During a divorce case, the courts will divide assets – and debts – according to state laws. There are two basic fields of law that states abide by for divorces: community property and equitable distribution. California is one of only nine community property states, meaning the courts divide a couple’s assets down the middle, 50/50, in a divorce settlement. In equitable distribution states, the courts look at a variety of factors about the couple’s marriage and assign assets accordingly. Due to its community property laws, California courts will rule that most debts one spouse incurs during the marriage become the responsibility of both spouses after a divorce.
Debts that Apply Under Community Property Rules
The California courts rule that a couple must split all their debts and assets down the middle during a divorce, regardless of the circumstances in the marriage. However, not all debts qualify as community property. Technically, all debts either spouse incurred during the marriage become community debt, even if your ex-spouse was the only one who signed the paperwork for a loan or deal. Debts incurred outside of the marriage, on the other hand, would not become a joint debt. Therefore, if your ex-spouse is in debt because of a bad investment he or she made before the marriage, you may not be responsible for the repayment of that debt.
An exception to the community property rule is if you commingle your assets and debts with your spouse after marriage, such as adding your spouse on your account as a joint holder, for example. Commingling your financial assets automatically makes it all community property, regardless of who brought which asset and debt into the marriage. In some community property states, the courts will analyze commingled debts and evaluate who incurred each debt and when. Other exceptions to the rule are if your spouse incurred the debt prior to marriage for a family necessity or to maintain a jointly owned asset.
Shared Debts and Creditors
After a divorce, the creditors of your ex-spouse are legally allowed to place liens on assets and the incomes of both of you to clear joint debts. Since in California the courts consider the debts communal, the creditors are free to make good on what either spouse owes with shared assets. If your ex-spouse was in significant debt, and this debt became part of community property during your marriage, you could find yourself in an unfortunate situation with debt collectors and creditors.
For example, if your ex-spouse started a business that went under during your marriage and he or she owes $50,000 to suppliers, a creditor can hold you both liable for repayment. The creditor can even sue you both to collect the money. Now say your ex-spouse no longer has a job. Since he or she makes no income, the creditors will garnish your wages or place liens on your property instead until you pay off the debt. This may seem unfair in certain situations, but it’s the way the law operates in community property states.
It is possible to remove your liability for your ex-spouse’s debt if you both agree to sign a document stating to have all debts and incomes treated separately. This agreement can be a pre- or postnuptial document but only works if you aren’t already in debt with your partner.
Seek Legal Help Regarding Your Ex-Spouse’s Debts
Understanding if the California divorce courts will hold you jointly responsible for your ex-spouse’s debts requires speaking with an experienced Orange County family attorney. Every divorce is different and will have a varying outcome. Divorce cases can get complicated, especially if they involve high-value assets or complex financial battles.
