Dividing Debt in a California Divorce
California’s standing as a community property state means that, unless other arrangements are made via prenuptial or postnuptial agreements, divorcing couples will end up with half of everything they acquired during the marriage. This may include half of the equity in the home, half of the value of its furnishings, and half of those retirement funds.
What some people don’t consider is that community property also refers to debt. With few exceptions, each person will end up with half of the debt the couple has incurred during the marriage. That share is in addition to whatever debt each person had when they entered the marriage. The court may make an exception to the rule if the marital debt exceeds the value of marital assets. In any case, a couple could end up on the verge of bankruptcy in addition to divorce.
Getting married is relatively easy compared to the complexities of divorce. Helping California clients in San Jose, Morgan Hill, Fremont, Hayworth, Pleasanton, Santa Clara County, and Alameda County, navigate those complexities is what The Law Offices of Steven E. Springer does best. If you are considering divorce, have filed, or have been served papers, our attorneys can help.
What’s the Difference Between Community Property and Separate Property?
In a California divorce, what is community/marital property and what is separate property appears on the surface to be fairly black and white. However, there are many shades of gray when it comes down to actually putting what you have into each column.
Community property includes all assets you have acquired from the date of your marriage until the date of your separation. For example, if you bought a home after you got married, it is community property. The money you put into your retirement accounts since the date of marriage is community property. The furnishings, appliances, artwork, and other items you purchase as of the day you married are community property.
Separate property includes any assets you owned before you married and as of the date you separated. If you owned your car before you married, it is separate property. If your master bedroom furniture was yours before you married, it remains your property. So does that baseball card collection you had as a child. Gifts given only to you and any inheritance you received during the marriage are separate property as well.
Placing many of your assets into one column or the other is relatively easy. However, co-mingled assets may be more complex. The balance in your retirement account as of the date of your marriage is separate property, but the amount you paid in and interest earned during the marriage is marital property. The same would apply to your house. For example, one spouse bought the home before the marriage. Since the day of the wedding, the mortgage has been paid and maintenance and improvements made with marital income. Therefore, what the spouse paid before the marriage is separate income, but the payments made, and equity built since the wedding day is community property.
How Is Debt Divided in a California Divorce?
Like assets, debt is generally divided equally between spouses in a divorce. Of course, the debt you acquired prior to marriage and your acquired debt after separation is yours alone. And any debt incurred during the marriage will be divided equally between you and your spouse.
Of course, this isn’t always simple. Just as defining marital property and separate property has gray areas, so does debt. This is just one of the reasons why you will want to have an experienced family law attorney working for you.
As we mentioned previously, there are potential exceptions to the debt-division rule. If a couple’s marital debts are greater than the value of their community assets, the court can assign more marital debt to a spouse earning an income that makes it more likely they will be able to pay off the debt.
The other exception is determining if the debt should be classified as separate, even if it was incurred during the marriage. For example, if a spouse spends marital funds on gifts, entertainment, and travel during an extramarital affair, the court is likely to rule that debt is separate.
Student loans may pose another exception to the rule. If marital income is used to make payments on this debt, the court may decide the spouse who benefitted from the education must reimburse the spouse who helped support it.
How Does the Date of Separation Figure into the Division of Debt?
Many states use the date of divorce as the distinction between marital and separate property. However, California uses the date of separation. The logic is that once a couple has agreed that the marriage is over, even if one of them does not move out, they are leading separate lives. As such, they are acquiring separate property and incurring separate debt.
Debt after separation is an extremely significant matter in most California divorces. Determining the date of separation isn’t always an easy task. Your divorce attorney can help you define the date when, for all practical purposes, the marriage ended and help you navigate the entire property division process.
We Can Handle the Full Picture
When you are looking for legal guidance regarding divorce, look for family law attorneys who have the experience and knowledge you need. At The Law Offices of Steven E. Springer, we don’t pick and choose what parts of our clients’ divorce we handle. We do it all because comprehensive representation is in our clients’ best interests.
If you are considering divorce or are in the process in San Jose, Morgan Hill, or the surrounding area in California, call our office now to schedule a time to talk.