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What Happens When You Marry Someone with Support or Debt Obligations?

These days, it’s not uncommon for a person to marry someone who comes with some financial “baggage”—that is, with debts or support obligations of some kind. Here’s a fairly typical scenario:

Jane comes to my office seeking information about getting a pre-nuptial agreement. Her fiancé, Frank, is saddled with several types of obligations. Her fiancé underwent a horrible divorce from his first wife and Jane believes the ex-wife will go to any lengths to get what she can from him—including having her attorney subpoena Frank’s financial institutions for information on his various accounts. Naturally, Jane wants to know, if she proceeds to marry Frank, is she exposed to similar legal actions?  What is her risk with respect to his spousal support, child support and/or any debt Frank has incurred?

Let’s take a look at each type of obligation and see how Jane may or may not be involved:

Spousal Support

 In California, a new spouse’s income or assets generally has no effect on the spousal support obligation of their new partner. In other words, what belongs to Jane in terms of property or income is not connected to Frank’s spousal support situation. The Court doesn’t use this new information to re-calculate or otherwise alter the amount of support Frank is obligated to pay his ex-wife.

There is one notable exception: If, after remarrying, Frank were to quit his job or become a stay-at-home spouse (because his new wife has a well-paying position) and then attempt to either terminate or decrease the amount of spousal support he’s obligated to pay, the Court would likely see this as an intentional attempt to evade his legal responsibilities – and may not change his spousal support obligation.

Child Support

Again, in California, Jane’s assets generally do not come into play in a situation where Frank is paying child support related to his previous relationship(s). But, as noted above, it’s a different story if Frank decides to leave his job or otherwise decrease his income. Under California Family Code Section 4057.5, the income of a new spouse can be used “in an extraordinary case where excluding that income would lead to extreme hardship to any child subject to the child’s support award.”

The court will always be guided by what is deemed to be in the child’s best interests.

Debt

When it comes to debt obligations, Jane’s potential risk is a different matter entirely. With a new marriage in California, what both parties own together is automatically subject to community property law (e.g. anything acquired during the marriage is presumed to be split 50-50 between the spouses). If Jane puts Frank’s name on any of her assets – for example, adding his name to her savings account or on the deed to the house – creditors can now pursue what Jane considers her property for repayment of Frank’s debts. Her assets should remain untouched if her name is the only one connected to those assets. Most creditors won’t go to the trouble of going after assets in the non-debtor spouse’s name.

Of course, where a house or similar large property is concerned and a lender or other entity requires the signing of a Interspousal Transfer Deed in the course of a refinance (placing title solely in Jane’s name), Frank essentially gives up his legal rights to ownership by signing such documentation. Should this second marriage end up in divorce, Frank may have no claim on the house and the property will be awarded to Jane as her sole and separate property.

A pre-nuptial agreement is an effective way to fully clarify both spouses’ debts and support obligations before marriage takes place and provide the parties with clear guidelines on how to handle their property and obligations throughout their marriage. That’s what I recommended to Jane and what I generally tell all of my clients facing this relatively common situation.

Getting married or just have any questions regarding the above topic? 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. 

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.

What is Community Property and How is it Divided?

In California, “community property” is defined as the marital interest in an asset or debt that was obtained or incurred between the date of marriage/registration of a domestic partnership and the date of separation. When I initially sit down with a client who’s going through a divorce or dissolution of domestic partnership, I start by drawing two lines on a piece of paper: (1) DOM/DOR – date of marriage/registration and (2) DOS – date of separation. Then we begin itemizing each asset the client and/or his spouse/partner has an interest in (and his or her debt obligations) and determine where each item falls on the timeline — if the asset/obligation is entirely prior to the DOM/DOR or entirely after the DOS, the presumption will be that the asset/obligation is the “separate property” of the person whose name is on the asset/obligation. Everything else will be presumed to be, at least in part, “community property.”

A common misconception among clients is that community property is limited to any asset or debt that is jointly held. But according to California law, everything obtained or incurred in a marriage or domestic partnership between DOM/DOR and DOS is presumed community property. Each party has a 50% interest in that property and/or a 50% obligation, where debts are involved.

Evaluating Bob’s community property assets

Many assets have both a separate property and a community property component. During the course of the divorce or dissolution of domestic partnership, attorneys for both parties help evaluate assets in those terms and determine what each side is entitled to.

For example, let’s say Bob has $5,000 in a bank account on the day he marries Kathy. During the course of their marriage, Bob deposits and withdraws funds from this account, which is kept in his own name. The paychecks he deposits into that account during their marriage are community assets. On the date of separation, his bank account totals $15,000. Bob continues depositing funds (e.g. his paychecks) into that account, those post-separation funds being separate property. And, by the time of the actual divorce, the account has grown to $20,000.

How does this asset get divided between Bob and Kathy?

Here’s the calculation: Bob had $5,000 in the account prior to marriage and $5,000 of additional deposits after the separation. That’s $10,000 of Bob’s separate property. This leaves another $10,000 from deposit activity that took place during the marriage. This last figure is community property, to which Kathy is entitled to half. Therefore, Bob gets $10,000 in separate property and $5,000 in community property, and Kathy has a claim toward the remaining $5,000 as her interest in the community property portion of this asset.

Start documenting now!

My advice is, when you decide to initiate your divorce or dissolution of domestic partnership, try to obtain documentation about the value of any assets you had on DOM/DOR (and the balance of any debt obligation), as well as any other documentation as to how those assets or debts have been treated throughout the marriage or partnership. Of course, when two people embark on a marriage or domestic partnership, it’s difficult to think about what might happen to their property in the event of a dissolution. The longer you go in a marriage/partnership, the more difficult it becomes to retrieve that documentation. But such information can be crucially important in asserting your entitlements in the characterization and division of your assets and debts.

Are you in need of legal counseling or have any questions about the above topic? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.