Just like assets, debts are often accumulated during marriage and so need to be divided. But how they are divided and why can vary depending on the circumstances within the marriage and the type of debt it is.
What are community debts?
California is a community property state. This means that generally, any debts that are incurred after the wedding date, but before the date of separation are considered a “community debt.” When a debt is considered “community”, both spouses are equally responsible to pay it off after separation.
By contrast, a “separate debt” is a debt that only one spouse is responsible to pay. The most common basis for a debt being classified as separate (as opposed to community) is that it was incurred before marriage or after separation.
What are some examples of common debts in a divorce?
While just about any financial obligation incurred during a marriage may be considered community, some of the most common that show up in both short-term and long-term divorces are:
- Home loans and mortgages
- Credit cards and charge accounts
- Student loans
- Business operating loans
- Unpaid taxes
While each of these may have specific rules or exceptions that apply to them, you may be responsible for part or all of these obligations if they were incurred during your marriage. The fact that you may not have wanted to take on the debt or that you did not decide how the money was spent in the marriage does not necessarily protect you from having to take some of it on.
What can I do to avoid taking on too much community debt?
In general, the law is very detailed on which debts are considered community vs. separate. However, there are certain circumstances where debt could be allocated much more heavily, if not entirely, to only one spouse. These circumstances are not all the same and sometimes only apply to certain debts, but family law judges are aware that finances are not always equally controlled or managed by both spouses.
One factor that can sometimes have a direct impact on dividing debts is earning power. In some marriages (generally, those considered somewhat more “traditional”), one spouse may be the primary financial earner while the other focuses on raising children and several domestic duties that do not earn money. By way of example, a family law judge could conclude that if the spouses in such a marriage were to get divorced, dividing large amounts of unpaid tax debt equally would be wholly unjust to the spouse who did not earn money during the marriage. It may be significantly easier for the higher earner to pay all of the debt than for the lower earner to even come up with half.
Not all debts are created equal
In my personal experience, I have often found that each debt in a marriage, particularly long-term marriages, may have either a story or a purpose behind it that may factor into how it is divided. While most may be divided equally, how the debt was created and who benefited from it can always play a part in where it is allocated. It is in these differences that there is sometimes room for subjectivity when dividing debts and the individual judge you are assigned can be a very important factor as well.
Hiring the right attorney for the job can make all the difference in these complex cases, so reach out to us today if you’re struggling with dividing a business!