What happens when one spouse is deeply in debt and you are getting divorced? Or maybe you’ve both had problems in this economy. From student loans, credit cards, mortgages, or running your own business, it’s easy to find yourself in over your head in debt.
Does debt have to be divided 50/50, or should it be divided fairly, based on who actually incurred the debt? How do you even figure that out? For example, a wife might have a department store credit card in her name that she uses to purchase clothes for herself and the children, as well as appliances for the home. How does that get divided up?
Is debt community or separate property?
The short answer is that generally, any debt incurred during the marriage is treated just like property or income you acquired during that time—it is community property and will be split 50/50. Even if the debt is only in your spouse’s name, you can be held responsible for it as well—which means that your credit can really suffer during and after a divorce.
Dividing community debt
Community property isn’t just the assets you own together, but the debt you have, too. The typical goal is to divide the community property up evenly, but that doesn’t necessarily mean that the assets and the debts are each split evenly down the middle. Sometimes it makes sense for one spouse to receive the majority of the assets (such as the family home), but also have to take on the majority of the debt (the mortgage on the home). Or there may be other reasons why it would be unfair to divide the debt evenly under the circumstances.
In Southern California, you are required submit a form itemizing your financial assets and debts and how they will be divided. Each party is required to fully disclose their assets during the discovery process of the divorce, so that the community property can be divided fairly. That might not necessarily mean that the property is divided completely equally. But typically, the goal is that both spouses receive approximately the same net value of the community property. (Net value is calculated by subtracting the debt owed from the total value of the assets.)
Dividing individual debt
Debts incurred before the marriage or after separating will be the responsibility of the individual spouse. However, the separation date can sometimes be difficult to determine. Generally, it is the date when the couple physically stopped living together and intended to get a divorce, but sometimes the situation is not so clear cut. For example, a couple might have decided to divorce, but still lives together under the same roof in separate bedrooms.
Avoiding problems when your spouse doesn’t pay
If debt is incurred during the marriage, it’s considered community debt, and creditors can legally come after both of you—even after you are divorced. Even if the divorce decree says that only one spouse is responsible for paying off that debt, creditors could come after you, too, if your spouse is missing payments.
Fortunately, your attorney can help you find ways to avoid that situation, such as when spouses agree to sell real property and use the proceeds to pay off the debt. Or maybe the spouse who must pay off a joint credit card will have to transfer the balance to a new card in their own name.
Do you have more questions?
If you have questions about your or your spouse’s debt and how it will affect your divorce, call 909-482-1422 or email info@parents4children.com to set up your initial consultation today. At Kendall Gkikas & Mitchell, LLP, we have over 20 years of experience handling complicated divorces in Southern California, and we’ll work with you to secure the best possible outcome for your family and your finances.
