Debt Division in Divorce
Debt is also a part of the property division during divorce proceedings. Debt can be classified as community debt or separate debt. In deciding how the debt should be divided, the court takes into consideration several factors such as the type of debt, the character of the debt, the source of the debt, and the person who incurred it.
Characterization of Debt
- Community Debt
Community debt refers to debt that was incurred after the date of the marriage but before the date of separation. It is debt that was incurred for the benefit of the marital community. The date of separation and not the date of entry of judgment is the controlling factor in determining if the debt is community debt.
Community debt must be divided as equitably as possible. The value of the community debt for the purpose of the division will be computed as near as possible to the date of trial.
In case of debt arising from a contract, the debt will be considered community property if the contract was made during the marriage, even if it only became due after separation.
2. Separate Debt
Separate debt refers to debt incurred before the date of marriage or after the date of separation. It can also be incurred during the marriage solely by one spouse if it was not intended to benefit the community.
As a rule, separate debt is assigned to the spouse who incurred it and is not subject to division.
There is the possibility that community debt will be divided unequally, and that one spouse will receive a larger share of the debt than the other spouse. This can happen in cases when one spouse receives a larger share of the community property and the court believes it just and equitable to assign a larger share of the debt to the spouse who received more property.
Dividing a Mortgage
There are three options that parties can choose from in dealing with the mortgage.
- The first option is to sell the house and use the proceeds to pay off the mortgage. The rest of the proceeds will then be divided between the parties.
- The second option is to buy out the share of the other spouse and refinance the mortgage. It will also involve removing the name of the other spouse from the mortgage.
- The third option is to ask for reimbursement for contributions made. If the house was separate property, but a spouse made contributions to it in the form of mortgage payments or improvements, then he or she can ask for reimbursement.
Debts After Separation
For debts that were incurred after the date of separation but before entry of judgment of dissolution or legal separation, the following rules apply:
- Debts incurred by either spouse for the common necessaries of life of either spouse or the necessaries of life of the children of the marriage must be confirmed to either spouse according to the parties’ respective needs and abilities to pay at the time the debt was incurred. This provision is applicable in the absence of a court order or written agreement for support or the payment of these debts.
- Debts incurred by either spouse for nonessentials of that spouse or children of the marriage must be confirmed without offset to the spouse who incurred the debt.
Debt Incurred After Entry of Judgment
A debt incurred after entry of judgment will be assigned to the spouse who incurred the debt and will not be subject to division.