Dividing Debt in a Divorce

In a divorce, people often worry about money and property. We often hear about what someone “lost” in their divorce. However, we don’t always think about debt in that context. Debt is part of your overall financial portfolio. Just like savings and income, debt must be divided among spouses.

In this article, we will discuss how California courts handle debt division. We will also explore alternatives to going through the courts.

Community Property Division

California is one of only nine states that still uses the community property division model. Many consider it an archaic traditionalist system.

The model is founded on the idea that everything accumulated during the marriage, from savings and property to debt, is shared equally among both spouses. This idea, by itself, is not unique to community property division. Equitable division models also begin with this premise.

Community property division differs in how it treats these “marital assets.” Because each party co-owns all property, the model states, they should divide it equally. Therefore, when a California court divides property, it attempts to give each spouse a complete, 50% split of the marital assets. This includes savings, property, and debt.

You may already see the flaw in this design. Perhaps your spouse is terrible with money. Maybe they racked up a giant amount of debt, and this is the very reason you’re getting a divorce. Based on the community property division model, you will be forced to share debt, regardless of your contribution to it.

The Problems of Sharing Debt

Regardless of who accumulated the debt, it could still be in your name. If, for instance, you owned the credit card, but your spouse was its primary user, you are on the hook for that money. The same is true for joint accounts. You are still partially responsible for any debt on those.

When you share debt with your ex, you must rely on them to pay their portion in full and on time. If they are bad with money, particularly if they accumulated the debt to begin with, this is a dangerous gamble. Each time a payment is late or insufficient, it damages your credit record.

To protect yourself, you may be forced to pay the difference to keep your credit score healthy. From there, you can go to the court and ask them to make your ex pay their share. Even if this works, you will still be stuck with court bills along with the time and effort you spent. You’re still losing money for someone else’s financial troubles.

If your ex files for bankruptcy, this still doesn’t end your woes. Commonly, people assume that bankruptcy wipes debt clean. This is not so. When someone goes bankrupt, they still owe that money until it is paid off. Bankruptcy releases someone of liability associated with their debt, freeing them from lawsuits and other legal penalties. If any of these accounts are still in your name, even jointly, your ex’s bankruptcy simply means the creditors will come after you.

What Can You Do?

Fortunately, you can always make decisions without the court’s involvement. You and your spouse can agree on child custody, spousal support, a parenting plan, and more. You can make your agreements, commit them to writing, and submit them to the courts.

Financial situations, however, can get touchy, especially when one party is responsible for debt. Even broaching the subject can cause conflict. To avoid a court-driven debt decision, consider mediation, instead. Mediators are legal professionals specially trained to help people negotiate. Through mediation, you can create terms that benefit everyone. Best of all, both spouses agree to every decision. There is no courtroom forcing anyone to do something against their will.

Making Each Person Responsible for The Own Debt

Perhaps the fairest and most obvious conclusion is for each party to walk away with the debt they directly accumulated. This is a more “equitable,” rather than “equal,” solution. Going this route, however, may take some meticulous planning.

Giving each person their portion of debt can be complicated. As we’ve stated, one person may have built debt on another’s account. You can’t simply say, “we’ll each be responsible for our portion;” you must make sure doing so is legally possible.

Each person must become legally responsible for their own portion. This could mean transferring balances to one another’s accounts or consolidating credit cards. You must also close any joint accounts, dividing the debt fairly. If either party continues to borrow money from such accounts, that debt affects the other person.

Your mediator should be able to help guide you in these matters. Family law often involves complex financial matters. Mediators can help you build a fair financial road map for splitting your debt and keeping each party safe.

Ultimately, however, the decision is between you and your spouse. Mediators should not try to force anyone into an agreement. If you think it is fair and reasonable to take on some of your spouse’s debt, do it. There are no limits on doing what is best for you.

If you need help with mediating debt division, contact our office for a free consultation. We focus on helping couples end their marriages amicably, without an ugly war. Call us today at (949) 558-2624, or fill out our online contact form.

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