This is a common question couples tend to ask as they are separating. They want to know who has to pay off any bills or credit card Debt if they weren’t the one running up the bills. Unfortunately, as long as the debt was incurred during the length of the marriage and before the separation date, it is considered community property and both spouses are equally liable, even if one spouse was never made aware of the debt during the marriage. To understand why that is, it is important to take a closer look at how the law interprets community property.

When couples get a divorce in a community property state such as California, all assets and debts acquired anytime during the length of the marriage (but prior to separation) must be equally divided. Separate property, which includes any asset or debt acquired before the marriage or after the date of separation, is not included under community property. California courts define this dividing process as “equitable distribution”, to ensure that both spouses get their fair share when it comes to splitting up personal property, real estate property, bank accounts, retirement accounts, pension plans, family businesses, insurance policies, as well as any debts such as car loans, mortgages, personal loans, and credit card debt. Unless the couple previously entered into their own agreement, such as a prenuptial agreement, to decide how to divide assets and debts, the court will order all community property and debts to be divided equally during the divorce process.

To start the division process, each spouse is required to make a list of all possessions and debts in their names or in both names and categorize them either as separate or community property. Under California law, debts and assets are divided the same way. Debts and assets that are the separate property of one spouse (usually acquired before and after the marriage) will be assigned to that spouse. When it comes to debt, it makes no difference if one spouse used a loan for their personal benefit, or to help their family. It also makes no difference whose name is on the bill or assigned to the loan. Joint credit cards often fall under this category, since spouses can apply for new cards without the other spouse’s approval or awareness. Therefore, any debt incurred during the marriage is community property and both spouses are equally liable. If one spouse is concerned that the other spouse may not pay the joint debts assigned to him/her after the divorce, it may be a good option to agree to pay off the joint debts in return for a greater share of the community property. This is a good way to ensure debts are paid, because as long as debts are owned by both spouses, creditors can go after either spouse to collect the debt. So if one spouse fails to pay the debt, creditors are allowed to pursue the other party, even after the divorce. If this happens, the non-defaulting spouse can petition the court to enforce the divorce settlement. Unfortunately, if the spouse with the assigned debt is unable to pay after the divorce, creditors may still go after the other spouse because they want to be repaid for the loan, regardless of who agrees to be assigned that debt after the divorce.

Dividing assets and debts during a divorce can be a complicated and painful process. An experienced divorce mediator can help couples solve disagreements about money issues and how to divide community property. Mediation ensures that a fair way is used to divide not only assets and debts, but many other issues of a divorce, such as spousal support, and child custody and support.

To learn more about the mediation process, complete our request for a free online evaluation, and to receive a free 30-minute phone consultation or call 619-702-9174.