How Debt Factors into Equitable Distribution

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When a married couple decides to go their separate ways, their divorce agreement will include how their property will be divided. For many couples, assets aren’t the only things they’ve collected during their marriage. They also have taken on debt that must be distributed.

New York is an equitable distribution state for assets and debt. Equitable does not necessarily mean a 50/50 split. Rather, the goal is for the allocation to be fair.

Equitable Distribution vs. Community Property

New York is one of 41 states that follow equitable distribution guidelines. The other nine states have community property laws.

In community property states, all property acquired during the marriage is considered community (marital) property. Separate property is defined as property one spouse already owned before the marriage or was obtained after separation. Community property is split evenly.

In equitable distribution, a judge can order one spouse to sell or hand over separate property to the other to achieve a fair, or equitable, agreement in the court’s eyes.

Separate property includes the following:

  • Property either spouse acquired before marriage
  • Property either spouse received individually as an inheritance or gift, except from the other spouse
  • Compensation for personal injuries
  • Property characterized as separate property in a prenuptial agreement
  • Property acquired from the proceeds or appreciation in the value of separate property

Dividing property may not be a physical division. Instead, the court can award each spouse a certain percentage.

New York has not always been an equitable distribution state. Prior to its adoption in 1980, the state was a "common law property" state. All property was distributed according to whose name appeared on the title.

Marital vs. Separate Debt

Like marital property, debt is also divided equitably. Marital debts include all debts incurred during the marriage that have an outstanding balance. Mortgages, car loans, lines of credit, credit cards, and medical debt are just a few examples.

Debt brought into the marriage by either spouse will remain their debt to repay. Some debt incurred during the union may be considered separate. For example, if one spouse buys an expensive second car the other spouse might not have to help shoulder those monthly payments. Credit card debt from hotel stays to conduct an affair certainly won’t be considered marital. The court will look at the nature of the debt to determine if a debt is marital or separate.

In New York, outstanding financial obligations that are not solely the responsibility of the spouse who incurred them can be offset against the total marital assets being divided.

Factors Considered in Debt Distribution

If a couple cannot agree on debt distribution and relies on the court to decide, the judge will determine what is equitable. They will consider whether one spouse needs the marital home, the liquidity of the marital property, and the financial circumstances of each spouse.

Other elements a judge will consider include the following:

  • The duration of the marriage
  • Each spouse's age and health
  • Whether the court has awarded spousal maintenance (alimony)
  • The tax consequences to each spouse
  • Whether either spouse has wastefully spent money

A judge uses the same factors when deciding the distribution of property.

Deciding What Is Fair in Your Divorce

How debt is handled in your divorce does not have to be decided by the state. Like other aspects of your divorce agreement, a settlement can be negotiated without going to court.

At the Law Office of Dennis R. Vetrano, Jr., LLC, we have more than 75 years of collective experience dealing with a broad range of divorce issues. From complex high-net-worth divorces to dissolutions that involve significant business and personal debt, our skilled attorneys have the knowledge and background to you determine what is fair. We’re also ready to argue for you in court should that be the appropriate route.

If you are considering divorce, speak with one of our lawyers. Schedule a consultation using our online form or by calling our office at (845) 605-4330.

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