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Marital Debt in New York Divorce

We have previously discussed the division of assets in New York divorce. Marital assets are divided between spouses in a process called equitable distribution. Pieces of property, jewelry, and financial accounts are the first items to come to mind during equitable distribution, but the issue of marital debt must be addressed before a divorce can be finalized.

What is Marital Debt?

Simply put, marital debt is any debt acquired throughout the course of a marriage. Common forms of marital debt include credit card debt, mortgages, medical bills, and personal or automobile loans. This kind of debt is often accrued for the benefit of the marriage, such as buying a home.

That being said, there are instances where premarital debt becomes marital. Just as with other forms of property, the separate debt must be co-mingled in order for it to be considered marital. Separate debt can become joint debt if the couple, once married, shows intent to address the debt together. For instance, a wife may come into the marriage with $10,000 in credit card debt. The debt would become marital property if the husband helps his spouse pay off her bills with money from his personal accounts, or if funds from joint bank accounts are used to pay down the debt.

Student Loans and Divorce

Student loans can be approached in a couple different ways during divorce. As with other forms of debt, student loans can be personal or marital property, depending on when they were acquired and how they are paid off. New York State typically considers most student loan debt to be marital property, and will factor in advanced degrees and the Enhanced Earnings Capacity of each spouse while distributing assets and determining alimony.

An argument can be made that student loan debt is not a result of the marriage if the loan money was used only for academic expenses, such as tuition, textbooks, and other supplies. Additionally, many litigants argue that this kind of debt is separate property if their marriage ends shortly after a degree is earned. Many judges will rule that student loans are marital property if a portion of the funds are used to pay living costs and household expenses. In this case, both spouses would have directly benefited from the loan, thus is classification of being a marital debt.

How is Debt Divided?

Debt is divided in the same manner as other forms of marital property. Either parties can negotiate an agreement amongst themselves, or a judge can intervene and issue an order detailing which party will assume ownership of certain marital debts. The court will consider the amount of each debt, why and how it was acquired, and which spouse benefited the most from the debt. Finally, the court will review each spouse’s finances and determine who is more financially capable of paying off a debt.

Post-Divorce Debt

Retaining sole use and occupancy of a piece of property, such as the marital home, can be alluring, but it is important to consider the financial and tax implications. A major component of debt distribution in divorce is the financial impact it has on litigants. It is not uncommon for former couples to agree to sell a marital asset in order to avoid one person accruing more debt or having to refinance mortgages and other loans. Divorce parties should remain level headed through the equitable distribution process, and make sure they fully understand the pros and cons of each asset or debt they may be awarded.

The Equitable Distribution Specialists

The division of debt (and assets in general) during divorce is a complicated and emotionally charged process. Because of this, it is not recommended that parties attempt to settle property disputes without proper representation from qualified matrimonial law attorneys. The lawyers at Brian D. Perskin & Associates, P.C. specialize in high conflict divorce cases, many of which involve intricate asset distribution components. For more information on equitable distribution, call 718-875-7584 to schedule a free consultation today!

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