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Community property state treats debt differently in divorce

On Behalf of | Mar 19, 2019 | Firm News, Property Division, Property Division |

Dividing up debt does not follow absolute rules in a divorce proceeding. Even though one party assumes all of the debt by being the only person named on a credit card account, for example, courts will sometimes order that the other party pay some or all of the account balance. Courts generally have the authority to divide assets and debt with a certain discretionary authority intended to achieve fairness in divorce.  California is a community property state and thus the rules for debt and asset division are somewhat at variance with the majority of states.

In a community property state, any debt incurred after the marriage date and before the date of separation is community property for which both spouses are equally liable. The same rule applies to assets acquired after the date of marriage: they are owned by husband and wife as community property. The presumption is that the debts and assets will be divided on a 50-50 basis.  In community property states, assets and debts obtained prior to the marriage stay in the name of the original owner.

Courts may consider other aspects in dividing debt obligations, including the date of separation, private agreements about the debt or other equitable factors. However, because the original cardholder remains responsible for all of the debt in the view of the creditor, it is sometimes helpful to try and work the debt burden out with the creditor directly. It may therefore make sense for the parties to attempt to obtain the release of one party from the account with the permission of the credit card company.

Alternatively, it may be possible for a spouse to get a balance transfer and put the debt on another card, thus avoiding any further negotiations or community property problems with respect to the debt. Sometimes, a couple can negotiate and settle simple debt matters like these prior to the separation and prior to engaging in serious divorce issues in the remainder of the case. In California and elsewhere, it is often beneficial for the parties to agree on as many issues as possible prior to engaging in the more complicated issues that will have to be confronted.


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