Dividing Debts in Divorce and Mediation

In today’s tough economy, the benefits of mediation are becoming more and more clear.  With its more expeditious process and tremendous cost savings of $20,000 or more, divorcing couples are turning to mediation as the way to settle all of the issues surrounding their divorce.  As you’ve seen me write about many times before, one of the areas we cover in mediation sessions is that of Equitable Distribution. When I ask people what does Equitable Distribution mean, many times I get something like “it’s the dividing of your assets to determine who gets what.”

That’s partially true…

The full definition is the dividing of the marital assets and liabilities to determine who gets what.  Divorcing couples like to forget the liabilities part and for good reason: who wants to pay off the mountains of debts that many couples have accumulated over the years?  Especially if it’s not even “your” debt?  And there in lies today’s lesson: know your debt.

For many divorcing couples, until recently, the marital home was the “saving grace.” Selling it allowed the divorcing couple to use the appreciation in the marital home’s value to pay off any existing debts and perhaps even walk away with a small lump sum to put down on another home so the concept of who owed what wasn’t as big a deal then as it is now.  With today’s shrinking real estate market and the subsequent plunge in real estate values over the past few years, many couples are finding that the value of the marital home doesn’t even cover the mortgage, let alone their bills or debts, leaving couples to wonder what to do when faced with such a dilemma.

As I am merely a New Jersey divorce mediator and not the US Mint, I can’t print money for you and make all of your bills go away but I can offer suggestions on how best to get a handle on your debts and what they may look like post-divorce.  If you’re in the process of getting a divorce, what I can offer is this:

1. Get copies of all of your bank statements, joint and individual.  Many times people mistakenly think just because I opened an account in my name that it is mine.  Not always true.  This will give you a better picture of what liquid assets are available to pay off the marital debts.
2. Go to: www.annualcreditreport.com and get a copy of your credit report.  Make sure all accounts that are listed as open are in fact open and yours.  Check to see if any accounts that you closed are not reflected as such and contact those creditors right away.  You may even want to put a lock on inquiries into your credit history or get a credit monitoring service to make sure no new accounts are opened in your name (perhaps by your soon to be ex-spouse) without your consent.
3. Gather up all of your debts and take responsibility for what is yours.  Common items like student loans which you may have co-signed for a soon to be ex can come back to get you years later so make sure you know who’s debts are who’s.
4. Cancel all joint credit cards and open a credit card in just your name.  I see too many people who have some attachment to an account they’ve had since they were young and so they simply remove their spouse from the account and keep the same account number without paying it off with marital funds.  Guess what?  Any balance due on that account is now squarely on you instead of being split as a marital liability.

By following these simple steps you will be able to get a better handle on what you may or may not be responsible for post-divorce which will allow you to plan your financial future accordingly.  Remember: your lifestyle post-divorce will most likely be lower than that of your marital lifestyle but that doesn’t mean you have to take on debt that isn’t legitamately yours.

If you have any questions about divorce mediation or how mediation can benefit you, please feel free to contact us to schedule a free, no-obligation consultation in one of our six central New Jersey office locations where we will take some time to get to know more about you and your situation and see if mediation is right for you.  Of if you’re simply not ready yet, feel free to visit the Equitable Mediation Services website where you’ll find lots of great information about parenting plans, equitable distribution, NJ child support and spousal support / alimony and contact us when you’re ready.  We look forward to helping you get through your divorce peacefully, efficiently and with as little stress on you and your family as possible.