Responsibility For Debts In Divorce
For most divorcing couples the issue is not just who gets what assets, the issue is who gets what debts. It is not uncommon for couples to owe money at the time of the divorce. Responsibility for these debts can be allocated at the time of divorce just like income and assets are allocated. When the parties do not allocate the debts themselves it is left up to the courts. How your debts will be divided, if left up to the courts, will vary greatly depending on the type of debt involved and the laws in your state.
The laws, which govern the distribution of property in the case of a divorce, are made by the state legislature. Therefore, if you do not come to an agreement with your former spouse then a court will have to apply state law to your case. There are two basic schemes that states follow. There are community property states and equitable distribution states.
Community Property
In a community property state, “community property” (or community debt) is divided equally (50/50) among the former spouses but separate property, property that belongs to only one spouse, remains the asset or responsibility of that spouse. So, what is “community property?” If the debt is incurred during the marriage then there is a presumption that the debt is an obligation of both spouses. However, if it can be shown that the debt was the obligation of only one spouse then they could be held solely responsible for it.
If there is a disagreement about whether or not the debt is “community property” the court will look at whether, at the time the debt was entered into, there was a reasonable expectation that the community (the marriage) would receive a material benefit from the debt. Was the debt incurred to provide a financial benefit to the couple? If the debt was incurred individually by one spouse and could in no way benefit the marital household then that spouse should be held solely responsible for his or her own debt.
Again, the court starts by assuming that a debt entered into during a marriage is one that is the responsibility of both spouses so if the debt was actually for the sole benefit of one spouse then that must be proven in court.
Equitable Distribution
In equitable distribution states, the courts have a little more discretion to divide assets and liabilities according to what is “fair” in the court’s view. Otherwise, the scheme is very similar to community property states. The court will still determine which debts were accumulated during the marriage (thus belonging to both spouses) and which debts or assets belong to only one spouse. The difference is that, once the court determines what the marital (community) property is, they can divide it between the spouses as they see fit. They do not need to split it right down the middle.
The court can consider a number of factors in order to determine what an “equitable” distribution of the assets and liabilities would be. They may consider factors like the incomes of the parties, non-monetary contributions to the household (e.g. stay-at-home-parent), or economic misconduct by one spouse. The factors that the court will consider vary from state to state. Most states have statutes laying out the factors that the court should consider as it makes its determination.
Conclusion
The question of what happens to your debts in the case of a divorce is not one that needs to be left up to the courts. If you can manage to come to an agreement with your spouse then you can make a plan that works for you. You can decide for yourself what is fair or appropriate. It is a good idea to consult an attorney or accountant in order to consider all your options and the potential consequences of your actions. In the meantime, you can take the simple step of making sure that your joint accounts with your spouse are closed. If the account remains open to resolve outstanding debts then you can inform the creditor that you will not be responsible if any additional debts are incurred.
Who Is Responsible For The Debt?
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Who is Responsible for the Debt?
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