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It's A Community: Debts And Assets In Divorce

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If you are divorcing, you likely already know that there are specific rules about how your marital debt and assets are divided. In fact, the state you live in when you divorce has a great deal of influence on how these issues are treated. Debts and assets are handled differently in equitable distribution states than they are in community property states, and the majority of states now use the equitable distribution model. For those that reside in a community property state and decide to divorce, the laws and rules are quite unique and somewhat confusing. Read on to learn more about what to expect when divorcing in a community property state.

What is meant by community property?

The 9 states that follow this property and debt distribution model view all debt (credit cards, mortgages, car loans) and all property (home, vehicles, pets) as being "owned" jointly by the community. In this instance, the "community" is the divorcing couple. The community property states are listed below, along with one state that uses a hybrid model:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Divorcing couples in Alaska can pick and choose to use either community property or equitable distribution for each debt and piece of property.

Marital Debts

The good news about community property debt is that all debt held by one party prior to the marriage remains their responsibility, with a few exceptions. The bad news is that all debt acquired by either party, regardless of whose name is on the account or credit card, during the marriage belongs to both of you. If you have not been keeping close tabs on your spouse's spending habits, you may be in for a nasty surprise when you hit divorce court. Additionally, if you were added to a debt that existed prior to marriage, you are now just as responsible as your spouse for the full amount of the debt. For example, if your spouse owned a credit card and had you added on, you are now responsible for that card or at least half of the balance on the card at the time of your separation or divorce.

Marital Property

If you or your spouse purchased anything during your marriage, it is considered marital property, regardless of whose money was used to purchase it or whose name is on the title, deed, etc. This means you and your spouse have equal ownership in everything, except:

1. Any property owned prior to marriage, unless it has been intermingled.

2. Any gifts given to only one party or an inheritance.

There are multiple nuances and exceptions to the above debt and property guidelines, so speak to your divorce attorney for more information.