While there are many hot topic issues discussed in the news surrounding the divorce process, there are also some important points often swept under the rug. One of these skirted-over issues has to do with debt and separation. California is a community property state. That means in terms of property division, a couple’s assets and liabilities acquired during the marriage should be split close to evenly upon divorce. While, this is often the case in divorce court, in reality, debt collectors do not necessarily follow the same rules.
Even if a court orders a spouse to pay part of a debt, if the other spouse’s name is on the loan or mortgage, it is that listed spouse that could continue to be held responsible for such debt post-divorce. The creditors of such debts need only abide by the contracts signed with them, and those same creditors do not necessarily pay credence to a divorce property division order or community property laws.
The above being said, at the same time, a creditor might do whatever is most convenient for them. Another important thing to consider if living in a community property state such as California is that debt incurred during the marriage is held jointly by spouses. Thus, even if a spouse had debt the other was not aware of, both spouses could be considered responsible for the debt. So while one spouse may be contractually obligated to pay a debt, if a creditor believes it could collect by pursuing the other spouse, this may be done.
In order to protect oneself in such situations, it is important to require full asset and debt disclosure during the divorce process. Further, some experts suggest securing an indemnity clause in the divorce agreement. That way if a spouse is ordered to pay on a debt in the other spouse’s name and fails to do so, the named spouse can bring the non-paying spouse back to court to recover for what is owed.
The subtleties of property division can be difficult to follow. It is important to have knowledgeable legal representation in order to adequately protect oneself during the separation process.
Source: The Huffington Post, “What Your Divorce Attorney Won’t Tell You about Marital Debt,” Cathy Meyer, Mar. 3, 2014.