Debt division in community property states

A constant source of worry for couples in California going through a divorce is how the debt will be divided. Some spouses worry that they will be stuck having to help pay off debt that their soon-to-be-ex-spouse accumulated before a marriage, whether through owning a house or paying for college.

California, for example, is a "community property" state, which means that most debts are divided evenly during a divorce unless a prenuptial agreement has been negotiated. For example, one woman who lived in California moved to another state that was not a community property state with her husband before getting a divorce. The husband had accrued a large amount of debt that was in his name only.

An expert on the subject explains that there can still be a risk, even when moving to a non-community property state. He says that in many cases the state where the couple is currently living and getting the divorce will determine who owns what debt, the state where the asset or debt is acquired will determine ownership interests.

But, collectors' ability to collect on a debt would be changed when the couple moves to a non-community property state. In the case of the couple above, since the couple moved to a non-community state, only the husband would be liable and only his interest in the property the couple acquired would be open to collectors. Collectors would be unable to collect from the wife.

Experts still warn, however, that debtors could come knocking if the debt is not paid off by the other spouse. As in most divorce settlement negotiations, it could be beneficial to seek the advice of an experienced attorney, who can fight to ensure that someone does not get stuck with debt that they did not accrue.

Source: Fox Business, "Where You Live Impacts Debt Liability in Divorce," Dec. 8, 2011

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