How do personal loans work with property distribution during divorce?

I am about to file for a divorce. Due to dire financial circumstances, I am contemplating on taking a large from either a friend or a family member loan using my primary residence as a collateral. In a divorce proceeding and, in particular, the equitable distribution of the property aspect, will this loan be subtracted from the common property value before the division is set forth? Or will it be taken out of my share after the property distribution is made? Could this act be rendered as encumbering a common property and, if yes, are there any regulations pertaining to such matters? Would I be required to present the court with the loan’s allocation or a detailed schedule of the sums spent or would the entire amount be subtracted off the home’s sale price?

Asked on June 12, 2012 under Family Law, New Jersey

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

This is a very difficult question to give guidance on with out looking at your whole financial situation and that of your spouse. New Jersey is an equitable distribution state so what is "equitable" depends on the facts of the particular case.  Your wife will no doubt argue that it is your loan solely and that you encumbered a marital asset with out her permission. If this argument succeeds then the loan will be attributed to you alone.  You are wise to think ahead about keeping records.  Do so meticulously.  And speak with an attorney before you take this on.  Good luck.


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