There are various subcategories of issues that need to be addressed in a divorce settlement or final order from a court. Not only do you need to make decisions about various different things – including the debt that you and your spouse have gathered over the years – but you also need to think about what steps you can take to protect your financial future. Parties sometimes expect their debt and loans will be split in a certain way – only to find that a court may see things differently.
Just like a marital home, and various other assets, debt acquired during the course of a marriage can be regarded as marital debt, and therefore allocated between the spouses involved. Commonly, this means that couples during a divorce will have a choice to either settle the responsibility for debt before filing for divorce in a negotiation, mediation, collaborative law or other process, or a determination or agreement will be made while a divorce makes its way through the court system. Ultimately, the court will make the decision if the parties do not settle ahead of time.
The New York Domestic Relations Law indicates that financial obligations taking place through a marriage which aren’t the sole responsibility of one spouse, can be offset against the total marital assets that need to be divided. However, there needs to be some kind of proof showing that the debts in question were created for marital purposes. In other words – it’s up to the person who is claiming marital debt to prove that the debt they’re referring to was incurred for marital purposes (like paying household bills, rather than a separate vacation for example).
When the courts of New York are engaged in equitable distribution of marital debt or how to distribute marital assets between spouses, they need to consider a number of very important factors. One of the issues that must be addressed is the matter of marital debt. In most cases, the debts that are incurred before an action for divorce are seen as “shared” marital debt, whereas the debt that is created after the commencement of a divorce are usually the sole responsibility of the person incurring the debt. The New York Court, however, has the discretion to offset the outstanding financial obligations of each spouse when those obligations aren’t the sole responsibility of the spouse that incurred them. However, doing this means not only considering the normal factors that go into equitable distribution, such as the property and income of each party at the time of the action, the tax consequences of each party, and the duration of the marriage – but also the presence of proof. In order for a debt, that is disputed, to be considered “marital” it needs to be proven by the person claiming that the expense is related to the marriage.
Some documents should be provided that prove there was some link between the debt and the marriage itself. If the only reason to request an allocation of responsibility for marital debt is the allegations of both parties regarding the use of funds, then the New York Court cannot determine the reason that the sums were used – therefore, they cannot determine whether the money was put towards marital purposes, or not. When spouses in a divorce procedure fail to provide the proof that is required for marital debt to be awarded, the Court does not allocate responsibility, and instead usually orders that each spouse will remain separately liable for the repayment of the debts in their own names.
In Oliver A v. Christina A, the defendant (the husband) sought allocation of responsibility for numerous credit card accounts, while the plaintiff sought allocation of responsibility for various credit account debts, and a car payment on a Honda Civic. When speaking regarding the issue of proof, the Appellate Division First Department indicated that the husband’s inability to demonstrate marital purpose for a loan in his claim meant that the claim was disregarded. There were no accounts or receipts that underlined the reasoning for the accounts, or proved that those accounts were taken out in an effort to pay for marital properties or services. If the spouse or marital partnership in this case had benefitted in some way by the debt that was incurred by the other party, and the benefit had been accounted for and presented as proof, then the Court will consider appointing responsibility for the debt. However, the parties in this case demonstrated no such proof.
In the same case, the wife testified that at the beginning of the divorce, she provided the husband with a sum of $2,750.00. However, there was no proof given by the wife to substantiate this claim. The wife also testified that the husband did not dispute taking $4,000 from her credit card as a cash advance. The wife believed that she should be given 50% of all marital debt against equitable distribution, and several statements for the various credit cards in question were moved to evidence without objection. The court refused to provide credit to the wife for the $4,000 credit, but the marital debt was calculated per the credit cards that were placed into evidence by the wife. The Appellate court later held that courts shouldn’t second-guess economic decisions made by partners in a marriage, but should instead distribute assets and obligations that remained at the end of a marriage equitably. Because the $4,000 was taken by the husband near the time of the divorce commencement, the husband was deemed responsible for that advance, and the wife received a credit of $4,000 in equitable distribution.
The issues of marital debt are highly complicated, and need to be addressed according to details of each individual involved. However, it’s important to remember that in most cases, marital debt will not be awarded as credits in equitable distribution without proof from the requesting spouse.
To learn more about the complications of marital debt and equitable distribution, please get in touch with me, Mr. Darren Shapiro, at your earliest convenience. You can contact me either via my contact form, or call on 516-333-6555 for your free initial consultation, up to a half hour. People seeking to representation of my office as an attorney can consult alone. Couples interested in mediation should schedule their free initial consultation together.