Debt Distribution in Divorce Mediation and Litigation

Businessdebtpicture-300x200There are many complicated things that a couple may need to address when it comes to managing their divorce. Everything from child custody agreements, to how assets and debts will be shared needs to be considered by the parties involved. In mediation, a mediator such as myself can work with a couple to guide them through their discussions about things like equitable distribution. The process of equitable distribution isn’t just about splitting things 50/50 after all. The parties need to think about how assets and debts can be shared fairly.

The equitable distribution of debt can be particularly complicated. While marital debts need to be shared between both parties, separate debt belongs to a single individual. Determining which debts are marital and which are separate can be difficult at times. Fortunately, when people do not immediate know how an issue should be handled, there are many cases that I can address with parties in divorce mediation or other divorce processes, to help them explore the concepts that come into question during equitable distribution.

Distributing Debts in Divorce

Generally, assets that are acquired during a marriage are martial (except if they were acquired entirely from separate property, inherited or gifted by just one side and kept separate). Additionally, debts that are incurred during a marriage and used for marital purposes are marital. Usually, the courts will begin dividing assets with a focus on equality. However, if equal distribution isn’t fair, then they may consider distributing debts and assets in other ways.  That is, after all, what equitable distribution means, distribution that is fair.  These are concepts that we can discuss in settlement discussions, legal arguments, and divorce mediations.

In the case of O’Brien v O’Brien, 163 A.D.3d 694, for instance, the court reasoned that the debts in question were not marital because they were obtained because of a marital affair. The defendant (the wife) requested reimbursement for treatment that she had received at Restorative Management – a substance abuse clinic. The wife went to the clinic, not for a substance abuse problem, but to hide her marital affair. In this case, the court denied the request for reimbursement for medical expenses for her doctor in Brooklyn, too, because the wife admitted that she had been reimbursed by her insurance company for those expenses.

Additionally, the New York Courts in the case above rejected the defendant’s request to have her husband pay one half of her credit card debt. This was because the wife had failed to properly document the credit card purchases. In a divorce mediation with clients, I can talk through cases such as this one and provide information about how the court will consider the distribution of debt. This often makes it easier for my clients to decide how they should attempt to share their assets and debts “fairly” so that they can settle their divorce with an agreement that can then be approved by the courts.

Student Loans in Divorce

Just as there are many different kinds of asset to consider during equitable distribution, there are also many different kinds of debt too. In the case of Haggerty v Haggerty, 169 A.D.3d 1388, for example, the Plaintiff and Defendant were both seeking an award of attorney fees. In this case, neither party could be identified as the “less monied spouse” in the partnership. However, because the plaintiff had more student loan debt than the defendant, the courts decided that it was appropriate to award them the reimbursement for the attorney fees. This makes sense, because the equitable distribution statute contained within Domestic Relations Law was recently to changed to state that professional licenses and degrees are no longer to be considered marital assets in New York.

Because the debts obtained when seeking a degree were seen to be separate, it was possible to say that the plaintiff was the less “monied” spouse in a way, because they had more debt to deal with in the long-term, even if the income for both parties was similar. Additionally, the courts found no reason to modify the equitable distribution of the parties debts and student loans. The court concluded that each of the parties involved in the divorce used education loans to pay for their graduate program. These debts were seen to be separate and belonging to each of the parties in the divorce case individually. That meant that there was no need to distribute debt differently between both parties

While there are many different debts that can be incurred during the course of a marriage, not all of those debts will be seen as marital. The spouse of the person getting a student loan doesn’t get a piece of the graduate certification awarded to them, which means that the degree is exclusively obtained for the benefit of only one spouse. It would be unfair to equally distribute the debts between both spouses. However, if a debt was taken out by both parties to improve a part of the home, like adding a new kitchen or bathroom, then those debts would be considered as marital debts and would need to be shared accordingly. The degree might come into play, however, because there are guidelines nowadays in New York, based on income and length of the marriage for maintenance (alimony).

To find out more about equitable distribution, and sharing debts within a divorce situation, reach out to me, Darren M. Shapiro at your earliest convenience. If you and your spouse are considering mediation as a way of separating your assets, you can come for a free initial appointment of thirty minutes together, where we discuss your options.  People seeking the representation of me as their own lawyer can have their free initial consultation alone. Please contact us either via our online form or at (516) 333-6555.