A couple’s home, retirement accounts, and vacation property are not the only things that get divided during divorce. Debt is also distributed between the spouses during divorce.
Discussing all aspects of divorce with an experienced family law attorney is critical when you file to dissolve your marriage. Understanding in advance how a court divides liabilities helps to avoid costly surprises.
Community Property State: What It Means
There are nine states that have community property laws, and Arizona is among them. This means that everything either spouse acquires during the marriage, including income, property, and debt, belongs to both spouses regardless of whose name is on the account. That includes credit card debt accrued by one spouse, or an auto loan opened by the other. In addition, medical bills incurred by one spouse are assumed to be shared obligations if acquired during the marriage.
Under state law, courts divide shared property and debt equitably and without regard to marital misconduct. Splitting assets and debts equitably means there is a roughly equal division, but judges may deviate from a strictly even apportionment out of fairness.
Community Debt vs. Individual Debt
The division of debt during divorce does not apply to every account balance. Here are some examples of debts that are likely to remain the sole responsibility of one individual:
- Premarital student loans
- An old credit card balance (pre-marriage)
- A car loan from before the wedding
- Debts incurred after the divorce petition was served
Courts have significant discretion to decide if a debt falls into a gray area, such as:
- Student loans taken out during the marriage may be community debt if the spouse’s increased earnings benefited the household
- Spouses who engage in wasteful spending during the marriage may be held solely responsible for the debt incurred (such as gambling debt)
The Effect of Divorce on Creditors
It’s a hard reality that a divorce decree does not bind creditors. Under A.R.S. § 25-318, courts must notify divorcing spouses of this fact in writing. Banks, credit card companies, and other lenders may pursue either spouse for a shared debt, even if the debt was assigned to the other spouse in the divorce decree. That means if your ex-spouse stops making monthly payments on a joint account, the missed payments can damage your credit score.
There is some protection from an ex-spouse who doesn’t pay the bills required by the divorce decree:
- Either spouse may ask the court to release the other’s credit report
- Creditors must disclose account balances within 30 days of a written request that includes the account and court case numbers
- Courts can require the parties to submit a debt distribution plan (at either spouse’s request) and may lien a spouse’s property to ensure payment of debts assigned to them
Ways to Protect Yourself
Discuss these steps with your attorney to understand what is possible while the court’s automatic preliminary injunction is in place and which will be resolved by the divorce decree:
- Get copies of your credit report from each credit bureau early in the divorce process to identify every account you are named on
- Pay off and close joint accounts
- Refinance the mortgage and auto loans into one spouse’s name
- Remove your ex-spouse as an authorized user on any personal account
- Ask your attorney about an indemnification clause requiring your ex-spouse to reimburse you if you must cover a debt assigned to them
Understand the Long-Term Implications of Divorce
Divorce will shape your life, especially your finances, for years after the final decree is signed. An attorney from Webster Family Law can guide you through the process, advocate for the most equitable allocation of community debt, and structure your settlement to protect your credit. Schedule a consultation today.