A divorce can be strenuous for all parties involved and there could be difficult issues you may not have anticipated. There could be infidelity, addiction, and even debts that you weren’t aware of. One of those most complicated issues can be the division of debts. How do you divide the debt in a divorce? What about a debt you didn’t know about? Here are a few tips that can help.
Identify Debts: The Preliminary Declaration of Disclosure
California is a community property state. Legally speaking, we make the distinction between which debts were incurred during marriage for the benefit of the community, and which debts were incurred prior to marriage or post-separation. In California, there is a requirement that the Preliminary Declaration of Disclosure (aka PDD) must be completed by both parties. This allows the parties an opportunity to sit down and organize which debts are community and which are not. Under California divorce laws, each party is responsible for 50% of debts which were incurred by the community. If it’s a separate property debt (a debt that was incurred prior to marriage or after separation for the benefit of one person), then the person who incurred those debts is the responsible party.
Hidden debt can be a frustrating and painful part of divorce. People may be unaware of their spouses’ spending and then it is all revealed during the divorce. In the instance of a party running up a credit card without the other person knowing about it, it is necessary to determine what the expenses were incurred for. It does not automatically get put on one party’s ledger just because the other person didn’t know about it. First of all, the purpose of why the debt was incurred must be examined. Did this person run up the debt to support a girlfriend or a boyfriend, or was it to support the community? If it’s a gambling debt, then the non-gambling spouse has an argument that it’s the responsibility of the person who engaged in the gambling. However, if gambling was an issue that the non-gambling spouse knew about for many years and did nothing about it during those years, then the gambling spouse could argue that the debt should be borne by the community.
Is Dealing with Debt Always Complicated?
In most instances, dealing with debt in divorce can be cut and dry. However, it can get complicated depending on one’s unique issues and how a divorce is handled. If there are allegations of misappropriation of community assets, you will need the assistance of a forensic accountant to sort out if misappropriation occurred. If the case is collaboratively handled with a neutral financial, the case has a greater likelihood of ending more reasonably and amicably.