Although it is not what most people think about when they get a divorce, a major issue in most divorce settlements is who carries the debt from the marriage with them. This can be a major concern for both sides if the couple has built up substantial debt, and in community property states it is even more important.
General Rules about How Debt Is Split in Community Property States
The basis of all rules regarding creditors' rights upon divorce in community property states is that only when a spouse actually manages a particular piece of property can his creditors get to it. If one party never was allowed to manage something then their creditors can never get at that property to satisfy the debt of that person. The rules that follow from this rule are quite straightforward then:
- My separate property: As long as you keep your separate property (e.g. some property you brought to the marriage which you never let your spouse touch) truly separate, then your spouse's creditors cannot get at it because you never let your spouse manage it.
- Our community property: Community property (e.g. that property or money which you mingle together and both parties uses frequently) is liable to satisfy any debt incurred by either spouse before or after marriage. It is assumed that if you are mingling your income and investments with your spouse you assume all their liabilities as well. Some states do require that a spouse with creditors satisfy his debt with his own separate property first and then dig into the community property funds.
- Our joint debt: Upon divorce in community property states debt is split the same way as equity (e.g. 50/50).
- Tort obligations: If your spouse was involved in a tort (e.g. an accident where they hurt someone) the person they hurt is also a creditor. Generally, that person has a right to your community property to help with their injuries, but not your separate property. In some states there is a rule which says that if the injury occurred while the injuring party was doing something for the community, then community property will be used first to pay for the injuries, but if the injuring party was doing something for their own separate property then their separate property will be used first to pay for the injuries.
Should I Contact a Lawyer regarding My Divorce?
Although there are many do-it-yourself kits out there to help you with a divorce, there are many tough decisions to make when you get divorced and you may miss something if you try to do it on your own. If you have any kind of assets you should contact an experienced divorce lawyer to make sure you and your current spouse properly divide your debt and equity.