Since yesterday we were talking about dividing personal property in divorce, today I thought we could talk about dividing debt. Dividing debt in divorce is a big issue these days as many couples find themselves coming away from marriages without any assets at all, and in some cases, with only debt. There are a few issues that commonly come up when it comes to dividing debt in divorce: how to handle debt during the divorce, how to handle debt of one spouse or debt unknown to the other spouse, and how debt is handled post-divorce when one spouse agrees to service the debt but both names remain.
- In California, once the Petition is filed (for Petitioner) and served (for Respondent), both parties become subject to restraining orders preventing them from acquiring or disposing of property of debt other than in the “ordinary course of business.” Basically, the parties should continue to service their debt and pay their bills as they have in the past, before the divorce was filed.
- The question often arises about debt one party has incurred (and the other party doesn’t want to pay) or one party’s lack of ability to pay the couple’s debt. This is both a common and a difficult situation. The debt is most likely to be a joint debt, whether it’s a credit card or other debt, so any non-payment is going to adversely affect both If you can pay at all? Do pay. Don’t harm your own credit score to get back at your spouse – it’s not worth it.
- Another question that comes up is that one spouse may have incurred debt, such as credit card debt, that the other spouse is unaware of. Unfortunately, in California, any and all property and debt acquired during the marriage is community property, and divided equally upon divorce, regardless of whether it was known to the other spouse. There are exceptions in the case of, for example, the unknown credit card was used to pay for an extra-marital affair, but this can be hard to prove.
- At the end of the divorce, you and your spouse may agree to divide the bills, but in the case of a credit card, both names can remain on the card. This means that if the payor decides not to pay or defaults, then the company is going to come after the non-paying spouse for payment. This is unavoidable, as banks and credit card companies will go after anyone to get their payment. Your recourse, as non-paying spouse, is to send the company a copy of the Judgment or Marital Settlement Agreement that says you are not liable for the debt, and that should be the end of it. But you do want to make sure that your Judgment includes who pays for what debts so that you have this on hand should there be a problem in the future.
One final comment on joint debt and credit cards in divorce: once the papers are filed, unless you really need the cards, close them. Do not allow either spouse to use the joint credit cards, because untangling that mess in the divorce, when both spouses use a joint credit card, is a nightmare.