GUEST POST: “Debt Division During Divorce”

In a divorce, the judge will not only divide up assets, but also debts. Generally speaking (with some exceptions) any debt incurred during the marriage is community debt. This means that it is split evenly, or else is balanced against other assets. For instance, one party could take a car worth $10,000, and also $10,000 in credit card debt, for a net asset value of zero.

One of the biggest problems with debt division is that although the court can divide all debt between the parties, a family law judge has no authority over the lenders themselves. A bank, credit card company, or other creditor is not bound by any orders of the family law court. If debt is held in joint names, the creditor will probably try to collect the full amount from the person with the higher wages or great assets. They will disregard any order of the family law court for division. This can create real problems when one party does not pay the debt assigned to them. Although the family law court can order the other side to repay the amounts taken from accounts or garnished from wages, this money can be hard to recover if the other side does not have assets. It is often prudent to structure a settlement so that the party who has the means to pay the debts is assigned them, with a balancing against assets awarded to the party.

Another consideration is bankruptcy. What if one party files bankruptcy after the divorce, and the creditor tries to collect the full amount from the other party? This can create a real mess. If a bankruptcy is anticipated, it is usually financially best to file the bankruptcy together, and prior to finishing the divorce, so that the debt is cleared off and discharged before the court makes any orders regarding property division.

Retaining good credit during a divorce can difficult. Often, a professional credit repair company is needed to sort out what credit items are correct, and which are incorrect, and to clean off some of the bad credit items from the divorce. Please see this post from professional Anselmo Moreno, President of Innovative Credit Solutions, for options and ideas for fixing credit after a divorce:

DISCLAIMER: All legal principles quoted are valid as of the date of writing in the State of California. However, you should NEVER base your actions on a legal article, blog, or internet story, as facts in real life are complicated. You should have your case evaluated by an attorney experienced in the area of law needed for your case. In addition, there are often exceptions and potential changes to results that occur due to facts that you may think are trivial or unimportant. This article should not be taken in any way as legal advice on your specific legal matter.

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