“How should we deal with our marital debt? We owe more than we own, and I don’t want to end up holding the bag because I earn more than my spouse.”
In New Jersey, the Equitable Distribution Criteria describe the factors that must be considered by a court, each party, and their attorneys in formulating a settlement proposal. The criteria are as follows:
a) The duration of the marriage;
If the case goes to trial, the judge will make specific findings of fact based on the evidence relevant to these issues.
In considering the criteria, one must understand that it is a rebuttable presumption that each party made a substantial financial or non-financial contribution to the acquisition of income and property, as well as debt, while the parties were married.
In my opinion, the most critical factors in allocating debt in any long-term marriage are f), g), h), and i). In a short-term marriage, the most critical question is whether the family unit acquired the debt or one party incurred it who already has or will personally benefit from it (i.e., college loans, personal clothing, jewelry, car, etc.).
“Equitable distribution of debt” is therefore not necessarily the equal sharing of debt: it is what is fair and reasonable. If the income capacity of one party is significantly greater than that of the other party, the former may need to bear a larger portion of the marital debt, all other things being equal.
Laurence G. Thoma, JD, CFE, CPA/ABV, DABFA, CPA, is is the director of the litigation/valuation/law-firm support services group at Withum Smith and Brown, a regional CPA/consulting firm with six offices throughout New Jersey. His own office is in Red Bank.