When couples divorce, usually asset division is at the top of their minds, not so much debt division. However, dividing debt is a critical issue that must be addressed and handled as intelligently as possible during a divorce.
California is one of a handful of states that divides marital property under the “community property” model. Under California’s community property laws, all income, assets, and debts acquired during the course of the marriage are considered “community property,” meaning they belong to both spouses regardless of who earned the income or who incurred a debt.
So, if your spouse took out a credit card in his or her name alone and racked up $10,000 of debt, you’d still be on the hook for it if push comes to shove. Because California married couples are ultimately responsible for each other’s debts, it’s important to treat debt with the respect it deserves in the event of divorce.
Cutting Ties & Getting a Fresh Start
If you and your spouse have accumulated a lot of debt, you want to minimize the debt headaches as much as possible, and you want to start right now, even before you file for divorce. Debt may be one of the reasons, if not the reason why you’re divorcing, but you must know that divorce won’t make that debt “magically disappear.” So, you and your spouse will have to address the “elephant in the room” so to speak.
“What can I do to minimize the stress of my divorce?” Our advice is to educate yourself and be fully prepared. You don’t need any surprises. Educate yourself about debt, and speak to a divorce attorney about it. You need to know the worst-case scenarios so you can prevent them. For example, what would happen if your ex kept paying the mortgage (that you co-signed for), and he or she couldn’t make the payments down the road?
What would you do? Pay the mortgage for him or her, or let it go and let your credit be ruined in the process? Our advice is to eliminate all shared debt before the divorce is final – if that’s possible. This way, you can begin your single life with a fresh start without having to worry about your shared debts haunting you for years to come.
To eliminate shared debt, you may have to:
- Remove your name from your spouse’s credit cards as an authorized user.
- Remove your spouse as an authorized user on your credit cards.
- Pay off and close any joint credit cards or loans.
- If you have a mortgage together, either sell the house or have one spouse refinance the house in their name alone.
- If you co-signed on an auto loan, have one spouse refinance the auto loan in their name alone.
Note: Since California is a community property state, creditors are not bound to divorce agreements. Your spouse may “agree” to pay the mortgage, an auto loan, or a credit card account, but if he or she fails to pay and you’re still on the account, the creditor can come after you if your spouse defaults.
Related: Divorce and Your Credit
In a divorce, it’s important to be smart so your credit is protected. To learn more about asset and debt division in a divorce, contact our firm today.
