Debt during Divorce- Who is Responsible?

proerty divisionCalifornia is a community property state- this means that all property acquired during a marriage belongs to both spouses, including assets and debt. Debt belongs to both spouses even if only one spouse signed the paperwork for the debt.

However, community property law defines separate property as property acquired before marriage or after separation. So, if you or your spouse acquired student loan debt before you were married, it is not automatically considered joint debt.

However, there is an exception if one of the spouses signed on to an account as a joint account holder after marriage. After a divorce, a spouse may be responsible for the other’s debt if the debt was incurred because of family necessities, to maintain jointly owned assets, or if the spouses kept a joint account. In common law states, community property laws do not apply.

In common law states, the party whose name is on the debt, such as credit card debt, is liable. However, if the spouses have jointly owned assets, the credit card company can go after either spouse’s interest in that property.

In community property states- which include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin- you could be liable for credit card debt even if it is in your spouse’s name.

creditThe state may consider other factors when determining debt responsibility if it is a community debt, but usually if the credit card was used for something that “benefited the marital community,” such as funds related to maintaining the marital home, then the debt will be considered community debt regardless of who incurred the charges.

There is a greater chance for the debt to not be considered community debt if it was allocated for something that did not benefit the marriage.

If the debt was assigned to you (or your spouse) in a divorce, it is important to note that the credit card company is not bound by the terms of your divorce or family court order that assigns the debt. When you signed up for the credit card, you entered into a contract with the credit card company alone.

This means that a family court judge does not have the power to alter the credit card company’s rights under the contract. So, even if the debt is assigned to your spouse in court, you can still be liable for the debt if your name is on the account, and vice-versa if the debt is assigned to you.

You can also still be liable if you were a cosigner. if it is community debt, the credit card company could still hold you liable, but it is less likely that the company will holds you responsible based on community debt liability if the credit card was in your spouse’s name.

If your spouse files for bankruptcy after divorce, their liability to the credit card company dissolves, meaning that if you had a joint account, you are now solely liable.

However, if your spouse agrees in court to hold you harmless for that debt, their liability will not be transferred to you in case of bankruptcy.