During a divorce, many couples focus on the division of community assets and often don’t realize that marital debt is also divided when a marriage is dissolved. In California, property obtained during the marriage is considered jointly owned by both spouses and may be subject to division in a divorce settlement. Divorcing spouses are also liable for community debt incurred during the marriage, and the court will determine the most equitable division of these liabilities.
Debt and Divorce in California
California is a community property state, which means the community estate is liable for all debt incurred during marriage. During a divorce settlement, marital assets may be tallied and all debts incurred during the marriage subtracted from the net worth of the marital estate. If the couple cannot agree on how to divide marital debt, a judge will assign the debts to either or both parties depending on the circumstances of the case. California also recognizes separate property, which refers to assets owned by one spouse prior to the marriage. This property is not commingled with marital funds and the law does not require that separate property be used to pay off marital debt.
Division of Debt
In California, debt may be divided equally or unequally depending on a number of factors, including the amount of assets each party receives. A court may assign a larger portion of the debt to the party who receives more property. For example, if one party is awarded the marital home, that party may also be required to assume the mortgage unless the other party agrees to pay the mortgage in lieu of spousal support. Likewise, if one spouse is awarded an automobile that is not yet paid off, that party will likely be responsible for the remaining payments.
According to California case law, a spouse may be entitled to reimbursement for paying the other party's pre-marital debt. For example, if one spouse enters the marriage with a large amount of credit card debt and that debt is paid off during marriage, the other spouse may be entitled to reimbursement because community property income was used to pay off the pre-marital debt.
Paying Assigned Debt
It is each party's responsibility to pay whatever debt is allocated under the terms of the divorce settlement. If one party fails to pay an assigned debt, creditors may pursue the other party. When this occurs, the non-defaulting party may petition the court to have the divorce settlement enforced. Sometimes, one party may declare bankruptcy if he is unable to pay his assigned debt. In such cases, creditors may pursue the other party.