Divorce and debt are a hot topic among partners. One partner may have student or car loans or credit card debt that the other feels is not their responsibility. You’re transitioning into a new, single life after divorce, and maximizing the divorce settlement can help ease the transition.
To understand how debt will be handled in a divorce, you must have a grasp of California’s property law, which is divided into two parts:
1. Community property. Assets and debts acquired by either spouse or partner during marriage or a registered domestic partnership.
2. Separate property. Property that you own or debts owed that came before the marriage or after separation. In addition, if an asset was received by gift or an inheritance, it is separate property.
The courts will determine which debts both of you are responsible for in the marriage and which may be separate. Separate property can occur after separation but prior to the divorce being finalized. For example, if you serve your spouse divorce papers and they take out a loan, it will generally not be considered a community debt.
Working through debt in a divorce requires diligence and the help of a compassionate attorney who can guide you through the process.
Schedule a consultation with Wine Country Family Law, P.C. to learn how we can help.
What Types Of Debt Are Relevant In A Divorce?
Marital debt is the first type of relevant debt in a divorce and is incurred during the marriage. Community property includes assets and debts, which unless otherwise agreed, are to be divided equally in a divorce, such as:
- Car loans
- Credit cards
- Home loans
- Medical debt
- Student loans (many exceptions exist, which we’ll cover below)
If a spouse enters the marriage with these debts, it’s not considered community debt because it occurred prior to being married. Joint accounts, such as a mortgages or car loans, are community debts and will be divided as such.
When the debt existed before the marriage, such as a personal credit card debt, it is separate property.
What If The Debt Is In My Partner’s Name And Not Mine?
When one partner’s name is on the debt and another’s is not, it is still both partners’ community responsibility if the debt is incurred during the marriage. It’s important to note that the creditor cannot pursue a spouse or partner personally unless the spouse signed a contract for the debt. However, the creditor can pursue community assets, such as wages, to satisfy a community debt, regardless of which spouse signed for the debt. Divorce and debt are complex and require the legal guidance of an attorney who can help you better navigate the hard financial decisions ahead.
If, for example, your spouse took out a credit card solely in their name and refused to pay the debt, creditors can argue that the debt arose during the marriage, sue to obtain a judgment, and use the judgment to garnish community wages, place liens against community assets, etc. If this is a concern, it’s important to quickly begin the divorce process.
Creditors have rights, and if you are going through a divorce, California laws are in place to protect you and the creditors, depending on the nature of the debt and when it was incurred.
What Is Pre-Marital Debt?
Pre-marital debt is any financial obligation incurred by either spouse prior to entering into marriage.
For example, credit card debt incurred before the marriage is considered pre-marital debt.
California law generally treats pre-marital debt as separate debt, and the spouse who incurred it will typically be responsible for satisfying that debt. However, the state’s community property laws can complicate things during a divorce.
An attorney can help you understand how or if pre-marital debt will affect your divorce and help you determine the best course of action to take to address the issue.
Are There Special Exceptions That Apply Regarding Divorce And Debt?
Depending on your individual circumstances and situation, there may be special considerations that apply to divorce and debt.
For example, Family Code Section 2641 states that student loans generally should not be included among community liabilities. In other words, the spouse who took out the loan will be solely responsible for repaying it, even if the loans were taken out during the course of the marriage.
Of course, there are exceptions here, such as whether the community benefitted substantially from the education or training or if the education reduced the need for spousal support. These exceptions can complicate matters and make it more challenging to determine whether this debt should be divided equally in the divorce.
Other special considerations may include whether your community debts exceed community assets and how that will be addressed.
The issue of debt in a divorce can be complex, but an attorney can clarify things and advocate on your behalf to ensure debts are divided fairly.
Contact Wine Country Family Law, P.C. today to schedule a consultation and discuss your concerns regarding debt in your divorce.
