As you start thinking about the issues you need to resolve with your future former spouse as you begin the divorce process, you may neglect to consider the debts you share until after you believe you resolved other issues. That could be a mistake since the debts you take on post-divorce have a significant impact on your financial future.
Because California is a community property state, the court may just divide all of your marital debts right down the middle — regardless of who accumulated them. In order to avoid this eventuality, you may want to stay out of court. Negotiating a settlement outside the courtroom could give you a better chance of a more equitable resolution to your debt issues.
Dealing with debts secured by an asset
You may own a home and one or more vehicles with your spouse. As you consider how to divide those assets during your divorce, you may also want to consider any debt attached to them. Ordinarily, the court will give the debt to the spouse who receives the asset. If you are lucky enough to have equity in the marital home, you will split that 50/50 with your spouse.
If you keep the home and refinance the mortgage, you still owe your former spouse his or her half of the equity. There may also be other considerations regarding the debt that could mean giving up other assets in order to keep the home. The same issues apply to keeping a vehicle.
Dealing with unsecured debts
These debts do not have an asset securing them. They include financial obligations such as credit cards. More than likely, the court will divide these debts 50/50 regardless of who actually accumulated the debt. Under certain circumstances, you could even end up responsible for part of your ex-spouse’s student loans and vice versa.
Ways to make debt division decisions yourself
If you don’t want to end up responsible for half of all the debt, you may want to consider other options rather than going to court. If you failed to execute a prenuptial agreement prior to your marriage, then you may want to consider mediation or collaborative divorce as an alternative to traditional litigation.
In these atmospheres, you and your future ex-spouse can sit down and come to an agreement on your own. You retain control over the outcome and may find a better way to divide your debts that better suits your needs. The same method could also help you resolve all of your other issues and leave you with a more satisfactory end to your marriage.
