Community property rules make the division of debt relatively straightforward during most divorce proceedings. Either spouse may have to remain personally responsible for debts that they accrued before getting married. The spouses share any debts taken on during the marriage.
Credit card balances, student loans and even outstanding medical bills can contribute to the household’s total amount of debt. When negotiating the community property division settlement, divorcing spouses typically need to consider their shared financial obligations in addition to their jointly-owned assets.
Frequently, people use the simplest solution they can agree on, which might involve each house taking responsibility for certain shared debts. Spouses may need to consider the possibility of default or bankruptcy before agreeing to a property and debt division settlement.
Trusting the other person to pay can be a risk
When spouses agree on specific property division terms, they both have an obligation to uphold those terms. Especially after a family law judge converts their agreement to a final court order, a spouse who does not uphold their promises after a divorce could be at risk of enforcement actions.
However, it can take months, if not years, to settle issues related to one spouse failing to fulfill their obligations under a property division order in family court. Neither the civil courts hearing debt-related lawsuits nor individual creditors are likely to give much weight to the assertion that the other spouse is technically responsible for the debt.
Some people are very vindictive after a divorce. They may intentionally take steps such as filing for bankruptcy or ruining their own credit by failing to make payments in an attempt to punish the other spouse. Other times, one spouse is simply irresponsible. They may struggle to adequately manage their finances without the support of another person.
Even people who are responsible and respectful could have medical emergencies or might lose their job with little warning. They could then default on debt-related obligations. In some cases, spouses worried about collection efforts and other debt-related consequences may want to explore whether they can use marital resources to fully pay off marital debts.
Doing so can diminish what each spouse retains in assets after the marriage, but it also allows them to move forward with a clean slate. They don’t have to make monthly payments on marital debts or worry about their spouse failing to fulfill their responsibilities.
Discussing the nuances of community property statutes with a skilled legal team can help people protect themselves and their finances during divorce. Those who are realistic and pragmatic when addressing debts can protect themselves from a scenario in which old debts can cause new issues.
