Posted on: 15 July 2016Share
During divorce proceedings, division of assets and property is one of the highly contested issues. However, couples rarely think of what happens to debt in case they decide to end their marriage. In divorce cases, outstanding bills are usually factored in as the couple will get a share of their net worth. Ideally, couples should settle all their debts before they file for a divorce. Unfortunately, this is not always possible, so the court will take over the responsibility of dividing the debts incurred when dealing with the assets. So how do they go about this process? Below is a simple guideline.
Applicable state law
The court will use the applicable state law to determine the division of debt in a divorce proceeding. In majority of states, the common law property is used whereby a debt becomes the responsibility of the spouse whose name it is under. This spouse will settle this debt on their own after the divorce is granted. Nevertheless, there are exceptions to this law across common law states. If this debt was accrued to cater for living expenses or family necessities, such as groceries, tuition for the kids or utility bills, it will be considered as a joint liability by the state law. In addition, other nuances may also apply, making it important for the couple to consult their divorce attorneys for further guidance in this matter.
The judge will take other factors into consideration when using the common law property in division of debt after a divorce. For instance, if a spouse used a credit card without the knowledge of their partner to cater for household utilities, it will become their sole responsibility. Additionally, the judge will also consider the partner who benefited more from the debt, the financial status of each partner before marriage, and the number of years they have been together.
Community property states
Wisconsin, New Mexico, Idaho, Texas, California, Louisiana, Nevada, Washington and Arizona are community property states. If you reside in any one of these states, the law stipulates that debt accrued by any spouse during marriage is held jointly. Both partners will be expected to settle it upon divorce. Nonetheless, debt accrued before marriage is still considered as a personal responsibility even in these community property states.
If the couple has a valid prenuptial agreement that had a provision on debt division in the event of a divorce, the court will uphold it. In the existence of this document and provision, the applicable state property law where the divorce was filed will not matter. In addition, if one spouse signed individual agreements with creditors that excluded the other partner from liability, the court will respect these documents.
Consult with a divorce attorney from a company like Eschbacher Law if you have further questions about debt division during divorce.