Finances in Divorce: Liabilities

The other side of your finances in divorce is liabilities. Liabilities are the mortgages, home equity lines of credit, credit card debt, business loans, and any personally secured debt. Sometimes people will borrow money from family members in order to pay for expenses.  That is particularly true in divorcing situations where people are separated and there isn’t enough money to go around, so you borrow money as an interim plan while you figure out what you’re going to do about paying the bills in the meantime.

Then the couple has to think about dividing up the cash and investments, the marital residence, any other real estates, as well as incentive compensation or other more complicated kinds of assets that aren’t as straightforward as cash and investments. Retirement should also be a consideration because we often look at retirement assets differently than we do non-retirement investments, brokerage accounts or real estate because retirement assets are pre tax.

Accordingly, a dollar in your 401(k) is not worth a dollar in your checking account.  We usually look at it in terms of two buckets, the retirement assets separate from the non-retirement assets rather than just throwing a bottom line under everything there and seeing the total value of all the assets.  Once you have a strong grasp on what assets and liabilities you have within the marital estate, you and your lawyers have to determine an equitable distribution of the estate between you and your spouse.   New York is an equitable distribution state, as are the majority of states, but there is a strong minority of states that are community property states that have different laws around how your estate will be split.

If you are in court in New York, the court makes an equitable distribution of your assets. This means that they take a look at 20 factors that are relevant to your situation, having to do with the length of the marriage and the efforts of the non-titled spouse to help the titled spouse accumulate the assets whether or not they’re direct or indirect.  It can sound very legalese, but ultimately it’s really a decision as to what’s there given the circumstances.  Ultimately, the assets and liabilities are divided with a principle of fairness in mind to achieve the most equitable distribution possible between the two parties.

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