Going through a divorce is tough for most couples. Aside from the emotional or psychological challenges, divorcing couples must agree on how to divide property as well as debt. Despite the basic rules that guide how debt is divided, often couples disagree on how to go about it, creating unnecessary disagreement. With an experienced family lawyer, however, the process can be made more smoothly to avoid any hatred that may result. At San Diego Family Law Attorney, we are experienced in handling divorce matters, including those of debt division.
An Overview on How Property and Debts are Divided in California
California is one of the states that adhere to community property law. Generally, this law indicates that every property and debt incurred by spouses during the period of their marriage belongs to them. This means a spouse is responsible for the debt of the other spouse just as they benefit from the property of the other spouse.
However, in some cases, spouses agree on how they will share debts and properties prior to marriage. This is called a prenuptial agreement that is legally recognized. In the absence of this agreement, the court orders equal division of debts and community property between the spouses.
Sometimes not all assets or debts can be divided into half. However, the aim is to have as equal a division as possible. There is, however, an exception to this rule. When the community debts value exceeds that of community assets, it may not be possible to divide equally. In such a case, the court is permitted to allow unequal division. The spouse with a better income or ability to pay the debt is given the bigger share of it.
To understand how the division of debts and property is arrived at, it is important to understand property law in California in depth.
Quasi Community and Community Property
As earlier mentioned, community property involves anything a couple owned or acquired while they were still married. This also includes debt. The property or debt must not be acquired as an inheritance or as a gift to either of you.
Additionally, every earning either spouse earned while married, and anything bought out of the earnings is also community property. For one to know if a property is a community one, it is determined by the origin of funds to acquire it. If the funds to buy the item were earned while married, the item is then a community one.
For instance, if a spouse buys a car through a loan while still married, the car is community property. Should the spouses decide to divorce while the debt for the car owes, the debt will belong to both as well. In essence, community property includes all obligations a couple accumulates while married. The debts, as well as the assets, are equally owned between the spouses.
Because of this law, some individuals realize they have community property that they didn’t know they did or debts they never knew about. For instance, if your partner had a pension plan, whether you knew about it or not, you stand to benefit from it as long as it was earned while married to you. On the other hand, a spouse may get into debt without the knowledge of the other. However, when a divorce happens, the other spouse takes part in the debt as well.
Quasi-community property, on the other hand, is all the property a spouse or their partner acquired while in another state. What this means is that a couple may have been living in another state before moving to California. They or one of them acquired the property there. If the property was acquired while in California, it would have been community property. But, because it was acquired in a different state, it becomes a quasi-community property.
In California, quasi property or debt during a divorce is treated the same way community property or debt is. For instance, a couple that was working in Florida moves to California owned properties and debt before. They are now seeking a divorce in California. The law will treat all their earnings before coming to California as a married couple, including debts and property as community property.
As earlier mentioned, a person may have owned some property like a house or a car before getting married to their current partner. Anything that they owned before is classified as separate property. Inheritances or gifts to a partner, even when married, are treated as separate property. For instance, during the duration of a marriage, the wife’s father dies and leaves the daughter a house or shares. Although she acquired them while still married, the property is not community property but separate property.
A person can also buy a vehicle using money inherited from family, or you receive a gift from a family member, the property, although gained and used while married is not community property but a separate one.
Once separated, anything a person acquires is treated as separate property. This makes a date a couple separated very important as it is discussed below. Similarly, any debt a person had before getting into the marriage union is treated separately. This is the same as debts accrued after the official separation date. Credit card debt accrued while married whether your spouse was aware of it or not, it is divided equally.
Commingling – Mixed Separate and Community Property
Sometimes things in a marriage get mixed up to a point one cannot separate what community or separate property is. This is termed as commingling. When a property becomes a combination of both, it becomes a complex issue to handle.
For instance, if a spouse owned a house before marriage and after marriage, they agree to own a home together. The spouse that had a house before decides to sell his house and uses the proceeds to put down a down payment for the new house. This down payment is a separate income, but the subsequent mortgage payments for the house come from community funds, and the house is community property. Further, if either party makes the mortgage payments from their earnings, the equity of the home becomes commingled.
Another example is when either spouse or one of them has a retirement benefit plan owing to a job they had before and while married. Any contributions either party made to their pension plan before marriage are treated as separate property. After marriage, contributions that are made are treated as community property. However, a spouse can fail to contribute to a pension scheme and accrue debt. On divorcing, this is also divided equally.
In simple terms, the laws that guide on how property is divided when a couple decides to divorce are the same laws that give guidance to debt division. Sometimes when a couple is getting a divorce may have an informal agreement on how to divide the assets and debts. All these come with costs, and if not otherwise indicated, the costs are equally divided.
For instance, on separating, a husband may have promised to pay for the car loan. However, he fails to do so, the creditor will not honor your agreement but instead will come after both of you for the debt. This happens to all the other obligations, whether credit card debts or mortgages. In most cases, couples may opt to sell all the properties they own to pay off debts and divide the net balance after that.
Below, we discuss in greater detail what makes a debt a community one or a separate one. Additionally, we will discuss in greater detail the most common debt divorcing couples face and how it is divided.
Characterizing Marital Debt
Before debt is divided, the first thing is to establish its character. This means categorizing the debt as separate or community debt.
The law defines community debt as those debts incurred once a couple has gotten married, and before they are separated. The law states that all the debts accrued during the duration of the marriage equally belong to the couple, even when it is one spouse that accrued them. For instance, one spouse uses a credit card in their name to purchase household equipment or clothes for the children. When they decide to separate, the debt does not belong to them alone, but the other spouse shares the burden.
In the same manner, if one spouse accrued their tax obligations while still married to the other, the other spouse is equally responsible for it.
Separate debts, however, are a burden to the particular spouse that incurred them. Most separate debts are incurred before a couple marries or after they are separated.
In determining who is responsible for a debt, the date a couple separates is essential to avoid paying for debts that do not belong to the other spouse. It is never easy to determine the date a couple separated. Some cases call for the court to have an independent trial to establish the separation date before making decisions on other issues. Under the law of California, a test done in two parts helps establish when a couple separated officially. This is done by:
- The first test involves there being a physical separation. A couple must be living separately for physical separation to happen. This is not hard to establish because the couple needs to agree on the date they stopped sharing a home. Sleeping in separate rooms while under the same roof is also considered a physical separation. When a couple agrees to this date, then it is easy to establish physical separation.
- Additionally, there must be an intention by one spouse to terminate the marital union. A couple that is doing a trial separation or a temporary one is not sufficient to show intent to terminate the union.
Dividing Mortgage Debt
Sometimes it can be complicated to divide a mortgage or a family home. However, in other cases, it can be straightforward. For instance, a couple that bought a house together while married and funded their mortgage payment through their community funds will divide the mortgage debt equally. In this case, the judge can order for the family home to be sold, and the couple pays out the mortgage balance. The net balance is then equally shared between the partners.
In another scenario, the judge can ask the couple to agree for one to buy the other partner’s shares and seek refinancing options for the mortgage. This will mean that the buying spouse takes sole responsibility for the mortgage while the other one is relieved of the debt.
Some cases can, however, be more complicated. For instance, one spouse may have taken a mortgage to buy a house before marriage. On getting married, the other spouse moves into the home. While married, the other partner may have helped to pay for the mortgage or home improvements. Other times, a partner may use additional funds aside from community funds to put a down payment for a home that is jointly owned. If this happens, the court may ask the other spouse to reimburse the spouse that contributed if it is possible to trace the source of the funds used.
Reimbursement for Mortgage Payments and Usage of Family Home After Separation
Many issues can arise between the time a couple separates to when they get divorced. For instance, the one to keep staying at the family home and the one to pay mortgage are fundamental issues. When a couple officially separates, one can continue paying the mortgage while not enjoying the benefits of staying in the home. When this happens, the paying spouse is entitled to be reimbursed for what they spend.
Epstein Credits – Mortgage Payments After Separation
According to California Law, the court is permitted to order for reimbursement to a spouse that used separate funds to finance the mortgage when the couple was separated. This happens because the house if it was acquired during the marriage is community property making the mortgage debt a community one. The paying spouse is believed to be using separate funds and not community funds to service the mortgage debt.
For instance, when a spouse moves from their matrimonial home and continues to service the mortgage debt out of separate funds from those they owned together, the spouse can request for reimbursement. However, there are circumstances under which the court would not order compensation. These are:
- When the spouses had made a prior agreement to have no reimbursement for any payments made
- When the spouse gifted the payments to the other spouse
- If the spouse was still living in the home post-separation and the payments he or she made were not significantly higher than what they would have gained as rental income for the home
- When the payments were made instead of or as a kind of support to the other spouse
- When the court evaluates and finds it unfair or unreasonable to reimburse the spouse.
It is essential to show that the funds used to make the payments are separate funds if one is seeking reimbursement.
Fair Rental Charges – Watts Charges
This is in contrast to reimbursement. It means that following a separation, the spouse that solely uses the house before the divorce becomes final can pay the rent. These are called Watts charges, which is the rental amount for the home that is considered fair over the period.
When one spouse decides to keep using the house while the other continues to pay the mortgage even after separation, the paying spouse could be awarded Epstein credits and ask the staying spouse to pay Watts charges. This essentially means that a spouse that maintains exclusive possession and use of the home may owe the other one and a half of the rental value during the time they possess the house.
One spouse may find this very expensive and unaffordable. Instead of fighting over this, some couples opt to both move out of the house and rent it out. After the divorce, a couple may decide to sell the house to pay for the mortgage balance and share the net surplus from the transaction.
This can be very complicated and cause a lot of friction between divorcing couples. It is advisable, therefore, to hire the services of an experienced family lawyer to help you navigate through this.
Sharing Credit Card Debt
Couples also accumulate credit card debt during their marriage. When getting a divorce, the debt must also be divided fairly according to your agreement. The division does not always have to be equal, but as long as each party is satisfied.
For instance, if, as a couple, you have accumulated a credit card debt of $5,000 and have a savings account with $12,000, you can opt to clear the debt and divide the balance. Alternatively, one can be given $3,500 and forgoes the liability while the other one takes $8,500 and the burden of the debt. Whichever way a couple decides to divide the debt, it equally belongs to them, and they must make sure it is paid.
Finding a San Diego Family Lawyer Near Me
Going through a divorce can be financially and emotionally draining. A lot of things, such as outstanding debts or disputable debts, come up during this time. This can cause more strain on an already strained relationship. Property law can also be complicated for most couples, but discussing the challenges faced, especially with regards to dividing debt with an experienced family lawyer, is essential. At the San Diego Family Law Attorney, we understand the challenges of the divorce process. Our experienced lawyers will patiently take you through the process to ensure an outcome that is satisfactory to both parties. Call us today at 619-610-7425, and let us help you have a smooth divorce.