Am I Responsible for My Spouse’s Debt in a Divorce?

divorce and debt blogWhen people think of divorce, they usually think of two spouses battling each other for as much property and parenting time as they can get. However, some divorce negotiations are about avoiding a negative rather than gaining a benefit. Some divorcing couples must also divvy up their debts before their case can be finalized. 

Debt Division in Community Property States 

Arizona is a community property state. This means that all property and debts acquired during the marriage will be split evenly if the couple divorces. Property acquired before the marriage, or through gift or inheritance during the marriage, will be considered separate property. The other community property states are California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 

Since debts are split under community property rules in Arizona, they may be treated differently than couples you know who got divorced in other states. Even if one spouse incurs a new debt in their name alone during the marriage, like an auto loan or a credit card, both spouses will be liable for it due to community property laws. You could be responsible for far more debt than you were expecting upon divorce in Arizona. 

Using a Divorce Agreement to Bypass Community Property Law

Just because you aren’t legally obligated to pay your spouse’s share of community debts or their separate debts in a divorce doesn’t mean you can’t. Your spouse may take primary care of your children and you want to make sure they aren’t struggling with debt while doing so. You also may want incentive for your spouse to give up their share of a community property, such as the marital home. If you live in a community property state, you can still agree to a different division of property in the divorce. You or your spouse can agree to give up shares of property they are entitled to, or take on more of the debt, but a judge will order equal division in a trial. 

You should consider carefully before agreeing to pay your spouse’s share of community property debt or their separate property. Once your divorce agreement is finalized, you won’t be able to modify to rescind those terms. You should always speak to a family law attorney who specializes in divorce before signing a divorce agreement. 

What if One Spouse Files Bankruptcy?

divorce and debt blogIf after divorcing, a spouse who has separate property debts or wasn’t ordered to pay community debts in the divorce files bankruptcy, the other spouse won’t be affected. Filing a Chapter 13 bankruptcy will also have little effect on the former spouse after a divorce if the case ends in successful discharge. 

In Chapter 13 bankruptcy, debts will be reorganized into a payment plan. The plan will last 3 years for filers who make less than the state median income, and 5 years for those who make more. Debts like past-due mortgage and child support payments will be paid in full in the plan, as well as any auto loan balances and priority debts like taxes. Unsecured debts like credit cards, repossession deficiencies, and medical bills may be only partially paid in the plan, depending on the filer’s income and debt structure. However, even partial payment within the plan is sufficient to satisfy the liability of both spouses. The filer will be protected from wage garnishment, vehicle repossession, and home foreclosure while the bankruptcy is active. 

However, once the filer misses payments, their case is at risk of being dismissed. Except for in times of widespread emergency, such as the coronavirus pandemic, a bankruptcy trustee will typically dismiss a Chapter 13 case after one or two missed payments. If your former spouse who is liable for community debts files Chapter 13, check in with them to make sure their case isn’t dismissed. 

In a Chapter 7 bankruptcy, your liability to pay a debt is discharged but the creditor won’t consider it paid like in a Chapter 13. If your former spouse agreed to pay community debts in the divorce and files Chapter 7 bankruptcy, those creditors will pursue you instead- despite what your divorce agreement says. 

Additional Questions About Spouse’s Debt in an Arizona Divorce?

If you have more questions about debt and divorce, you should be consulting with family law attorneys to decide your next step. Our Arizona Family Law firm is full service, offering representation in both family law and bankruptcy matters. Learn your rights, the best timing, and plan your case in a free consultation with one of our expert attorneys. Contact us today for a free consultation regarding your Arizona Divorce! (480) 263-1699.