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What Happens to Debt in Divorce?

Divorcing couples are rightly concerned about the division of property. The reality is that the division of debt is just as important as the division of assets. Divorcing spouses need to protect themselves from nonpayment of loans and other debt that could ruin their credit score and cause financial devastation after a divorce. Minimizing exposure to debt concerns must be part of a divorce agreement.

New Jersey law dictates that all marital assets and debts must be divided equitably. The court will allocate assets and debts fairly between the spouses, which is not always a 50/50 split. A starting point in dividing debts is to determine if each debt is marital or nonmarital. In New Jersey, marital debt is defined as any debt incurred during the marriage, from when the marriage began until the divorce complaint was filed.

Marital debt can include credit cards, real estate mortgages, vehicle loans, and businesses. It can also include obligations, such as season tickets, memberships, season tickets, intellectual property, tax liabilities, and loans made to family and friends.

Separate debt, also called nonmarital debt, is debt incurred outside the marriage, such as a student loan. Separate debt can also include debt from wasting funds, which is the misuse or misspending of funds, such as gambling.

It is important to note that debt accrued by a spouse between the filing of the divorce complaint and the final divorce decree is always assigned to the spouse who incurred the debt.

How Does New Jersey Divide Debt in a Divorce?

New Jersey uses the concept of equitable distribution to divide both assets and debt in a divorce. Equitable distribution means that fundamental fairness forms the basis of property and debt division. In contrast, courts in community property states attempt to divide property as close to 50/50 as possible.

In New Jersey, both spouses are generally responsible for the marital debt. When dividing marital debt, a lawyer, mediator, arbitrator, or judge will consider fundamental fairness when determining which spouse should assume financial obligations and how much. They will consider:

  • Length of the marriage.
  • Each spouse’s physical health, emotional health, and age.
  • Income or property either spouse brought into the marriage.
  • Standard of living the couple established during the marriage.
  • Each spouse’s overall economic circumstances.
  • Each spouse’s income and earning capacity.
  • Contributions by either spouse to the family income and to paying down debt and liabilities, such as car loans, mortgages, and credit cards.
  • Other circumstances surrounding each spouse’s ability to pay down debt.

How Does Equitable Division of Debt Work?

The first step is to identify the marital debt and the amounts owed. Then, the determination of what is fair and reasonable in dividing debt can be achieved through several processes:

  • Direct negotiations between spouses.
  • Negotiations between lawyers for each party.
  • Mediation by a court-appointed mediator.
  • Arbitration by a private judge hired by the spouses.
  • Determination by a judge after a trial.

New Jersey couples can negotiate their debt divisions together or with the help of a lawyer or mediator. If none of these methods work, a judge or arbitrator will make the final decision.

There is a lot at stake when dividing debts in a divorce. Tension is already high, and considering debts can only add to the stress of a divorce. Most people find it best to engage a divorce lawyer before discussing asset or debt division. A lawyer can ease tensions between the spouses and look at all factors objectively. A lawyer also knows how to best communicate and negotiate with the other spouse’s lawyer to determine asset and debt division.

How Are Debts Paid in a Divorce?

Even though a couple may have a separation agreement or a divorce order, creditors do not care. To avoid late fees and credit problems in your name, all debts must be dealt with in some manner. The following are typical ways that can happen.

Credit Cards

Generally, if the credit card debt went toward marital or family expenses, both parties are held responsible for paying it in a divorce, even when just one spouse’s name is on the account.

If the credit card debt was accrued solely by one spouse with no benefit to the other spouse or children, that spouse would be responsible for paying. An example is a spouse who uses a credit card specifically to take care of an aging parent.

Your lawyer will consider fundamental fairness in determining the amount each person must pay toward the debt. The divorce decree will include these amounts along with how the debt will be paid off and by what date.

Mortgage Loans

Suppose one of the divorcing spouses wants to keep the family home or another jointly owned property, such as a vacation home. In that case, they need to legally agree that the spouse keeping the property will pay on the loan and indemnify the other party.

Since mortgage notes can be for 10, 15, or 30 years, the spouse who wants to keep the property will generally either assume the mortgage or refinance it into their sole name within an agreed timeframe.

A refinance is often referred to as buying out the other person. The process typically goes like this:

  • Hire an appraiser to assess the home’s current value.
  • Deduct outstanding mortgages or liens from the market value to determine the home’s equity.
  • Determine the amount each partner contributed to the debt.
  • Agree to a buyout amount.
  • Refinance the mortgage solely in one spouse’s name.

Agreements typically include a clause that if the spouse keeping the house cannot assume the loan or refinance, the house will be sold to pay off the mortgage debt.


If one spouse wants to keep a vehicle, they can do so if both spouses agree. The person who keeps the car must agree to continue to make timely payments. In the case of a default on the loan, an indemnification agreement absolves the spouse who does not keep the car from legal action.

Marlton Divorce Lawyers at Goldstein & Mignogna, P.A. Will Protect Your Rights During Divorce

Divorce is a life-changing experience that should not result in financial devastation. Managing divorce debt equitably is one way our Marlton divorce lawyers at Goldstein & Mignogna, P.A. can help you. Call us at 856-890-9400 or complete our online form to schedule an initial consultation. Located in Marlton, New Jersey, we serve clients throughout South Jersey, including Burlington County, Camden County, and Gloucester County.

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