In a marital dissolution, the issue of asset and debt division does arise fairly often. If you reside in California, the law of community property dictates that the marital assets and debts be divided equally between the parties, regardless of what seems fair or which spouse was primarily or even solely responsible for incurring them. There are circumstances where you can jointly make this determination, within limits, or when other factors arise that can make the division of debt more complicated.
Exceptions to Community Property Division
There are some exceptions to the general division of assets and debts based on community property law. For instance, community property law only applies to those obligations which were incurred during the marriage and before the date of separation.
Should the marital debt be more than the assets, however, then the court can order that the spouse who has the greater financial capacity pay the obligation.
- Prenuptial Agreements
You can decide between yourselves on how to divide your property and debts. Many couples have a prenuptial agreement in place so that both are aware of what property they will retain and what debts they will be responsible for if the marriage does not survive. If you wish to draft a prenup, have a divorce attorney in Los Angeles draft one for you. Both parties have to fully disclose all sources of income and property and acknowledge that they are freely entering into the agreement with full knowledge of their rights under California law. Your spouse should have the agreement reviewed by his/her own attorney as well before you both sign it.
- Marital Settlement Agreement
Of course, you can settle the debt issues by listing in your divorce or settlement agreement as to who is responsible for what debt and which party is to receive certain assets. If there is a great disparity in the division of debts and assets, the court may review and reject it. Your best course of action is to draft an agreement that indicates at least a rough equitable division of property and debt.
The Issue of Separation in Determining Marital Debt
If you decide to stick with community property principles, then you or the court will have to determine what constitutes community or separate debt. Generally, as indicated, any debts incurred during the marriage is community debt but after separation, the debts incurred are no longer marital and belong to whomever incurred them. An issue, then, is when did the separation occur?
California law uses a two-pronged approach to deciding when separation occurred for purposes of determining separate vs. community property or debts:
- When did the parties physically separate? If you move out, then you are physically separate but if you remain in the home, can there be physical separation? There can be if you sleep in a separate bedroom and are no longer intimate. There usually must be more evidence, however, of a separate living arrangement such as separate entrances, being in the home at different times, or not sharing in any expenses other than rent or the mortgage.
- Evincing an intent to end the marriage by at least one spouse must be established. Is there correspondence to this effect or some other indication that this is not a trial separation? Your words and actions are important in this part of the test. Did you or your spouse actually say the marriage was over and that you want a divorce? Was this decision or intent conveyed to others? Did you or your spouse take steps to end a joint account or some other shared arrangements? In other words, were your words and actions unambiguous in your intent to end the marriage?
These issues can be contentious and a separate trial can be ordered on this issue alone. Discuss separation issues with your divorce attorney in Los Angeles to see if this can be resolved without litigation.
Special Issues in Dividing Debt
Even if the debts are divided and your spouse assumes responsibility, this does not necessarily mean that a creditor will not pursue collection against you should your spouse not pay or is late. You remain responsible for the entire debt as well as late fees. You can avoid this by having your spouse take out a new credit card and transferring the balance from the old joint card to the new one.
You may want to send the creditor a copy of your Marital Settlement Agreement or see if a new agreement can be made with your name omitted. Another option is to sell certain assets and have an agreement with your ex to use the funds to pay off a debt.
Another possibility is enforcing the terms of the Marital Settlement Agreement if it was incorporated into the final judgment. If so, you can obtain a money judgment against your spouse if he/she refused to pay the debt. If your spouse ignores the judgment, talk to a divorce lawyer in Los Angeles about ways to collect the debt, though this can be cumbersome and expensive in some cases. Do not take steps against your spouse that might be construed as abuse or harassment.
Another complicated issue can arise regarding the mortgage. If the home was purchased during the marriage with community assets, then the home is either sold when the parties divorce or one party buys out the other. If both community and separate property funds are used to purchase the house, then a court may order the partner who used separate property funds to be reimbursed by the other. Should one spouse bring a home into the marriage but the other contributes to the mortgage or to improvements, then that party may be entitled to reimbursement of the community funds used.
Any party who uses separate property funds to pay off a community debt after separation but prior to the date of divorce is also entitled to reimbursement. The parties, however, can agree to no reimbursement or the court could decide it would not be reasonable for that spouse to be reimbursed.
If you have any questions about this article or debt during divorce, contact the experienced family law attorneys at Gastelum Law in Los Angeles, CA.