Debt in Divorce—What Happens to It?

You’re divorcing or considering divorce. You know that you’ll have to divide your property, but what about debt? How is your debt divided, and why?

Debt division can be complicated, but with the right approach you can find a solution that works. In California, property and debt will be divided fairly between you and your spouse, but the precise results will vary. At the Edgar & Dow, we’re here to help you through your divorce to a brighter future—and that includes addressing your debt. We’ve included some helpful information so you can get a better idea of how your debt may be affected by divorce.

Listing Debt

You’ll need to go through a few steps to divide your debt. The first is listing everything out, both debt and assets. You and your spouse will each need to fill out a Schedule of Assets and Debt (Form FL-142). You’ll fill out these forms and then compare them to see if there are any differences or disagreements on whether certain property or debt is separate or community, the value of property or debt, etc.

It’s important to include everything. Don’t leave anything out, as this can create problems later. Be as honest and detailed as you can, including every single asset and debt you can find.

Some of the types of debt to list in your Schedule of Assets and Debt may include:

• Car loans
• Mortgages
• Credit cards
• Personal loans
• Business loans
• Taxes
• Child/spousal support obligations
• Any other loans

For more information on property division in Southern California, see our blog: How Long Do I Have to Be Married to Get Half of Everything?

Separate vs. Community Debt

Deciding what is community versus separate debt can be challenging. Community debt is shared between spouses—meaning they’re both responsible for it. Separate debt belongs only to one spouse.

Most of the debt you’re dealing with will probably be shared, as all property and debt acquired during a marriage is considered community property/debt and subject to equitable distribution under California law. This may include car loans, mortgages, credit cards, personal loans, taxes, and business loans.

There is some debt that may be considered separate, however, such as:

• Any debt acquired prior to the marriage, such as college loans
• Child or spousal support that only one spouse was previously ordered to pay

How Debt Is Divided

At this point, if you and your spouse have filled out and compared your individual Schedules of Assets and Debt, you should have a pretty good idea of whether you’ll be able to divide property and debt through a marital settlement agreement or a court judgment.

Debt, like assets, is subject to equitable distribution in California. This means that it will be divided fairly between divorcing spouses. This is not always a 50/50 split, particularly when it comes to trying to divide shared credit cards or other debt. This is why it is so important to properly list and value all debt in your Schedule of Assets and Debt, as it will give a good rule of thumb as to what you need to divide.

Ideally, you and your spouse can negotiate or use another method like mediation to reach your own agreement regarding debt division. If you cannot, the courts will need to step in, and a judge will make this determination for you.

When the courts divide debt, they’ll consider such factors as:

• Which is separate or community debt
• How property and assets are being divided
• Each spouse’s income and earning potential
• Spousal and child support payments

Does Fault Play a Role in Debt Division?

California is a no-fault state. This means that you can get divorced without alleging that your spouse was at fault, by committing adultery, abuse, abandonment, etc. This also means that debt and property will be divided equitably regardless of how or why your marriage is ending.

Something to Think About When It Comes to Debt & Divorce

Although you and your spouse may divide debt, you need to think about whether you can still be held legally accountable for it. For example, if you had a shared credit card and your spouse agreed to take over that debt when you divorced, is your name still on the card? Will your credit take a hit if your spouse misses a payment?

Carefully consider all debt that has been divided, and try to transfer it only to your name or your spouse’s name, depending on who has assumed responsibility. With a credit card, this may mean transferring a balance to a new card or loan in one spouse’s name. The last thing you want is to be held accountable for debt your ex now owns.

Talk to an Attorney

As you can see, there’s a lot to think about when it comes to divorce and debt. If you have any questions or concerns about this, you may find it helpful to talk to a legal professional. An experienced divorce attorney can review your unique financial situation, speak with you about your goals, and put together a plan that gives you the best opportunity at maintaining financial stability even after your divorce.

To learn more, call our Southern California divorce lawyers at (888) 251-9618.