Edward R. Weinstein, Esq.Edward R. Weinstein, Esq.

Is All Debt Included In A New Jersey Divorce?

Yes.  Any debts of the marriage are subject to equitable distribution when the husband and wife were aware of the debt from its intrusion into the marital estate and benefitted from the debt as well.  This divorce attorney is further aware that the “timing” of when this liability is of significant importance.  In other words, if the debt was incurred close to the demise of the marriage and did not “benefit” the marital estate, it should not be assigned amongst both the husband and wife, respectively.  Every divorce lawyer at my New Jersey based law firm is aware of the paramount case on this issue.

In Monte v. Monte, Nicholas Monte appeals from an order of the Superior Court of New Jersey, Family Part of Middlesex County dated December 12, 1984 because it did not hold his ex-wife, Virginia Monte responsible for debts incurred during the marriage. The couple had been having money problems for many years before the divorce. Nicholas’s real estate business failed and he had to borrow money from his family to stay afloat. At the time of divorce, the debts exceeded the former couple’s assets. At trial, Virginia alleged that she did not know that Nicholas borrowed money from his family, and that she did not receive any benefit from these loans.

On appeal Nicholas argued that the Family Part judge: did not make findings of fact and conclusions of law to support the decision; did not apply the proper legal standards to apportion the marital debts, because he was held solely responsible for all the loans; and committed error by awarding Virginia alimony, because her income was comparable to his own and she was self-sufficient.

Nicholas and Virginia got married on November 16, 1957, and had two daughters together. In 1967 he bought a real estate corporation, which was located in a building he and Virginia owned. While the business was successful in the beginning, in 1975 it started losing money. Nicholas claimed this down turn in fortune was due to the general depression in the real estate market, and his illness in 1978, which was later diagnosed as hymoglebic migraine. His illness caused him to be hospitalized for over a year, during which time he was unable to work.  Nicholas supported Virginia, a homemaker, throughout most of the marriage, but she was also a bookkeeper for the real-estate business, after they first married, for a short period of time. She also worked at the real-estate business during and after Nicholas’s illness on a half day basis for three years.

Nicholas started to borrow money heavily in the late 1970’s up to the time the couple separated. He borrowed large amounts of money from banks, relatives, friends and mortgage companies. Nicholas testified that he borrowed $ 58,000 in total from various family members, and $ 5,500 against a life insurance policy. There was also a judgement against Nicholas and Virginia from his mother and sister for outstanding loans in the amount of $ 6,000, at the time of trial. These debts were ultimately paid out of proceeds from the sale of the marital home.

Virginia claimed that the debts were due to an affair Nicholas was having with one of his employees. She submitted letters from 1980 indicating that the employee had become pregnant, and that Nicholas had set aside $ 5000 for himself and the employee. While Nicholas admitted to having an affair and that he may have given her gifts, he denied that any children were born out of the affair.

The Family Part held that the first and second mortgages on the marital home, and the judgment from the loans to Virginia’s family were the responsibility of both Nicholas and Virginia, and were subsequently paid out of the proceeds of the marital home. However, the court also held that Virginia should not be responsible for the debts to Nicholas’s family nor the debt to Commercial Trust, because the court found that she was not aware of the debts. The only debt she was aware of was the to one bank, which she did not consent to.

The New Jersey Appellate Division noted that the parties’ standard of living did not decrease during the time period when the business was failing, nor when Nicholas had no income because he was not able to work for over a year. Therefore, the appellate panel reasoned that Virginia was aware of the lack of income at the time, and so must have also been aware that they must have borrowed money for their everyday living expenses.

The Family Part had stated that the issue of marital debt should be resolved as follows: if Virginia saw that the debt was building up during the marriage, and participated in the debts, she should also be subject to sharing in the payment of that debt; however, if the debts were taken on during the breakup of the marriage with the intent to “undermine her equity in the marital home,” she should not be liable.  The New Jersey Appellate Division explained that the Family Part’s approach was supported by judicial precedent. Generally, when dividing marital property, the court takes into account the debts as well as the assets. It would be an abuse of discretion to divide the property of the litigants equally without requiring them to share in the debt.

In Monte, the Nicholas had the burden to establish the traceable debts. If the debt resulted from him intentionally dissipating the marital assets it would amount to “a fraud on marital rights,” and the wife would not be responsible for the debt. Therefore, there is great importance placed on the purpose for which the money was borrowed and how it was spent. Virginia challenged the authenticity of the debts. Furthermore, Nicholas admitted that he had no obligation to repay the debts until he sold his office building or business or until he become financially able to repay them. As such, the New Jersey Appellate Division stated it would not be fair or equitable to obligate Virginia to be responsible for any part of the debts if Nicholas himself was not required to pay. Furthermore, the New Jersey Appellate Division stated they did not know, and therefore could not review, the Family Part judge’s reason for allocating the debts the way he did. The judge might have determined that Nicholas had failed to establishing his burden of proving the nature and authenticity of the alleged debts, or he might have determined that the debts had be proved in part or in whole but they should still be allocated only to Nicholas for reasons that were unstated. As such, the New Jersey Appellate Division had no choice be to remand the issue for another trial so that a Family Part judge could determine, with proper findings of fact and conclusions of law, the existence, nature, extent and allocation of the debts that Nicholas alleged.

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