One of the greatest concerns couples have when they begin the divorce process is how debt will be divided. Debt division is part of the property division process, and it can be a very stressful process. In some cases, couples have several different types of debt, making the process more complicated.
Common types of debt divorcing couples must deal with:
- Auto loans
- Credit cards
- Medical debt
How Is Marital Debt Classified in California?
State property laws dictate debt division, and California is a community property state. According to state law, when two people get married, they form one community. Any property accumulated during the marriage belongs to the community. The same thing goes for debt accumulated during the divorce. When you get divorced, the courts have to approve your property and debt division agreement. Until this happens, any property or debt still legally belongs to both parties.
What About Separate Property
Separate property refers to property that was individually owned before the marriage or is acquired after the separation. Debt may also be classified as separate property if it was individually acquired by one party before the marriage. Similarly, if someone opens a credit card account after the date of separation, this will also be classified as separate property.
Examples of debt that may be classified as separate property include:
- Credit card debt
- Car loans
- Medical debt
- Student loans
During the divorce process, a couple will work with their lawyers to come to a property division agreement. This agreement includes debt division. When negotiating, the goal is for the couple to work out a property and debt division plan that they both feel is fair. For the final agreement to be considered equitable, both parties should have roughly the same property and debt value. However, this does not mean that everything must be divided 50/50 down the middle.
Both property and debt can be used to help balance things out. For example, if someone agrees to take on a larger portion of the shared debt, they may also be awarded more property to ensure that the agreement is balanced. Working with an experienced lawyer can help you with this process. Your attorney can use their experience and knowledge to help you find the solutions that best fit your needs and which protect your best interests.
A Potential Issue with Debt Division
It is important to remember that your creditors are not necessarily required to honor your debt division agreement. Suppose both you and your former spouse have a shared credit card, and in your negotiations, you and your ex agree that they will be responsible for repaying the debt. If your name is still tied to the account and your ex fails to make payments, the creditors can come after you for repayment, and your credit can be negatively be affected.
When dividing debt, you should look for ways to protect yourself from potential problems should the person responsible for a debt fail to make necessary payments. In some cases, the person responsible for the debt may be able to open an account solely in their own name and transfer the balance to the new account. Alternatively, if a property is being sold, you and your former spouse can include in your property division agreement that the debt will be paid with the sale proceeds.