People generally take on debt with the intention of paying it off later so that they can meet short-term needs for themselves and their loved ones right away. Married couples tend to share debts, which means that they will likely need to divide their financial responsibilities when they decide to divorce.
Debt division can be as challenging as asset division when couples in California file for divorce, particularly for those with more complex marital estates. Higher-income households tend to have substantially more debt as well as more property. What makes debt so hard to divide?
Not all debts are marital debts
Couples often disagree quite strongly about which debts they need to share responsibility for when they divorce. Perhaps one spouse took out credit cards during the marriage and did not disclose that fact to the other, or perhaps they used a shared account to engage in some kind of misconduct, like paying for a hotel room while conducting an extramarital affair. It can be difficult for couples to work out exactly which debts are part of the marital estate and will therefore influence the division of their assets in accordance with California community property statutes. Most debts from during the marriage, regardless of the name of the account, will be part of the marital estate.
Repayment issues can cause financial hardship
Another challenge generated by marital debts during divorce is how people will pay them after the divorce. Often, people aspire to have their spouse take on as much of the debt as possible, not realizing that they could be in a very vulnerable situation.
If they are a cosigner for the account and their spouse falls behind on payments, even after the divorce, the lender could come after them for repayment or could report the matter to the credit bureaus. In fact, if the party ordered to pay the debts by the family courts files for bankruptcy, the spouse who is theoretically not responsible for those financial obligations may have few choices but to pay it. Being very careful about dividing or paying marital debts will be important for someone’s financial future.
Couples in California either have the option of negotiating their own terms for dividing their debts or having a family law judge decide how to divide both their property and their debts. Carefully considering the unique financial matters that arise during complex and high-asset California divorces may help people more effectively protect their interests as they commit to a particular legal strategy.