Division of Debt
When you are contemplating a divorce in California, one of the necessary concepts you will consider is how the community assets will be split. But it is equally important to consider how the community debts accumulated during marriage will be divided. Division of debt can sometimes be more complex that division of assets.
To divide the debts, it is important to look at which debts are community and separate property, whether you or the other party needs to be reimbursed for a certain debt, what happens to the divorce proceeding if you declare bankruptcy, and who remains liable for the debt obligations after divorce. Make sure you get skilled representation from an Orange County divorce lawyer to protect your interests in these matters.
Exceptions to the Rule of Equal Division
According to the California Family Code, all debts and assets acquired during the course of marriage must be equally divided at the time of divorce. An exception to this rule is when the spouses had a prenuptial or postnuptial agreement that specified a different division for the community property, including the debts.
Another exception to the 50/50 division rule occurs when the total value of community assets is lower than the total value of community debts. In this case, the court has the discretion to diverge from the 50/50 rule and divide the debts unequally between the two parties. The court will usually look at the financial position of both parties and assign a higher portion of the debts to party who is financially stronger.
Community vs. Separate Debt
At the time of debt division in a divorce, you should first determine whether the debt is community or separate property.
Any debts that you or your spouse incurs during the course of your marriage, but prior to your date of separation will be considered community debt. Even if only one party incurred a particular debt during marriage (such as, only one spouse took a car loan), the community debt will be split equally at the time of divorce.
For instance, it is possible that for various family purchases and regular household expenses, only one credit card in the name of one spouse was used, and ran up a significant debt. This debt will belong to both spouses at the time of property division. Similarly, income tax dues accrued during the course of marriage by one spouse will also become the debt obligation of the other spouse.
Any debt that you incurred prior to your marriage of after the date of your separation will be considered your separate debt in California. It is important to determine the date of separation for assigning post-separation debts, but it may not always be a simple exercise. In California, the legal date of separation is determined on the basis of a two-part test:
- Part 1: The spouses must have physically separated. This is relatively easy to identify when a spouse moved out of a shared residence. But if the spouses started sleeping separately in different areas of the shared home, the court may also consider it as a physical separation.
- Part 2: At least one spouse must have the intent to end the marriage. This condition is in addition to the act of physical separation. If the spouses separation just as a trial or on a temporary basis, it will not satisfy the intent part of the test.
Mortgage Division in a Divorce
One of the most significant debts to be divided in many marriages is the mortgage on the marital home. In a simplistic situation, if you and your spouse purchased a house after your marriage using community money for the down payment as well as monthly mortgage payments, the mortgage will become your equal responsibility at the time of divorce.
Through mutual agreement or a court order, you may buy out the other party’s share of mortgage to retain the home, and thereafter refinance the mortgage solely in your name. Alternatively, the house may be sold in the market and the net sale proceeds split between the two parties.
But the division may become more complex if the house and mortgage include both community and separate property interests. For instance, you may have used your separate property money to make the down payment on your marital home, or you owned the home prior to marriage, but your spouse made contributions after marriage to the mortgage payments or repairs and maintenance of the home.
In these situations, the contributing party may have to be reimbursed, provided their separate property contribution is proved in court. It is best to consult with an Orange County family law attorney for legal advice on this issue.
Get Skilled Legal Representation for the Rightful Division of Debts in a Divorce
Dividing debts in an Orange County divorce can often be more complicated than dividing assets. The complications will increase if the debts are elaborate, multi-state or comingled. Your share of the debts may continue to be your liability after divorce.
Therefore, you need careful financial planning and you need to ensure that you do not end up facing liability for the other party’s share of debts. With robust legal counsel and representation from a competent divorce lawyer in Orange County, you can protect your interests at the time of dividing debts in a divorce.