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How Debts Are Divided in a California Divorce

Posted by Ahluwalia Law Professional Corporation | May 20, 2018 | 0 Comments

You and your spouse have decided to divorce, so you know that all the cars, real estate, and other assets you acquired or received during the five years you were married are subject to division. But what about your credit card balances? Your spouse's student loans? The money that your business owes to vendors and suppliers?

California is a community property state, meaning that property acquired by a spouse during the course of the marriage is presumed to be owned by both spouses. It's a presumption that applies equally to debt.

In all cases of divorce or legal separation, all debts accumulated during the marriage must be identified as one of the following:

  • Community property: You acquired the debt as a couple. Examples include joint credit cards, the mortgage on the marital home, and car loans taken out to buy a vehicle you both use.
  • Separate property: The obligation was incurred by you or your spouse prior to the marriage or after you separated. For example, you open a line of credit in your own name after moving out of the marital home.
  • Quasi-community property: If you and your spouse lived in an equitable distribution state (e.g., Colorado) and took out a line of credit there before moving to California, that debt would be a quasi-community one, meaning that it would have been treated as community property if acquired while living in California.

There are some exceptions to the community property presumption, however.

Student Loans

California Family Code Section 2641 has special provisions for student loans. In general, whichever spouse took out the loan to go to school will be responsible for repaying it after divorce unless both spouses benefited significantly from the education. In some instances, the educated spouse may be ordered to reimburse the community for any contributions to the training or education.

Business Debt

When it comes to assigning a value, business debt can be tricky. It gets even more complicated if the company is partly separate property and partly community property because determining how much of the debt was the result of separate and community efforts is difficult. With so many variables involved, California courts use different methods to assign responsibility for business debt.

Support Payments

If you were paying child or spousal support after a previous relationship ended, you will remain 100% responsible for the obligation.

Criminal Fines

Debts incurred during the relationship that is detrimental to the community, such as court-ordered fines and restitution, will be the responsibility of whichever spouse incurred the debt.

Although the court may divide a debt in a particular way, it is important to remember that the contents of your divorce decree mean nothing to creditors. If your spouse is ordered to pay half of a Mastercard balance and fails to do so, you could still be held responsible. If this happens, your best option is to sue them for violating the decree and seeking damages.

If you plan to file for divorce and have concerns about debt assignment, contact Ahluwalia Law P.C. today. Attorney Madan Ahluwalia will review the circumstances surrounding each obligation and advise you on the best way to protect your financial interests.

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