When couples divorce, they are likely to face a number of complex and considerable issues. One major issue given significant weight in this tumbling economy is the division of assets and debts. As the economic downturn continues, the number of couples divorcing with immense debt is increasing at a rapid rate. As a result, dissolution proceeding disputes concerning the division of debts is causing more and more litigation with each spouse striving to distribute as much debt as possible to the other spouse. However, the rules with regard to the division of debt – in a dissolution or legal separation proceeding – varies significantly depending on where the case takes place and the applicable State law.
In a community property state such as California, the general rule is that any income or assets earned or acquired during the marriage and prior to separation by either spouse is considered to be community property. Similarly, the same general rule applies for debt and liabilities incurred by spouses during the marriage. Generally, debt incurred by either spouse during the course of the marriage remains the obligation of the community. There are exceptions, however. For instance, certain debts may be determined to be the separate debt of one of the spouses or “anti-community debts” and will not be considered to be a community obligation.
Separate debt includes debts incurred by a spouse prior to the date of marriage or following date of separation. For example, separate debt may include credit card debt or a business debt preceding a marriage. Separate debt is considered to be the obligation of the individual spouse who incurred such debt. However, following the date of marriage, if separate debt is paid with community funds, then in a dissolution proceeding, the community estate may be entitled to a reimbursement.
On the other hand, anti-community debts are those debts that may have been incurred during the marriage, but were not incurred for the benefit of the community estate. Anti-community debt may include any legal fees as well as any interest and penalties resulting from a spouse defending against a civil or criminal action which was not for the benefit of the community. Courts have held acts such as embezzlement and gambling not to be for the benefit of the community. Thus, those Anti-community debts may be held to be the obligation of the spouse who incurred the debt. As a consequence, the spouse who was not responsible for the debt is likely to make all attempts to shift the burden of repaying those debts solely to the spouse who incurred them.
Due to the risk of being held liable for such debts, each spouse should be cognizant of the potential debt incurred in order to prevent or at least mitigate those debts. Sometimes the debt may not be incurred necessarily for the benefit of the community, but the community may still have benefited from the debt. In that case the community would be obligated to repay the debt rather than the individual spouse who brought on the debt. The question of, “What exactly is considered a community benefit?” and, “Did the community actually benefit?” may not always be conspicuously eye-catching as each divorcing couples’ circumstances regarding debt incurred are different. An experienced family lawyer should therefore be consulted on whether a community benefit exists and what debt is community and what debt should be qualified as separate.