Key Takeaways:
- The court treats spending by either spouse as originating from a single community.
- Divorce agreements don’t automatically remove you from financial contracts; if your name is on a joint account, you remain legally responsible for any debt.
- California is a community property state, which impacts how assets and debt are divided in a divorce.
- The courts view all assets and debts accrued during a marriage as belonging equally to both parties, though there are some exceptions.
- The date of separation has a major impact on what the court views as marital and individual property.
- There are ways to protect yourself financially in the wake of divorce.
When people think of divorce, one of the first things that comes to mind is splitting up shared assets. This is a key part of the process, but one thing people often overlook is that this also includes dividing up any shared debts.
Right away, there’s one key thing to know about debt and divorce. Divorce agreements do not bind credit card companies or lenders.
What does that mean? That means if your name is on a shared credit card, and there’s a balance owed, you’re still on the hook for that amount. Even if the divorce settlement specifies that your ex is responsible for a particular obligation, if your name remains on the account and your ex doesn’t pay, it also affects you.
The same goes for car loans, mortgages, or other financial agreements. Divorce doesn’t automatically remove your name from any contracts you entered into while married.
Who’s Responsible For Debt During Divorce?
The court doesn’t focus on the name on the card or the loan. Instead, it treats both spouses’ spending as originating from a single community.
If your ex ran up a bunch of bills or took out loans before you separated, even if you had no idea, there aren’t many options. You’ll probably wind up on the hook for at least some of that liability.
If you file for divorce and you have any shared credit card debt with your spouse, in the state of California, you are both equally liable for paying it off.
This is because California is a community property state.
This is the standard California courts use to divide assets and debts in property division. Under these statutes, the court treats most property and liabilities acquired during a marriage as jointly owned by both parties.
Financial experts highly recommend, if possible, that you pay off and close joint credit accounts before filing for divorce.
Related Reading: Should You File For Bankruptcy or Divorce First?
What Are Separate Debt Exceptions?
As with most rules, there are exceptions.
The California Family Code allows for certain expenditures. Section 2625 states:
“[A]ll separate debts, including those debts incurred by a spouse during marriage and before the date of separation that were not incurred for the benefit of the community, shall be confirmed without offset to the spouse who incurred the debt.”
What this means is that if you can show your ex’s spending was frivolous and not for the “benefit of the community,” you may not wind up responsible. Emphasis on “may.”
That said, while this may be the case from a legal perspective, things don’t always go this way in practice. Proving this definitively can be challenging; it’s a tough battle to win.
If you argue that a spa day or new clothes are unnecessary and don’t benefit the marriage, your ex may counter that mental health and appearance go hand in hand and are important considerations to the community.
The final decision rests with the court. However, unless your ex embarked on an epic spree of obvious revenge spending, the debt will likely be split between the two of you.
Does the Timing of Debt Matter?
The timing of debt is essential.
If one spouse racks up insane credit card bills before you were married, those will most likely stay theirs. This also applies to student loans, car payments, and other financial obligations incurred before marriage.
According to Family Code section 2621:
“Debts incurred by either spouse before the date of marriage shall be confirmed without offset to the spouse who incurred the debt.”
Related Reading: Can You Buy a House During the Divorce Process?
What is the Date of Separation?
In some states, there’s a gray area between when a couple splits up and when their divorce is finalized. Things can get messy here, financially speaking. However, in California, that’s where the date of separation comes into play.
If your ex had debt before marriage, that stays with them after divorce. Similarly, thanks to the date of separation legislation, if your ex accumulates a significant amount of debt after that date, that’s also their responsibility.
The date of separation is essentially the moment you break up. You’re still technically married, but the relationship is, for all intents and purposes, over.
This is a bit trickier and is where the date of separation comes into play.
Once the date of separation is established, all income, pensions, retirement benefits, or other assets, or debts, fall to the individual who earned or accrued them afterward.
This is something specific to California and a handful of other states. Most don’t operate this way.
Related Reading: How the Date of Separation Impacts Divorce
How Do You Determine the Date Of Separation?
The date of separation occurs when one spouse states their intention to divorce.
“[T]he conduct of the spouse is consistent with his or her intent to end the marriage.”
In short, you have to act like you’re getting divorced. Though you can still live together, you must proceed as if you’re ending the marriage.
You can’t act like you’re married or make efforts to save the marriage, like counseling or therapy.
This determines the specific date the marriage end and draws a line in the sand.
A potential hiccup with this law is when spouses disagree on the date of separation.
It’s one thing when one of you officially files for divorce. Then there’s an obvious, hard-and-fast date.
Before filing the forms, however, it can appear less definite. Or your ex can claim your behavior was inconsistent with wanting a divorce—perhaps you acted more married than your words indicated.
Related Reading: Does It Matter Who Files First?
Can You Prevent Your Spouse From Accruing More Debt?
If you must prioritize your debt, pay off and close any remaining accounts that remain accessible.
Keep in mind that if you cancel those joint accounts and put them in your name, you not only block your spouse from using them but also take responsibility for any future spending.
One common way to prevent your spouse from depleting assets while going through a divorce is to use a restraining order.
Financial agreements stay between you and the lender. The court is only a middleman. More specifically, they’re a middleman to whom you have to pay money every time you interact with them.
In addition, if you file for a legal separation, it’s also essential to file documentation with the court regarding your joint accounts and debts to protect yourself.
If you have equity in a jointly owned home, it’s not a bad idea to take a loan against that equity to pay off other accounts. Particularly if you are likely to sell the house and split the assets, it’s best to walk away as cleanly as possible for your fresh start.
In general, if the debt was accrued during the marriage, you’ll probably have to pay at least some of it.
If it’s from before, that generally stays with your ex. The same applies to debt incurred after the date of separation. So you shouldn’t be on the hook for their post-separation weekend trip to Vegas.
Related Reading: Should You File For Bankruptcy or Divorce First?
