This article is not intended to be construed as legal advice. It is for informational purposes only, offering insights and awareness into the complex nature of division of debt in divorce. Dividing and proving ownership of debts and assets is difficult. Speaking with an experienced attorney is an advisable way to make sure your rights are safeguarded.
Division of Debt Can be Difficult
While separating couples often consider the division of assets, the division of debt is critical to moving forward following the divorce ruling. How are division of debts determined in California? The CA Court will tell you that each spouse or partner is responsible for half of the community debt. That sentence make the division seem simple. It rarely is.
You May Have More Debt Than You Realized
One way division of debt can become difficult is when it is hidden until the divorce. When and how the debt was incurred and used could affect who owns it. When a spouse or partner incurs secret debt during the marriage, even when the debt is in your spouse’s name, it could belong to you too. Debt that is incurred prior to marriage, might belong only to the debtor. However, if the debt benefitted the community (household) it might belong to you both. Dividing debt is usually impacted by who benefitted from the incurrence of it.
Contract debt is debt acquired through a contractual agreement. This includes liabilities like car loans, mortgages, or other loans incurred during the marriage for the benefit of all parties. Any or all of these may be considered shared debt and split equally. As with other debt, there are exceptions. Business loans for a business in which both spouses have some interest may be considered shared debt. A business loan benefitting only the spouse who owns the business might be considered the sole property of that spouse. The myriad of factors affecting division make it crucial to seek advice from an experienced family law attorney.
Student loans, often taken out prior to marriage usually belong to the spouse who received the education. They may still be considered a shared debt if the community substantially benefitted from the education before separating. In contrast, the court could require a spouse to reimburse the community for education contribution made during the marriage, if they did not jointly benefit from the education or training.
Legal debt (aka tort debt), such as the liability resulting from an auto accident lawsuit, or other type of lawsuit for money, might not be divided equally. The court will consider whether the lawsuit came out of activity that benefitted the community, or just one guilty spouse.
Bankruptcy debt is another potential liability spouses may share in a divorce. If one spouse files Bankruptcy before the divorce is final, non-exempt community property can become vulnerable. Creditors may appropriate shared assets to satisfy the debt, even if only one spouse files for bankruptcy. If the bankruptcy is filed after the court divides the community property, the bankruptcy filing isn’t as likely to affect a former spouse’s assets.
Credit Card Debt Division Factors
Credit Card Debt acquired during the marriage, whether in one or both spouses’ names belongs to both. If the debt was solely for the benefit of one spouse, and was only in that spouse’s name, the court may make the exception. Factors the court will consider when determining whether credit card debt is separate or community property include the following.
- When was the debt incurred?
- Who is/was the creditor?
- What did the debt pay for?
- Who currently owns the property for which the debt was incurred?
- What payments were made after the spouses/partners separated, and by whom?
- What was the source of the funds used to make those payments?
Support payments, whether child support and/or spousal support will be the responsibility of the spouse who is ordered to pay it.
Taxes may be owed by both spouses, if they are due for something related to the community, such as income taxes.
Spouses Attorney’s Fees
Spouse’s attorney’s fees might be a shared debt. Both parties in California have the right to be adequately represented. If only one of the spouses can afford an attorney, the court can order the spouse with financial ability to contribute to the attorney fees of the less affluent spouse. To ascertain the portion of the spouse’s attorney fees, the court will consider the financial circumstances of each spouse.
If a business is a mix of shared and separate property, dividing the business debt can be incredibly complex. There are multiple methods devised to value business debt for fair assignment. Ask your attorney about these methods if a business is part of your division of debt.
Family Law Experience and Skill
We covered a little on division of debt, but it is a deep and complex subject. There are unique circumstances in most divorces that make it critical to explore division exceptions to the normal equal division of debt. An experienced family law attorney can make the difference in helping you determine division of debt.
The Hittelman Family Law Group, which includes skilled experienced attorneys Steven Hittelman, Patricia Cyr, and Wayne Jones, has mediation experience as well. We guide our clients through debt determination and division from beginning to end. Experience the HFLG difference. Contact us or call (949) 210-3260 to learn more about how we can help you protect your greatest asset: your children.