Hidden Consequences to a Division of Debts in Divorce

By Donald A. Hayes, Attorney at Law

 


Hidden Consequences to a Division of Debts in Divorce

Hidden Consequences to a Division of Debts in Divorce in California must be identified. When a debt or obligation is divided by the family la court and awarded to one of the spouses. Regardless of which spouse was assigned the debt by the property division judgment, the debtor spouse remains personally liable for his or her debts incurred before or during marriage. In satisfying those debts, creditors may reach the debtor spouse’s separate property, as well as his or her share of the community estate received in the property division.

JOINT CREDIT CARD DEBTS

Also, in the event of a joint credit card obligation, both spouses remain liable for the entire debt even though the court has awarded the entire debt to one of the spouses. In the family law action, the spouse who was awarded the debt, and did not pay it, will be subject to a lawsuit by the creditor to whom the debt is owed. But also by the primary obligor spouse will have to seek reimbursement in the event the spouse awarded the debt did not pay it and the primary spouse is called upon to pay the debt. That reimbursement may include interest plus reasonable attorney’s fees incurred in enforcing the reimbursement claim.

Here is a clear example of Hidden Consequences to a Division of Debts in Divorce: Take the situation where a credit card debt is in the name of only one of the spouses and the debt is assigned by the family law court to that spouse. Clearly the nonobligor spouse is not liable to the creditor. Now take the situation where the court assigns the obligation which is in the name of one spouse to the other spouse whose name is not on the account. The other spouse’s property – both separate and former community property- can now be reached by the creditor after the property division if that debt was assigned to the him/her in the property division judgment. In other words the assignment pursuant to the property division judgment creates a direct debtor-creditor relationship with the other spouse.

To avoid expanding creditor’s rights against divorcing spouses who are not obligated on the account, an attempt should be made to award each debt to the spouse who is on the account, with offsetting community assets and/or liabilities assigned to the other party. This approach will avoid the possibility of a spouse having to pay a debt which was assigned to the other spouse, and later having to seek reimbursement from that spouse for a liability that was assigned to him or her by the family court. All too often the spouse who was assigned the debt will have filed bankruptcy but the spouse may still seek reimbursement in the family court.