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How are Debts Divided in a New York Divorce
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Debt in Divorce
The high cost of living and the associated debt are unfortunate facts of life for most Americans. It is therefore not surprising that litigants frequently ask how is debt divided in a New York divorce. Debt in divorce is one of the most common and often trickiest aspects of a case. Further, the high interest associated with credit card debt makes that a particularly important issue to address in any matrimonial litigation. In New York, understanding how debt is handled during a divorce can save you significant stress and financial hardship down the line.
Distribution of Debts in Divorce in New York
In New York, equitable distribution law governs the division of all property in a divorce. The term “property” includes all assets – whether of positive value (assets) or negative value (liabilities or debts). The first question when analyzing the distribution of debts in a divorce is whether the debt is marital property or separate property. Generally, a debt is marital property if it is incurred during the marriage. For the most part, debts taken on during the marriage, regardless of who incurred them, are considered marital. This includes mortgages, credit card debt, medical bills, and loans. Conversely, a debt is generally going to be deemed separate property if it is incurred prior to the marriage, even if it is paid down during the marriage.
Only marital assets (or debts) are subject to distribution. Separate property (including separate property debt) is not subject to distribution and will therefore remain the obligation of the titled spouse. It is also important to note that the title or name associated with the asset or debt is not determinative of whether it is marital property or separate property in nature.
Distribution of Debt in a Divorce
As a starting point, only debt that is marital property is subject to distribution. Any debt that is deemed separate property is not subject to distribution in a New York divorce.
In New York, marital debts are divided equitably in a divorce. This means that the court will divide the debt in a way that is fair, but not necessarily equal. Under the Domestic Relations Law, the court must consider the following 16 factors when distributing property:
- the income and property of each party at the time of marriage, and at the time of the commencement of the action;
- the duration of the marriage and the age and health of both parties;
- the need of a custodial parent to occupy or own the marital residence and to use or own its household effects;
- the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution;
- the loss of health insurance benefits upon dissolution of the marriage;
- any award of maintenance under subdivision six of this part;
- any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party. The court shall not consider as marital property subject to distribution the value of a spouse’s enhanced earning capacity arising from a license, degree, celebrity goodwill, or career enhancement. However, in arriving at an equitable division of marital property, the court shall consider the direct or indirect contributions to the development during the marriage of the enhanced earning capacity of the other spouse;
- the liquid or non-liquid character of all marital property;
- the probable future financial circumstances of each party;
- the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party;
- the tax consequences to each party;
- the wasteful dissipation of assets by either spouse;
- any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration;
- whether either party has committed an act or acts of domestic violence, as described in subdivision one of section four hundred fifty-nine-a of the social services law, against the other party and the nature, extent, duration and impact of such act or acts;
- in awarding the possession of a companion animal, the court shall consider the best interest of such animal. “Companion animal”, as used in this subparagraph, shall have the same meaning as in subdivision five of section three hundred fifty of the agriculture and markets law; and
- any other factor which the court shall expressly find to be just and proper.
Especially relevant when considering the distribution of debt is the income / property of each spouse; the duration of the marriage and the circumstances surrounding the divorce (whether the debt was representative of a marital partnership expenditure).
If one spouse is responsible for a greater portion of the marital debt, the court may order that spouse to pay the other spouse a lump sum of money or to make monthly payments. The court may also order that one spouse be responsible for certain debts, such as the mortgage on the marital home.
Credit Card Debt in a New York Divorce
It is commonly asked “do you split credit card debt in a divorce?” The answer is yes, credit card debt is split in a divorce in New York. In fact, the division of credit card debt in a divorce is one of the most common aspects of a case. New York follows the principle of “equitable distribution” when it comes to dividing marital property. This means that assets and debts acquired during the marriage are divided fairly, but not necessarily equally. This dictate of equitable but not necessarily equal is especially important when addressing credit card debt.
- Identifying Marital Credit Card Debt: Generally, any credit card debt incurred and accumulated from the date of marriage to the date of separation is considered marital, even if the card is only in one spouse’s name.
- Purpose of the Debt: The court may examine how the credit card was used. Was it for family expenses like groceries and vacations, or for one spouse’s individual purchases? While both can be considered marital debt in divorce, the purpose may influence how it is ultimately divided.
- Statutory Factors Considered: The court considers various factors, including each spouse’s income, assets, contributions to the marriage, and the circumstances leading to the divorce. For example, if one spouse was primarily responsible for racking up the debt while the other was a stay-at-home parent, the court might assign a larger portion of the debt to the spending spouse.
- Important to note that debt in divorce is not always shared 50/50: Equitable distribution doesn’t automatically mean a 50/50 split. The court has flexibility to divide the debt in a way that achieves fairness considering the specific circumstances of the couple.
Who is Responsible for Credit Card Debt After Divorce in NY?
After a divorce is commenced, generally, each party is liable for the debts they incur in their own names.
Things can become tricky in determining who is liable for a credit card debt after divorce. An essential element of the distribution of credit card debt in divorce is recognizing that the credit card company is not bound by your Stipulation of Judgment of Divorce and the credit card company can sue the account holder regardless of the terms of the Judgment of Divorce. The logic is that the divorce is a matter between divorcing couple and it does not affect the original credit card agreement or contract between the account holder and the credit card company itself.
By way of example:
Imagine Sarah and John are getting divorced. They have a joint credit card with $10,000 in debt. The court, considering their financial situations, orders John to be solely responsible for the credit card debt. However, both Sarah and John’s names remain on the card. If John fails to make payments, the credit card company can still pursue Sarah for the full amount, even though the divorce court assigned the debt to John.
Indemnification: To protect themselves in this situation, spouses often include an indemnification clause in their divorce agreement. This clause states that if one spouse fails to pay a debt assigned to them, and the other spouse ends up having to pay it, the defaulting spouse will reimburse the other. In our example, if Sarah and John had an indemnification clause, and Sarah ended up paying some of the credit card debt because John didn’t, she could then take legal action against John to recover the money she paid to the credit card company.
What is a Wasteful Dissipation of a Marital Asset in a New York Divorce?
In New York, wasteful dissipation of a marital asset refers to when one spouse uses marital property for their own benefit and for a purpose unrelated to the marriage in a particularly wasteful or indulgent fashion. Examples of a wasteful dissipation may include drug use, gambling, excessive spending, excessive or unwarranted gifts, etc. A finding of a wasteful dissipation may result in the court ordering the other spouse to be “made whole” by virtue of an uneven distribution of the remaining marital assets.
Distribution of Tax Debt in a New York Divorce
In New York, tax debt incurred during a marriage is generally considered a marital debt and is subject to equitable distribution in a divorce. This means the court will divide the debt between the spouses in a fair and just manner, considering factors like each spouse’s income, assets, and contributions to the debt. However, there’s a crucial exception: the innocent spouse rule. This protects a spouse from being responsible for tax debt they didn’t know about and didn’t benefit from.
Generally, when a married couple files a joint tax return, both spouses are legally responsible for the entire tax debt, even if one spouse earned all the income or an error was made in the submission of the return. If one spouse can prove they were unaware of the tax issue (e.g., their partner underreported income or claimed false deductions) and did not benefit from the false representation, they can request “innocent spouse relief” from the IRS which would then absolve that party of the financial liabilities associated with the return. The IRS will consider factors including the spouse’s knowledge of the understatement, their financial situation, and whether they benefited from the underreporting. It’s crucial to understand that innocent spouse relief is not automatic and the spouse seeking relief must apply for it with the IRS and provide evidence to support their claim.
Strategies for Dealing with Credit Card Debt in a Divorce:
- Full disclosure: Be transparent about all credit card accounts, including balances and spending habits. Hiding assets or debts in divorce can lead to serious legal consequences.
- Gather documentation: Collect credit card statements, loan agreements, and any other relevant financial documents.
- Negotiate a settlement: Work with your attorney to negotiate a fair settlement with your spouse. This may involve closing joint accounts, consolidating debt, or transferring balances.
Protecting Yourself from Future Debt:
- Close Joint Accounts: As soon as possible, close all joint credit card accounts to prevent further charges.
- Monitor Your Credit Report: Keep an eye on your credit report to ensure that your spouse is not incurring new debt in your name.
- Consider a Post-Nuptial Agreement: If you are contemplating remaining married, consider a post-nuptial agreement to clearly define how assets and debts will be handled in the event of a future divorce.
- Precise Drafting of a Settlement Agreement: If you are indeed divorcing, ensure that your stipulation of settlement has sufficient language to address not merely the distribution of debts that have been incurred to date but also prohibitions on incurring future debt in the other’s name and procedures for satisfying any subsequent debt.
Frequently Asked Questions Regarding Debt in Divorce
In a New York divorce, generally, all debt are subject to distribution between spouses, regardless of who incurred the debt, as long as it was accrued during the marriage. Such liabilities are commonly referred to as “marital debt.”
However, New York is an “equitable distribution” state, meaning the court aims for a fair, but not necessarily equal, division of assets and debts. The court will therefore consider various factors, such as each spouse’s income, earning potential, and contributions to the marriage, and the underlying nature of the debt itself to determine how the debt will be distributed.
Any debt that is marital property is subject to distribution in a divorce in New York State. Each party can ask that the other be liable for some or all of the debt. The sex, gender or titles of Husband and Wife do not affect the determination of whether a debt is marital property or how it will be distributed.
Yes, you can potentially sue your ex for credit card debt in a New York divorce, but it depends on the specific circumstances. During the divorce proceedings, marital property and debt, including credit card debt will be divided between the parties – either by Stipulation of Settlement or by a judge at trial. The Judgment of Divorce will specify who is responsible for paying which debts.
If your ex fails to pay a debt assigned to them in the Judgment of Divorce, you can take legal action to enforce the Judgment. This may involve post-judgment motion practice and asking the judge to hold your ex in contempt or seeking a judgment against your ex for the unpaid amount.
Yes – credit card debt is indeed split in a divorce in New York, although it is not necessarily split equally. Credit card debt, like all marital property, is distributed pursuant to Equitable Distribution, allowing the court to apportion the debt as the court sees fit under the particular circumstances of each individual case.
Student loan debt in divorce can be a tricky issue. If the student loan debt was taken out before the marriage, it’s generally considered separate property and remains the responsibility of the spouse who incurred it. Student loans taken out during the marriage are generally considered marital debt, even if only one spouse’s name is on the loan. This means both spouses may be responsible for it to some degree. Even if a debt is marital debt, the court may deem the titled party to be solely liable based on factors such as who benefited from the education (did it increase their earning potential and provide a greater standard of living for the family or greater child support / maintenance?), contributions to the marriage (did one spouse support the other while they were in school?) and the overall financial circumstances of each spouse.
See: Equitable Distribution of Student Loan Debt in a New York State Divorce
New York Divorce Debt Experience and Skill
Don’t let debt derail your financial future. Distribution of debt in a divorce is a complex matter. Each case has unique circumstances that make it critical to thoroughly explore all aspects of the situation when developing the proper legal strategy. An experienced Long Island divorce attorney can make the difference in helping you determine division of debt.
At the Law Office of Louis L. Sternberg, we walk our clients through the debt distribution process from the initial intake and continuing through to enforcement of final orders. Contact us online or call 631-600-3295 to learn how we can help you and your family.
If you are struggling with dividing debt in divorce, the Law Office of Louis L. Sternberg, PC is here to help. Contact us today.