household responsibilities during the marriage. If one spouse took on the bulk of childcare duties, limiting their ability to earn income, this could impact how debt is divided. A New York divorce lawyer can help you make a case for a more equitable distribution of debt if you sacrificed career opportunities to support your family.
Types of Debt in Divorce Cases
Not all debt is treated equally during a divorce. Different types of debt may have unique rules or considerations during the divorce process. It is important to work with a divorce attorney who understands how various debts are handled in New York divorces.
- Credit card debt: Credit card debt accumulated during the marriage is usually considered marital debt, even if the card is only in one spouse’s name. However, the court will look at how the debt was used. If the debt was incurred for household expenses or mutual benefits, it may be divided equitably. If one spouse used the card for personal purchases unrelated the marriage, that spouse may be held responsible for the vast majority of the debt.
- Mortgage debt: Mortgage debt on the marital home is typically one of the largest and most common debts in a divorce. The court will consider factors such as who will live in the home after the divorce and each spouse’s financial ability to maintain the mortgage. If the home is sold, the proceeds may be used to pay off the mortgage, and any remaining debt will be divided equitably.
- Car loans: If a car loan was taken out during a marriage, it can be considered marital debt, even if vehicle is primarily only used by one spouse. The court will consider who will retain ownership of the car and each spouse’s ability to pay the loan when dividing the debt.
- Student loans: Student loans may be treated as separate debt if they were incurred before the marriage. However, it is not a guarantee. If the loans were taken out during the marriage, or if it can be shown that both spouses benefitted from the increased earning potential brought by one spouse’s education, they may be considered marital debt.
- Business debt: If one or both spouses own a business, determining how to divide business-related debt can be particularly complicated. The court will assess whether the business is considered marital property and how much each spouse contributed to the business.
Protecting Yourself from Debt in Divorce
If you are considering or facing a divorce, it is important to take proactive steps to protect yourself from being unfairly burdened by debt. A qualified New York divorce lawyer can offer valuable advice and guidance on how to navigate the complexities of debt division.
- Know your financial situation: Before initiating a divorce, gather as much information as possible about your financial situation. This includes obtaining credit reports, bank statements, and loan documents. Having a clear picture of your debts will help your divorce attorney advocate for a fair division.
- Avoid accumulating more debt: While it may seem obvious, it is important to note that once divorce proceedings are underway, it may be a good idea to avoid taking on new debt unless absolutely necessary. Courts may view post-separation debt differently, but incurring new debt could complicate the division process.
- Consider a settlement agreement: In many cases, couples can reach a settlement agreement regarding debt division without the need to go to court. An experienced New York divorce attorney can help you negotiate a settlement that protects your financial interests and avoids the uncertainties and substantial investment of resources required for a court ruling.
- Stay as informed about your spouse’s spending as possible: If you can, it is always a good idea to maintain open and honest communication with your spouse regarding their spending habits an any new debt they are accumulating. If you suspect, or are aware, that your spouse may be accumulating debt in your name/engaging in reckless spending, it is a good idea to consult with an experienced divorce attorney
We're Here For You
Navigating debt division during a divorce can be overwhelming, but you don’t have to do it alone. Hiring a qualified New York divorce attorney ensures that you have an experienced advocate who understands the complexities of equitable distribution and how it applies to debt. Your attorney can help you determine which debts are marital and which are separate; present evidence of financial misconduct if your spouse accumulated debt irresponsible; negotiate a settlement agreement that protects your financial futures; and advocate for a fair division of debt in court if necessary.
Debt division is a critical component of any divorce in New York. The state’s equitable distribution laws mean that debt is divided “fairly”, but not necessarily equally. The court will need to consider a variety of factors when determining how to allocate responsibility for debts. Whether it’s credit card debt, mortgages, or student loans, understanding how debt will be handled in your divorce is essential to protecting your financial well-being.
By working with one of our skilled divorce lawyers in Westchester County, NY, you can ensure that your interests are advocated for and that every effort is made to ensure that debt is divided in a way that reflects your contributions and responsibilities during the marriage. Taking the time to consult with a divorce attorney can make a significant difference in the outcome of your divorce and your financial future. Our mission is to protect what’s most important to you. You can reach us at [email protected] for mor information, or call us at 914.615.9058.
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