Preparing for the Costs of Your Divorce
Marriage is revered for how it unites two individuals, allowing them to build a single, shared life together. In addition to new experiences and traditions, the couple will accumulate common assets. Unfortunately, a considerable part of this community property is debt.
Without a prenuptial agreement or uncontested divorce settlement outlining other arrangements, courts will split community property and debt evenly between a couple if they divorce. This debt includes everything accrued throughout the marriage. Still, some exceptions may apply which can free you from certain spousal debts.
Auto Loan Debt
Any remaining debt on a car loan is typically assigned to the spouse who received said car in the divorce settlement. Still, having both names on the loan can lead to issues down the road.
If your name is still on the loan, you are responsible for repayment, even if you and your partner agreed that they would handle the debts. This means that, if they do not make payments, you will be approached by the lenders. For a clean split, consider agreeing to refinance the vehicle individually. Doing so eliminates any potential of one party failing to contribute their due amount to the bills, which could negatively impact both parties’ credit scores.
Credit Card Debt
California courts typically view credit card debt as community property, though there are some significant exceptions. If the debt is in your spouse’s name alone, and the purchases only benefited them, you may be spared the expectation of footing half the debt.
As a community property state, California requires medical debt to be split between a divorcing pair. However, if the procedure was a cosmetic surgery, a case could be made to rid yourself of the outstanding fees.
A mortgage is most commonly a shared debt, with the pair typically having bought the home together during their marriage. After their divorce, the couple will be equally responsible for the mortgage debt.
Alternative solutions exist, with couples able to sell the house and split the profits, for one party to buy out the other’s share of the house, and so on.
Any student loan debt you or your partner had before your marriage remains your sole responsibility. It cannot be passed to the other spouse. However, if your spouse went back to school during your marriage and used student loans to afford their education, you may be liable for the debt depending on the specifics of the situation.
If you could be seen as having benefited from your spouse’s education, such as by sharing in their increased earning potential and subsequential improved lifestyle, you could be liable for some of the student debt.
In addition to how the education benefited the other party, courts will often consider the following when assigning responsibility for student loan debt:
- If they were the only spouse to have taken out a student loan
- If the student loan was taken out over 10 years before the divorce filing
- If the education made them less likely to need spousal support
Your federal tax debt from joint filings is your shared responsibility. Even if your spouse agrees to repay the balance in your divorce agreement, you are still liable for the arrears. This means that the IRS can contact you if your spouse fails to keep up with their payments.
State tax debt is treated differently. While both spouses are initially equally responsible for the sum of debt, the court can divide it during the divorce proceeding. If you can provide adequate information to show which debt does and does not belong to you, the state will formally revise the liability.
Gille Kaye Law Group, PC can help you understand the division of assets and debts in your divorce. Call us today to get started: (626) 340-0955.