How Is Debt Handled in a Divorce in NY?

When most people think about divorce, they often wonder who will get the marital assets, such as the house or the car. However, what they don't always consider is who will be responsible for the debt.

Many divorcing spouses have debt, and just like with marital assets, the debt incurred during the marriage has to be divided, too, in a fair way.

One of the best things that anyone can do in a divorce is to make sure they have legal counsel who understands New York law and how it applies to debt, this family lawyer in Albany can provide that assistance.

Understanding Equitable Distribution in New York

In New York, courts use a system called "equitable distribution" when dividing marital property in a divorce. This includes debt. The system in an equitable distribution state ensures that both assets and debts are divided fairly, but that doesn't necessarily mean equally.

With this system in place, debt is treated just like assets. The courts will determine if the debt it marital debt or separate debt, and then assign responsibility for both marital and separate debt.

What Is Considered Marital Debt?

During the divorce proceedings, the courts will consider marital debt to be any debt incurred during the marriage, debt that was used for marital purposes, or debt that benefitted the household.

Common examples of marital debt include joint credit card account balances, mortgages, car loans, medical debt, and personal loans for home renovation.

It doesn't matter if both names are on the account or not. If the debt incurred during the marriage and benefitted both spouses, it is likely that the debt will be considered joint debt, even if only one spouse's name was on the account.

What Is Considered Separate Debt?

Separate debt includes debt that was incurred before getting married, incurred after separation, or incurred for non-marital purposes. Examples of this include student loans taken out before the marriage, credit card debt on an individual account that is only used for that person, loans taken out of bank accounts for extramarital affairs, or gambling debts that were unrelated to the marriage.

New York courts do not require one spouse to take the financial obligations of the other when the debt it considered to be separate.

How Does the Court Divide Debt?

When determining how debt division works, New York courts consider several factors, including:

• The purpose of the debt

• Who benefited from the debt

• Who can get the debt paid

• Both spouse's income and earning capacity

• Which spouse is taking more assets

This is a very complex process range is focused on the fair division of the debt. The court's final judgment is not focused on a 50/50 split.

Here's an example:

One spouse took out a personal loan during the marriage in order to start a business that failed. The other spouse did not want to start the business, and didn't agree that taking the loan was the right thing to do. In this case, when the couple gets divorced, the court might give sole responsibility to the spouse that took out the loan.

On the other hand, if a couple got a high credit card balance due to paying for a kitchen remodel in the marital home, that credit card debt is often divided equally between the two parties.

What Happens to Joint Credit Cards?

One of the most common sources of dispute in a divorce process is joint credit card debt. Even if a settlement agreement assigns responsibility for a credit card to one spouse, that doesn't mean that the credit card companies will see it that way.

Even if one spouse was assigned a particular credit card debt in the divorce, but both spouses have their names on the card, the credit card company can still legally see the other spouse as liable for the debt.

In this case, before the divorce is finalized, joint accounts should be closed. The balance should be transferred to an individual account or refinanced. There should also be clear provisions in the divorce agreement about who is responsible for the debt.

Student Loan Debt in Divorce

Student loan debt can be very tricky in a New York divorce case. To really understand the various factors that may affect these loans, it's best just to list it out:

• Student loans that were taken out before the marriage are generally considered separate debt.

• Student loans that were taken during the marriage may be marital debt if the degree benefitted the household, i.e. the spouse got a higher income thanks to the degree.

• Student loans that were paid with marital funds may influence how the court looks at other assets and debts when dividing other assets and debts.

What If One Spouse Is Hiding Debt?

Some people try to obscure or hide debt during the divorce process. If one spouse suspects that the other spouse is hiding debt, they can work with an attorney to do the following:

• Request full financial disclosure through discovery

• Subpoena financial records

• Work with a forensic accountant to find unaccounted for money

New York courts will take hiding finances very seriously, and it's common that a judge will penalize a spouse who tries to hide anything in a divorce.

Will Filing for Bankruptcy Help?

In some cases, in order to settle debt in a divorce, both spouses may consider bankruptcy. While bankruptcy can discharge certain debts, it won't eliminate things like child support, alimony, or any debts incurred though fraudulent acts. Also, keep in mind that if one spouse is assigned debt in a divorce, and then they later file for bankruptcy, the other spouse could be stuck with the bill if the account was a joint account.

Spouses Can Agree on How to Split the Debt

The best option, if possible, is for the spouses to agree how to divide debt in their divorce before going to court and allowing a judge to decide. In most cases, the court will honor any agreement that was reached between the two parties. An attorney can help with this process, too. They can also answer questions like how is a pension handled in a divorce in NY?

Work with a New York Divorce Attorney

Debt incurred during a marriage will be divided equitably in a New York divorce, but a person's financial future could be hanging in the balance. This is why having a divorce attorney who is skilled in handling debt during a divorce is crucial. Divorce and Family Legal, LLC can help those who are going through a divorce and trying to settle debt. Contact Said Ibrahim and his team, today, to learn more.