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How is debt divided in a divorce?

Divorcing couples must work through numerous challenges on the path toward starting new, independent lives. Unfortunately, over the course of the marriage, it is likely that the two parties have developed considerable assets and debts that need to be thoroughly examined and divided during the divorce.

While the splitting of shared assets – home, car, collections, retirement accounts – is a priority, the division of debt can be just as impactful. Splitting a shared bill, for example, can quickly become a contentious issue. Looking at all these elements together is necessary to build a coherent picture of your independent financial future.

New Jersey is an equitable distribution state, so assets, debts and support are all carefully examined to determine how the finances are split. Based on numerous factors, it is not uncommon that most debt will be considered marital debt in a divorce. Even a credit card that is held in only one spouse’s name might be considered marital debt.

What debts can be divided?

Likely during a divorce mediation, you will work with your spouse to reach an agreement on how the various marital debts are divided. These debts can include:

  • Credit card debt: Whether it is a shared card or only in one spouse’s name, this will likely be considered shared debt. The primary reason for the debt and who had a history of making payments could factor into the division, but you will likely be splitting this debt.
  • Mortgage debt: The mortgage on the family home can be handled several different ways. Most commonly, the divorcing couple chooses between two options. First, they could sell the house and split the profits. Second, one party could buy the other party’s stake in the property.
  • Auto loan debt: Dividing this debt can be complicated by numerous factors including whose name is on the title, who primarily uses the vehicle and who has been making most of the debt repayment.
  • Medical debt: Similarly, numerous factors can impact the division of medical debt. These factors can include when the medical debt was acquired and the potential impact the debt would have on any children.

It is important to work slowly and honestly through the entire process. From disclosing all assets and debts to reaching a satisfying compromise, the divorce process is your chance to build the foundation of your new life.