In the context of divorce, equitable distribution isn't just about dividing up the money and properties. Marital debts and liabilities such as credit card debts, outstanding loans and tax consequences have to be shared as well. What's interesting is that there is very little case law to determine how marital debts and liabilities should be divided. As a result, litigation over marital debts can be quite ugly, with both parties insisting they are not responsible for the debt, or only responsible for a small portion. For the courts, determining the nature a marital debt or liability is hard enough, but it's even harder to decide how much each person pays, i.e., equitable distribution.
In many cases, judges have had to set their own rules on what is fair based on the couple's personal circumstances, combined with research into how other jurisdictions handled similar cases. One thing they do attempt to establish immediately is whether a debt is marital or non-marital. A non-marital debt is a debt that was incurred before the marriage, or a debt that is not directly traceable to the acquisition of marital property. A non-marital debt presents complications for both parties, even though it's likely that only one party will be responsible for paying it back. However, the non-responsible may not get the settlement he or she was hoping for, since outstanding debts do factor into a person's economic circumstances.
Of course, that's still preferable to being responsible for the debt, which may take years to pay off. It may even hurt your credit score and compromise you ability to obtain other loans or lines of credit. Plus, just getting to the point of determining who is responsible for which portion of the debt is draining, especially when it involves tax liabilities. This is another area of limited case law, but there are a few Appellate decisions that give some insight. One of these insights established that any income individually received by either party during the marriage, prior to the filing of the divorce complaint, is martial property. Hence, a tax liability resulting from that income should be classified as a marital liability.
Another precedent was set in the ruling of Bursztyn v. Bursztyn, which involved a couple who lived an extravagant lifestyle, while failing to pay their taxes for a number of years. Since they both enjoyed this lifestyle funded in part by the unpaid taxes, the resulting tax liability was ruled a marital debt. Other cases have gone so far as to order both parties to pay a tax liens through the sale of a valuable asset such as the marital home. As you can see, there are a lot of variables in the determination of marital debts and liabilities, which are an unfortunate consequence of many divorces. That's why it's important to speak to an experienced attorney about your equitable distribution rights, and the legal options you should take to ensure a fair division of your shared debts and liabilities.
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