Property and asset division is a hot-button issue in many divorces, but not many couples consider their debts after divorce. Division of debt is an important consideration, because outstanding bills are factored into the determination of a divorcing couple’s net worth. It would be ideal to pay off debt before divorce, but since that’s not always practical, it is the court’s job to allocate debt as well as assets.
Community Property vs. Common Law Property
The biggest factor in determining the division of debt is state law. Most states use ‘common law property’ statutes, which means that one spouse’s debts are theirs alone post-divorce. Exceptions do occur; debts due to living expenses and family necessities are considered joint liabilities under most state laws. In common law property states, judges are tasked with dividing debt after divorce.
Judges often consider whether one spouse accrued secret credit card debt, and who benefited from the debt. Other factors to be considered are the marriage’s length and the spouses’ financial situations during and before the marriage. Nine states have community property laws, which means that debts acquired during a marriage are held jointly.
In community property states, debts held before a marriage are not the responsibility of the other spouse in the event of divorce, but state laws vary. Consult a family lawyer for advice specific to your case and your state.
Civil Unions, Domestic Partnerships and Same-Sex Marriages
State laws regarding marital debt apply in the event of a same-sex marriage, partnership or civil union, but only in states where they are considered a marriage equivalent. Some states allow these unions, but do not give couples equivalent legal rights–therefore, marital debt laws don’t apply.
Seizing Property to Pay Debts
In community property states, creditors can seize joint property and income to cover jointly accrued debts. However, property can only be seized to pay debts due to living expenses and family necessities. Debts held in one spouse’s name do not allow a creditor to seize joint income or property.
If a couple has a prenuptial agreement including a debt division clause, the terms are enforceable by the court. In these instances, state property laws do not apply. Hiring a Family Law Attorney in Utica is a good idea, and doing so will help you protect your assets before going to court.