Divorce often requires that couples not only divide their marital property, but their debt as well. Most often, people get so wrapped up in who gets the house that they forget about divorce debt. So how is debt divided in divorce?
Community property states, such as California, require that couples share all assets and debts legally incurred during their marriage. Furthermore, if your spouse takes out a mortgage in their name, then you are equally responsible for that debt upon divorce. To learn more, contact a Fresno family law attorney at Law Offices of Rick D. Banks.
Dividing Divorce Debt in California
Typically, during a marriage, spouses will open joint credit cards and loans. Even if your spouse is the only one that used the card, creditors will see you both as mutually responsible for any incurred debt. Put simply, creditors don’t care who actually spent the money, they just want their money back. Because of this, it’s virtually impossible to get creditors to release one spouse from debt responsibility. However, there are several workarounds the court can employ to divide the owed debt. For example, in their divorce ruling, the court can assign one spouse responsibility for the debt. When this happens, the court will more than likely assign more property to that spouse to balance it out. California law states that all community property and debt must be divided as equally as possible. This is to ensure couples end up with their fair share.
Dividing debt in divorce can play out like in the following examples:
- One spouse gets the house but must also assume responsibility for paying the mortgage
- One spouse gets the car but must pay off any remaining loan on the vehicle
Consult a family law attorney to determine how your debt can be divided in divorce.
How Is Separate Debt Handled?
Fortunately, California law recognizes separate debt and property. This means that if your spouse incurred debt before your marriage, then upon divorce you cannot be found responsible for it. Separate debt does not commingle with community debt. In addition, the law won’t force both spouses to pay off individual debt, only the party that incurred the debt will be responsible. Instances sometimes arise when one spouse acquires debt that constitutes a breach in fiduciary duty towards the other spouse. An example of that is one spouse earning debt by recklessly gambling community money. Consult your family attorney if you’re unsure of whether debt incurred by you or your spouse can be attributed to both parties.
Is Individual Credit Affected by Debt in Divorce?
Unfortunately, your individual credit can be affected negatively by debt assigned to you in divorce. Even if you pay your half of the debt on time, if your former spouse fails to pay their half, your credit score will be affected. It may not seem fair but the only way to protect your credit is by making sure all community debt is paid on time. This may mean that you have to cover your ex’s portion as well.
Tips for Paying Off Debt in Divorce
Divorce is hard enough. Adding the stress of debt on top is maddening. This is especially true when you go from a two-income household to only a single income. While your financial future may seem in danger, here are some tips for paying off debt in divorce:
- Open a separate credit card and transfer your half of the community debt to it
- Use the proceeds from sold off community property to pay off community debt
- Save all receipts that show you’ve paid off your share of community debt
- Sell off assets if one spouse cannot pay their share of community debt
- For more financially stable spouses, reduce any unsecured debt
- Pay off as much of the community debt as possible before the divorce is finalized
If Your Spouse Won’t Settle Their Debts Fairly
Just like other contested aspects of divorce, if your spouse won’t agree to handle their debts fairly, you could seek the help of a mediator. A mediator will guide you and your spouse through the division of debt and property. They can also help handle any financial disagreements that should arise. Do not risk your financial future over divorce debt. Speak to a divorce attorney at the Law Offices of Rick D. Banks.