How Does Debt Distribution Work After a Divorce in New York?

Key Takeaways

• New York divides marital debt equitably, not equally.
• Debt from before the marriage generally stays with whoever took it out.
• Your divorce judgment does not bind your creditors.
• Support survives bankruptcy; a property settlement may not.

A common concern for spouses undergoing the divorce process is how debt distribution will pan out, as it can be frustrating to be left with debts that you are not responsible for. This is why couples initially try to agree on the terms of their divorce independently before everything is up for grabs in the equitable distribution process that the state of New York follows. But if you ultimately were unable to settle on a decision with your spouse, continue reading to learn how New York handles marital debt and how an experienced bankruptcy attorney in Rockland County at the Law Offices of Allen A. Kolber, Esq. can stand by your side throughout the negotiation process.

How Does New York Handle Debt Distribution During the Divorce Process?

Debts are treated similarly to assets during the divorce process in the state of New York. Like all other marital property, debts are distributed through equitable distribution, which means they will be divided in a fair manner as seen by the court. However, this does not necessarily mean that the debt will be divided equally. Instead, New York courts will take various factors into consideration when dividing the debts. Some of those factors include the following:

• The age of each spouse.
• The income of each spouse.
• The health of each spouse.
• The length of the marriage.
• The value of the marital assets.
• The amount of debt each spouse has.
• The earning capacity of each spouse.
• The standard of living that each spouse is accustomed to.
• The monetary and non-monetary contribution each spouse has made to the marriage.

It is also worth mentioning that the spouse who did not accumulate the debt is often held responsible for the debt regardless. If a card is in the names of both spouses, it does not matter who did the spending.

Does All of My Property Have to Undergo the Debt Distribution Process?

No, only assets and debts considered marital will be subject to division. Typically, this means anything you accumulated while you and your spouse were married will be divided. Anything that falls outside of this is your separate property and will remain yours. Separate property often includes:

• Anything either of you owned before the marriage
• Anything either of you received as a gift from someone other than your spouse
• Anything either of you inherited
• Compensation for a personal injury
• Anything a prenuptial or written agreement has deemed as separate

Debt follows the same logic. A loan taken out years prior to the wedding will remain the sole responsibility of the individual who took out the loan.

However, where matters become complicated is in mixing: an inheritance that is deposited into a joint account, or separate funds spent on the marital home, may lose separate status and be subject to division.

Why the Divorce Judgment Is Not the Last Word

One thing that often surprises people, and a reason to discuss matters with a bankruptcy attorney in conjunction with a family law attorney is that your divorce judgment governs you and your spouse. It does not govern your creditors.

As such, if debt is assigned to your spouse, but they stop making payments, the lender can legally pursue you for the funds as long as your name is on the account. The only option is to return to the family court to seek an enforcement judgment for the nonpaying spouse.

Being allocated a debt and released from a debt are two separate processes, and only a creditor has the ability to do the latter.

What Bankruptcy Can and Cannot Undo

This is where the two areas meet, and the distinction is sharper than most people expect.

• Support obligations, meaning alimony and child support, cannot be discharged in any chapter
• A property settlement obligation, such as an agreement to pay your spouse a lump sum or to take on a joint debt, survives a Chapter 7 but can be discharged by completing a Chapter 13 plan
• A joint debt you owe a third party is ordinary unsecured debt and can be discharged like any other, though your former spouse remains liable on it

Discharging a joint credit card protect you and leaves your former spouse holding it, which is why the timing of filing for bankruptcy in conjunction with filing a divorce is worth considering.

Contact Our Experienced New York Bankruptcy Law Firm

Bankruptcy can be an incredibly overwhelming process. That is why it is in your best interest to connect with an experienced attorney with the Law Offices of Allen A. Kolber, Esq. Our firm understands how complicated these matters can be to navigate, especially following the divorce process, which is why we will do everything possible to help you receive a financial fresh start. Contact us today to learn how we can represent you.