What Is Marital Debt?
In Equitable Distribution, we often ask clients about the debts that they accrued during the marriage and the value on the date of separation. This is because the judge is required to classify, value, and distribute marital property. But it may not always include debts incurred during marriage. The debts acquired by a spouse can be classified as marital, separate, or divisible, but only by showing that the debt has certain elements, required by law, can a debt be classified as marital.
Marital debt is basically defined as debt incurred during the marriage and before the date of separation by the spouses for the benefit of the spouses. There are a few elements to unpack in the definition.
First is whether the debt was incurred during the marriage and before date of separation. Generally, for a debt to be marital, it must have been incurred before separation. However, in certain circumstances, debt incurred after date of separation may still be marital. One example is when the post-separation debt was incurred to pay off a marital debt.
Second, the funds causing the debt must have been used for the joint benefit of the parties. Unlike a presumption that property acquired during marriage is marital, the party seeking classification of a debt as marital has the burden to prove that the debt was marital. Moreover, just because the debt is in the parties’ names jointly, there is no presumption that the funds were used for joint benefit. Ultimately, tracing the funds and what they were used for will determine if the debt would be classified as marital. An obvious example is credit card debt that was used to purchase groceries. Less obvious are student loans for one spouse—which can be a marital debt if the intent of the degree earned benefitted the marriage, such as the increased earning capacity while the parties were together.
What if you have been paying a marital debt after you separated? In these cases, the one paying is typically given a credit during the distribution of marital property, but only if the funds used to pay that marital debt were separate, not marital, funds. Also as part of the equation, whether a credit is given to the payor of debt will sometimes vary depending on who has possession of the property that incurred the debt. For instance, if you were paying a car loan with your separate funds for a car your ex is driving, you could be given a credit for the amount you paid to date. However, if you were paying that loan for a car you are driving, such a credit may not be available. Marital debt can be as simple as credit cards and car loans, but other times it can be very complex, especially when the debt is incurred by marital businesses. Either way, be sure to speak with your attorney about all the debts you have on date of separation, and provide documentation so that it may be properly classified.