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What debts are included when we get divorced?

Marital debt is any debt that was incurred while married and before a legal separation.  In community property states, marital debt is often referred to as community property debt or community debt.  However, some attorneys disagree with the reference "community property debt", since debt is not property, rather a liability or obligation.

We developed an answer - question format to provide basic legal information.  This information should not be considered legal advise and we strongly recommend our readers speak with an attorney in their state for guidance regarding their specific circumstances.  However, we hope to provide this information so that our readers are better informed legal consumers.

Does it matter in which state we reside?

Depending on which state you are seeking a divorce will determine how your marital debt is distributed.  Each state has different laws and procedures associated with the way debts and assets are distributed, as well as the specific processes by which your divorce is completed.  

How does the process of my divorce affect who pays for our marital debt?

Depending on the type of divorce offered in your state and consequently the type of divorce you choose, you may negotiate directly with your spouse, a mutual attorney or intermediary in order to agree on the amount of debt each party assumes.  Most judges will accept an agreement between the two spouses regarding who pays for the debts.  You may also choose an arbitrator to avoid a courtroom battle.

If you choose the process of litigation in order to have a court decide who pays the debt, then the most influential factor will be if the state is a community property state or a equitable distribution state.  The court will then refer to these guidelines to determine how the debts are distributed.

What is community property?

Community property is what a couple assumed while married.  It can be assets, income, investments, real estate, etc.  It excludes gifts during marriage by someone other than a spouse.  It also excludes property and debts prior to marriage or after legal separation.  The exclusions are referred to as separate property.  Usually the courts will divide marital property and debts 50/50.   In some cases the judge may choose to divide the marital property/debts unevenly based on individual circumstances/cases.  

Community property states and debt division?

Generally, divorce or family court will split your assets and debts 50/50 if you and your spouse could not come to an agreement without litigation in a community property state. Many times, community property is sold and the proceeds are split between both spouses. Community debt is generally referred to as a debt that was made while married, was consensual and in the mutual interest of both spouses. If it is proven otherwise, then it may not be considered a community debt and therefore the split of debts may not be 50/50 and may affect the division of assets if it is proven that one spouse wasted the community assets (such as in gambling). The laws can be very complicated as each situation has many variables. It is best to consult with an attorney who has experience in issues that may affect the overall distribution of your community debt and can legally advise you on your specific circumstances.

How do I know if my state is a community property state?

As of the time of this article, there are nine community property states.  They are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin

If I live in an equitable distribution state, how will my marital debts be divided?

Most states recognize equitable distribution as the way for the court to determine division of marital property and debts.  Unless you and your spouse (with or without mediation services, arbitration or attorneys) agree upon the division of your debt, the court will use this method to do so.  

Under this principal, the court decides marital property and debts according to what it deems as equitable.  This means the division of marital property or debts will not necessarily be 50/50.  It won't necessarily matter how the debt is titled (jointly or in one spouses name).  The law is extremely vague and will give the judge a great deal of latitude in determining who pays for what.  If one spouse makes more income, it is very possible for that spouse to also assume more of the marital debt.  Equitable Distribution is commonly referred to as fair/equitable, but not necessarily even.

What if I have a pre-nuptial agreement?

As long as the agreement doesn't violate state or federal law, it will dictate the division of marital debts, if noted within the agreement.  Generally, community property and equitable distribution laws are used when a couple can not agree and need to bring their case before a judge.  Most agreements outside of court, such as a pre-nuptial agreement would be accepted by the judge.

If I file a separate return this year and have a tax liability will it be considered separate or community property?  Would it be advantageous to file a joint return?  I live in Texas.

Texas is a community property state.  Determining what is separate and community property can be very specific to your unique situation and the specific laws of your state.  If the income that produced the marital debt (tax liability) was earned while you were married, usually it is considered marital debt.  Speak with an attorney in your state for more information after determining your tax liability or otherwise.  Most tax professionals advise working the taxes up both separately and jointly to determine the benefits of either before actually filing.   If you have already filed, refer to your attorney and accountant or utilize IRS Publication 555 for more explanation of community property as determined by the IRS.

Will the courts in an equitable distribution state regard the tax consequence in my division of marital assets?

As determined in most states, the courts have the discretion regarding the consideration of any tax ramifications as a result of equitable distribution of marital property or debts.  You will primarily be referring to your assets in this situation.  However, the division of your debts could impact the division of your assets which then could affect your tax liability.

If you think your case is likely to go to court, you should ask your attorney how your state generally handles this situation and his/her experience in similar cases.  You are always given the opportunity to negotiate with your spouse outside of court to predetermine which spouse will sell, gain/lose or transfer specific investments/assets to avoid tax liability that affects the overall equitable distribution.


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