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Personal Property Debts in Uncontested Divorce

Personal property debts are one type of financial issue that spouses must consider, plan for, and reach an agreement on during their divorce settlement agreements or as part of stand-alone property agreements. A recent analysis by Experian, a consumer credit reporting company, noted that married couples in America carry a total average debt of over $100,000 and, on average, over 120 percent more total debt than single borrowers.

New Jersey divorce laws treat marital debts like marital assets, meaning they must be divided “equitably” between spouses. However, equitably does not mean 50/50. It means fairly. Non-marital assets and debts do not have to be divided equitably. Only the assets and debts characterized as marital debts are subject to equitable distribution laws.

If you and your spouse disagree on how to divide your debts or aren’t sure how to start managing the debt division process, the family law attorneys at Law Office of Andrew A. Bestafka, Esq. can help you. We understand how judges typically apply state laws when dividing personal property debts. We can share the knowledge we have gained from over ten years of experience helping couples through this difficult time in their lives. Let us help make your uncontested divorce as smooth and painless as possible.

What Personal Property Debts Are Considered Marital Debts?

Debts are generally considered marital debts when a couple accumulates them between their wedding date and the date when a divorce complaint is filed by either spouse. A personal property marital debt example includes a loan to purchase an item such as a car or another vehicle like a boat, motorcycle, or RV. If both individuals benefit from the item, the debt for that item is considered marital debt, and its division must be equitable under state law.  It is important to understand that personal property does not include real property such as houses, land, or other real estate types.

Of course, it would not be fair for two people to be responsible for continuing to pay the debt if one person wants to keep the property for themselves. In this situation, the spouse keeping the item is usually required to buy out their portion from their spouse or agree to indemnify them from having to pay the debt. However, indemnification is not a perfect solution because a bank or loan company could still initiate collection efforts against both individuals for nonpayment.

What Personal Property Debts Are Considered Separate Debts?

Any debt that one spouse accumulates before the wedding day or after filing a divorce complaint is considered a separate debt. Common examples of separate personal debts include student loans, installment loans for computers and other electronic devices, and credit card purchases for personal items such as clothing, jewelry, musical instruments, or artwork. The key determining factor is when a debt was incurred, not which spouse’s name is associated with the debt.

Reaching an agreement on separate debts during divorce can sometimes be challenging. Many couples combine their money and share bank accounts, so one spouse might feel that their income was used to help their spouse make payments on debts for personal items. If this happens, divorcing couples might need help from a mediator like an experienced divorce attorney to resolve the matter.

Is a Property Settlement Agreement Necessary in an Uncontested Divorce?

In most cases, yes. If there are any financial, property, or debt-related issues associated with your divorce, you will likely need a written property settlement agreement.

A property settlement agreement is also known as a marital separation agreement or an asset and debt distribution agreement. It’s a written legal contract that outlines the terms and conditions of a divorce case and defines the former spouses’ rights, obligations, and responsibilities after their divorce. The agreement can be written either before or soon after filing for divorce. Eventually, it must be signed by both parties and notarized.

When you ask a New Jersey court to accept your property settlement agreement, you waive your right to a trial. A judge will usually not question the agreement’s details, nor will they review it for fairness if both spouses have already agreed to it. Still, they will likely take testimony to ensure both spouses voluntarily agreed to the terms. The agreement can be incorporated into or partially merged with the final divorce decree. How the agreement is handled will affect its enforceability under contract law.

It is difficult to change the debt distribution provisions in a property settlement agreement once a divorce is finalized. One exception is in circumstances of non-disclosure, which occurs one spouse misrepresents or fails to reveal the details of a debt. The property settlement agreement in an uncontested divorce is a critical document you should include to protect your current and long-term financial interests after divorce.

How Do Creditors View Personal Property Debts After Divorce?

After your divorce is finalized, you are generally still responsible for any debts you owe jointly with your former spouse, and creditors can continue to attempt to collect from you. Even if you remove your name from a deed or title, you remain responsible for the amount of any money owed. One exception might include if you were only an “authorized user” on something like a spouse’s credit card account.

Reaching an agreement on how debt should be distributed as part of a divorce is essential. A property settlement agreement documents how you and your spouse agree to divide your debts, though you might also need to take other actions to protect your financial future. Examples include refinancing, indemnification, and automatic payments, but these measures aren’t always possible and certainly aren’t foolproof. A knowledgeable lawyer can help you evaluate your options and choose the best path forward for your unique situation.

Contact an Experienced Monmouth County Divorce Attorney

The family law attorneys at Law Office of Andrew A. Bestafka, Esq. can help you prepare an effective property settlement agreement and explore other options for restructuring debt to protect your credit rating and safeguard your financial future. We offer free consultations to answer your questions and discuss how we can guide you through the divorce process. Call us today at (732) 898-2378 to learn more.