Lately I have seen a large number of divorcing couples who have kept their bank accounts and debts completely separate all throughout their marriage.  Does that mean those accounts are separate property and the debts will go to the person whose name is on the debt?  No.

In general, any property accumulated during the marriage is community property, regardless of whose name is on the account or the title.  Any property owned by either spouse prior to the marriage is the separate property of that spouse.  Therefore, if the couple buys a house together prior to marriage and it is in only one spouse’s name, it is technically the separate property of that spouse.  (There are ways for the other spouse to get access to some money from the house, but that is another topic for another day.) Inheritance is also considered separate property, as are gifts.  If it does not fall into one of those categories of separate property, it is community property.

I do not recommend keeping your financial life separate from your spouse’s financial life, at least without full knowledge of what is going on with your significant other.  You could be help responsible for a portion of your spouse’s debt, even if it was in his or her name alone and even if it was frivolous spending.  Proving that the parties had an agreement to keep everything separate and to each be responsible for his or her own debts (or to each keep his or her own property) is difficult unless such an agreement is in writing.  The spouse in the weaker financial position will undoubtedly be looking to equalize in the event of a divorce.

Divorce

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Just like with property, debt must be characterized as either separate or community debt. Any debt incurred by one of the spouses before the marriage is separate, and that spouse will be responsible for paying that debt.  Any debt entered into by either spouse during the marriage is presumed to be community debt.   A party can overcome the presumption by establishing that the creditor considered only the separate estate of one spouse  for satisfaction of the debt.

Once debt is characterized, the division of debt will be a factor in a “just and right division” of the community estate.  The court can consider several factors when determining which spouse to award a debt:  (1) the spouse’s ability to pay; (2) which party was awarded the property securing the debt; (3) the spouse’s relationship to the creditor; and (4) which party was responsible for the debt.   Based on these factors, one party may end up taking on significantly more debt than the other.  This is especially true if one spouse keeps the marital residence and then takes on the mortgage.

Most divorces settle, and any settlement would include division of debts.  When the case does not settle, the court can deal with debts in a few different ways.  One, the court can order the parties to sell certain assets to pay off the liabilities.  This often occurs when neither side can afford the mortgage on the marital residence on his or her own.  Two, the court can order one side to pay for a particular debt.  Finally, the court can order that the parties are jointly liable for a debt.  This is usually the least desirable outcome, as one spouse’s credit can be negatively impacted by the other spouse’s failure to pay.

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