How Can You Manage Joint Debts During the Divorce Process?

What Are Joint Debts?

In a family law case, joint debts are the outstanding financial obligations that you and your spouse are both responsible to pay back. Common examples of joint debts may include car loans, credit card debts, medical bills, and mortgages on your house. In a divorce, these debts may be divided along with other marital assets.

What is the Difference Between Community Property and Separate Property?

In a California divorce, it is essential to understand the difference between community property and separate property. Community property (also known as marital property or marital assets in other states) includes all assets acquired from the beginning of your marriage through to the separation before divorce. If you and your spouse purchased a home after marriage, the residence will be considered community property. Similarly, the money you put into your retirement accounts after your marriage will be considered community property. Cars, jewelry, appliances, antiques, artwork, and other valuables purchased between the date of your marriage and the date of separation may also be considered community property. Under California law, community property is divided equally (or as close to equal as possible).

Separate property is assets or property owned prior to your marriage and after the date of separation. For example, if you owned a car before you got married, California family law will consider it to be separate property. Similarly, other valuables, including items you’ve owned since childhood or a car you purchased before marriage, will be considered separate property. Gifts and inheritances acquired by a single individual will be separate property, even if they were acquired during the course of the marriage. Per California law, separate property is not subject to property division the way that the community property is.

Determining what community property is and what separate property is can get a little hazy sometimes. When separate property gets commingled, it can be treated as community property. For example, if you have a bank account that your soon-to-be ex-spouse put money into, then that bank account will likely be considered commingled property and thus subject to the community property division process. Keeping things separate and keeping things tracked properly is key.

Are Certain Debts Subject to Property Division in a California Divorce?

One of the challenges people face in a divorce is contending with debt, particularly jointly held debt. Like all assets acquired during the course of your marriage, the debts you have accrued over your marriage will be considered community property and subject to the division of assets during the divorce proceedings.

Debt acquired before marriage or after separation is the responsibility of that spouse alone.

There are certain exceptions to how joint debt will be divided. For example, if a couple’s marital debts are greater than the collected value of their community assets, a family law court may assign more marital debt responsibility to the spouse who earns more income. Additionally, not all that accrued during the marriage will be considered community debts. For example, if one spouse spends marital funds on an extramarital affair, the court is likely to rule that such debts are separate property and that spouse’s responsibility is alone.

Should You Close Joint Credit Card Accounts?

You must consider the financial consequences of leaving your credit and your joint accounts vulnerable to the other spouse during divorce proceedings. It is not unheard of for one spouse to rack up revenge credit card debt, which would make you both responsible for settling those debts.

Jointly held credit card debt during a divorce case can be a complicated matter. One spouse may believe that the other spouse is more responsible for the debts and should be the one entrusted with paying off those debts. It is highly recommended to work with an experienced family law attorney to help you draft an agreement between you and your spouse about how you will each pay off the remaining debt and who will be responsible for submitting those payments. Without such an agreement, a family law court has little power if the paying spouse is not making payments on time.

You must try to settle as much as possible before your divorce. This will include closing jointly held bank accounts and credit card accounts, if possible.

Why is the Date of Separation Important to the Division of Debt in Divorce Proceedings?

Many states nationwide use the date of divorce as the determining date for when property stops being considered community property or marital property and starts being considered separate property. In California, the law uses the date of separation. The logic behind this is that once the spouses agree that the marriage is over, they should be seen as living separate lives even if they are forced to live together. As such, any property or debts acquired after separation should be considered separate property.

Should You Freeze Your Debt During a Divorce in CA?

Freezing your debt is an option for managing debt during a divorce case, but it comes with certain implications and consequences. By freezing your debt, you cannot open new accounts in your name for a period of time. However, freezing your debt can protect your credit score from worsening. Contact our law firm for legal assistance because there are some other complicated issues to consider.

Can a Divorce Hurt Your Credit Score?

If you don’t have the financial resources to manage your debt during divorce proceedings, it could have a negative impact on your credit score. It is wise to consider working with family law attorneys and financial professionals to help you sort out your finances before and during a divorce.

Are Student Loan Debts Subject to the Division of Property?

Student loans may pose another exception to the community property rule. If marital income and assets go into paying off student loan debts, a family law judge may determine that the spouse who directly benefited from the education must reimburse the other spouse who helps support them. This is a very fact specific issue.

Schedule an In-Depth Consultation with Our Family Law Firm Today

Hepner & Pagan is a family law firm dedicated to providing compassionate legal services to clients going through complicated divorce cases across the state of California. To learn more about how we can lend legal guidance to you during these difficult times, please contact our Campbell, CA, law offices to schedule your initial consultation today. You can reach us at 408-688-9153.