If a couple has acquired debt during the course of their marriage, what happens to the debt if they file for divorce? Or, what if one spouse dies, is the surviving spouse on the hook for the debt? To answer both of these questions, we’ll have to dig deeper into the laws of equitable distribution and community property because therein lies the answers.
We’ll begin with the question about debt in a divorce. If a couple lives in an equitable distribution state, the divorcing spouses can decide how to divide their marital debts, which include all debts acquired during the course of the marriage. If the spouses disagree on how to divide their debts, this is when the equitable distribution laws kick in.
A judge would get involved and he or she would decide how to assign the debts. New York is an equitable distribution state, which means assets and debts are divided in a manner that a judge deems fair, and that does not necessarily mean “equal.”
Marital Debt in Community Property States
Marital debt is treated differently in community property states where both spouses are on the hook for each other’s debts, even if they didn’t agree to it. In community property states, such as California and Nevada, if the spouses cannot agree on how to divide the marital debt, then the state’s community property laws take effect.
In divorces that occur in community property states, if the spouses fail to reach an agreement, each spouse will be equally responsible for the marital debts. So, if a couple had a grand total of $100,000 in martial debt and they couldn’t reach an agreement, the judge would say that each spouse was responsible for $50,000, or 50 percent of the marital debt, regardless of each spouse’s ability to pay it.
What if a Spouse Dies?
If you were to die while still married, do you know what would happen to your debt? Would your spouse be legally liable for it? It depends in you live in an equitable distribution state like New York or if you lived in a community property state like California. Here’s what you need to know:
- In equitable distribution states, if a person dies, their surviving spouse would not be liable for debts in the decedent’s name alone, but they would be responsible for joint debts that the couple co-signed on.
- In community property states, both spouses are responsible for each other’s debts acquired during the marriage. So, even if a person died, his or her spouse could be held liable for their debt, even after the spouse passed away.
We hope you found this information helpful. If you are on the road to divorce and are concerned about your marital debt and how it will be divided, we invite you to contact Jason M. Barbara & Associates, P.C. to schedule a free consultation.