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How is debt divided in a California divorce?

On Behalf of | Jul 18, 2022 | Divorce

In many California divorces—especially high-asset cases—people will think about property division. That includes their home, automobiles, jewelry, collectibles, vacation properties, business assets, bank accounts, retirement accounts and investments.

While properties that people had before the marriage and what was accumulated after the marriage are a frequent topic of discord, many couples also amass substantial debt. Knowing what the law says about how debt will be divided can be as important as property division.

How debts and liabilities are handled in a divorce

This is a common concern even in high-asset marriages where money is tied up in investments and properties whose values might increase or decrease based on myriad factors. Just as people can retain most properties they had before the marriage as part of property division, debt may be viewed in the same way.

However, if the debt was accrued after the marriage, it is viewed as community debt and both parties are likely responsible for it. There is no offset to a party who did not garner the debt. If one bought items using a credit card while the couple was married, it can be viewed as joint debt.

When there are debts that go beyond the community and quasi-community assets, the court will assess any excess debt and strive to split it in a way it deems fair. That is not necessarily equal. The ability to pay the debt will be a factor. In some cases, debt will come about after a separation. How these debts are split depends on circumstances.

If the debt is due to sharing costs for necessities for either spouse or children, these can be assigned to the spouse who had the need and the ability to pay when they incurred the debt. If it is for nonessential items, the person who accrued the debt will be deemed responsible for it. Student loans are currently at the forefront of debt obligations. In a divorce, the rules are different with these debts. The spouse who took out the loan is generally responsible for it. Also, if community money was used to repay it, the other spouse could ask for a reimbursement.

To understand debt division, having professional assistance may be crucial

Those who have been fortunate and are in the middle of a high-asset divorce should know every nuance of the case and how it will impact their future. Debt division is frequently forgotten as part of the case, but it can be a primary concern once all the assets are accounted for and property is to be divided.

Negotiation is often the best bet, but that is not always possible. Speaking to experienced professionals can be key to full protection and navigating the case.