If you and your spouse are trying to keep your divorce as amicable as possible, you may have decided to try to work out a preliminary agreement for difficult issues before heading to a mediator. Maybe you have already reached a reasonable decision about who will get the TV and which of you will keep which car. The house was tricky since it is a delicate balance of asset and liability, but you figured out the most beneficial resolution for all involved.
Now comes your debt. Understanding how California laws regulate the division of debt during a divorce will be an important factor in your negotiations and may make a difference in the outcome of your agreement.
Debt division in California
As one of the many community property states in the country, California holds that all debt accumulated during your marriage belongs to both you and your spouse unless you have a prenuptial agreement saying otherwise. Even if you have a credit card in your own name or your spouse bought a car with a loan that you did not co-sign, those debts belong equally to your marriage and must be divided equally during your divorce.
Equal division of the debt may not seem fair, especially if your spouse was responsible for a larger portion of the debt or if property division leaves you at an unfair financial disadvantage. This is why having legal counsel during your negotiations is critical. If your spouse is willing to work things out without leaving you unfairly burdened, you may suggest some of the following actions:
- Paying off as much debt as possible before finalizing a settlement
- Selling some of your marital assets to pay down the debt
- Refinancing some of the debt to remove your name or legal liability
- Transferring credit card debt to a new card or consolidating loans into one spouse’s name
You may also want to discuss bankruptcy with your spouse. If your spouse hints that he or she will file for bankruptcy, you may be left with the sole responsibility for the debt. Work with your attorney to find options for avoiding this financially devastating possibility.
One step you can take immediately is to close any joint accounts to prevent your ex from adding more debt or transferring debts to accounts you are responsible for paying. Remember that even though a divorce settlement assigns payment responsibility to one spouse or the other, the creditor is not obliged to heed that order. If your name remains on a debt that your divorce settlement assigns to your spouse, you may still be liable if your spouse fails to make the payments.