The Double-Whammy of Divorce and Debt

It’s a sad fact of life, but money issues often lead to marital discord, which in turn can lead to the overall breakdown of marriage and eventual divorce.

In this difficult area, many misconceptions persist regarding the responsibility of debts. For example, one client recently came to me with the following situation: she and her husband had been married for 10 years, he had recently lost his job and there was a ton of debt on the credit cards in his name only. My client’s question was—If I file for divorce, will the court see this debt as being strictly my husband’s responsibility and absolve me of any debt obligations?

The answer is, no.

In California, while a debt may be incurred in one party’s name, if the debt is racked up while the parties are married, it is generally deemed “community debt.” Also, credit cards, while issued in one party’s name, still may have his or her spouse listed as a co-signer or “responsible party” (even if this doesn’t show up on the credit card or credit card statements).

Another important point to note here: Because California is a community property state, some creditors feel free to pursue the spouse of an account holder, regardless of whether he or she incurred the debt themselves or is even listed on the account. Additionally, generally speaking, a Family Court order assigning a debt to one spouse has no effect on a third-party creditor. As in the example mentioned above, just because a judge says the husband is responsible for credit card debt won’t stop a bank from going after the other spouse.

Options for resolving the situation

In many cases, a spouse, who in the divorce is going to be deemed to be not responsible for the debt (the “non-responsible spouse”), can request a court order stating that the responsible spouse pay for any out-of-pocket expenses tied to that debt. In these cases if a creditor obtains money from or sues the non-responsible spouse to recover the debt, that spouse can pursue the responsible spouse for appropriate reimbursement, including attorney fees and costs.

The non-responsible source can also attempt to assert that the debt be paid off prior to the close of the divorce, matter through the sale of community assets. Beyond that, all you can do is hope and pray the responsible spouse pays off the debt before the creditor comes after you.

In my opinion, unless the marriage situation is as bad as the warring spouses in the movie, “The War of the Roses,” both parties should do everything possible to set aside their differences and resolve the debt before going through with a divorce. Failing to resolve the situation will only lead to additional problems later on. Once a divorce proceeding gets underway, the adversarial environment may present insurmountable obstacles to seeking proper debt relief.

Whatever the case, always consult a family law attorney before taking any action. You may have more options as a married couple than as a single individual.

The Law Offices of Ian S. Topf offers a free consultation in a variety of issues, ranging from family law, bankruptcy, debt collection defense, estate planning, criminal defense, DUIs, and general civil matters.