Splitting Community Property Assets and Debt
Many married couples do not know that they are liable for each other’s debts in California, a “community property” state. This means that assets gained and debts incurred by either spouse during the marriage are shared equally after a divorce. Of course, that also means that community property is liable for everything, including debts of either spouse.
Community property is liable for the debts that each spouse brings to the marriage and incurred during marriage. This means that community property can be used to pay for debt that the couple created during their marriage. For example, extra vehicles, property or valuable jewelry can be ordered to be sold for payment for various forms of debt, most commonly credit card debt.
For most couples, property acquired during marriage is usually community property. This type of property is liable for the debts of both spouses incurred before and during marriage. Each spouse is personally liable for the debts that spouse incurs. That personal liability will continue after the divorce as it follows each person.
Unless the spouses have a prenuptial agreement, the family law court will order that community property and debts will be divided equally between the divorcing spouses. Often spouses will receive different assets but in general the goal is to end up with an equal division between both spouses.
Divorcing spouses can also agree that they won’t have community property. They can also designate certain property as community and the balance will be the separate property of the spouses. It is important to get legal advice for how the division of community property can affect the division of debt.
Individual vs. Marital Debt
From a creditor’s viewpoint, the marriage really involves three parties: Two spouses and the community property. When the community property is divided, each spouse is liable for their own debts, including debts assigned to them in a marital dissolution. The property they hold after the community is also liable for their debts.
The good news is that while the community property may be liable for your spouse’s debts, you personally are not liable if you did not incur the debt. That means that creditors cannot attach your separate property, including property you acquire after the marriage ends. A creditor can only seize community property for debts created during the marriage.
Additionally, in California there is no liability for the miscellaneous debts of the other spouse once the marriage ends. Your spouse’s debts will not follow you after the marriage unless the judgment of dissolution specifically provides this.
While there are some basic rules surrounding debt division, it can be a complicated area of law. Determining whether a debt is a joint debt or separate debt, which spouse is entitled to reimbursement and how to make an equal division is not always as simple as each spouse ending up with half of the community property. Therefore, in many cases, it’s a good idea to consult with an experienced divorce attorney to get a fair settlement of community property.