What You Need to Know About Debt After a California Divorce
When getting a divorce, a significant concern for many is how property, including debt, will be divided between the ex-couple. Here’s what you need to know about how debt is divided in a California divorce.
Debt is equally divided in the same way that property – which includes tangible items like a house, cars, or furniture, as well as intangible items like 401(k) plans, stocks, and life insurance – is divided between the two ex-spouses. Debt can also be used to equate the value of property that each spouse retains from the marriage.
Who Decides How Property and Debt are Divided in a Divorce?
The California state court recommends that separating couples create an agreement that divides both property and debt in roughly equal amounts. This means that the division of property and debt does not necessarily have to be a physical one. For example, a couple does not have to divide each of their bank accounts in half, but instead could separately retain bank accounts that each contains similar amounts.
To begin creating the agreement, the California state court recommends that each spouse creates a list of everything they own and determine which items are community property (property or debt acquired while the couple was married) and separate property (property or debt acquired by each spouse prior to their legal marriage).
Each spouse is required to fill out Form FL-142, a Schedule of Assets and Debts, to finalize their divorce. On this form, each party must declare all of their assets and debts, and the forms can be compared to begin the splitting process.
Related: How to Divide Property in a California Divorce
Concerns When Dividing Debt
The California state court advises that couples use extra caution when dividing debt, because the people to whom the money is owed do not have to adhere to the couple’s agreement. For example, if one ex-spouse is responsible for debt that the other ex-spouse signed for – such as a credit card application – and misses a payment, the credit card company will still chase after the other spouse who signed for the debt, and they could end up paying the debt plus any interest or late fees.
To avoid this, the California state court advises that in the case of a joint credit card, the ex-spouse responsible for this debt gets a separate credit card in their own name and transfers the balance to that card. Additionally, if the couple sells any real property (a house, cars, etc.), money from these sales can also be used to pay off the couple’s debts.
Related: Spousal Liability for Debt: California Family Code 910
FAQs About Debt After a California Divorce
How can debt be used to balance the value of property that each spouse retains from the marriage?
If one ex-spouse receives an item of high value, the couple can decide to give them a higher amount of debt to balance out that spouse’s “net” share. For example, if one ex-spouse receives the marital home, they could also take on the couple’s credit card debt. The California state court advises that couples should attempt to grant each spouse a roughly equal “net” share, which is calculated by adding up all assets and subtracting all debt for each spouse.
My spouse and I cannot decide how to divide our property and debt on our own. What resources are available to help us?
A private mediator may be able to help you come to a fair agreement, as well as help you resolve any other issues you may have. Private mediators are usually lawyers or mental health professionals, and can cost between $50 to $250 per hour (this cost is usually split between the couple).
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If you have any more questions about how debt is divided in a California divorce, contact us. Get your free consultation with one of our Property Division Attorneys in California today!