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What happens to debt during a divorce?

On Behalf of | Jun 12, 2024 | Family Law

People who are going through a divorce often think about how they’re going to divide their assets. However, they should also take the time to think about their debts. Separate and marital debts aren’t going to go away if you’re divorcing. Instead, these have to be assigned to one spouse or the other, who then assumes responsibility for that debt moving forward.

Typically, separate debts, which might include things like student loans that were brought into the marriage, are paid by the person who originally held the debt. Marital debts, which can include things like joint credit cards, car payments and mortgages, must be divided during divorce.

What are a couple’s options for addressing marital debt?

There are two primary options for handling debts in a divorce. The first is that assets can be liquidated to pay off the debts. Some people prefer this option because it provides a clean financial foundation for each party, which enables them to focus on building their new life.

The other option is to divide the debts between the two parties. This can balance out a property division settlement. For example, if one person has a greater share of the assets, they might have to take on a bigger debt load.

Once debts are divided and assigned, it’s typically best for the party responsible for them to have the account transferred into an individual account, if possible. Otherwise, keeping both spouses associated with a particular account could cause issues down the road.

What happens if a debt is assigned to a person and they don’t pay?

Creditors aren’t part of the divorce proceedings, which are civil matters. Because of this, they aren’t bound by the property division process. Instead, they can still go after both parties if the person assigned the debt doesn’t pay and the other spouse remains named on the account. This means that both credit scores will be impacted by the nonpayment.

Working out the property division settlement can be complex, especially since California is a community property state. Having the assistance of a legal representative who can explain the options and protect divorcing individuals’ rights is often beneficial.