Debt and Bankruptcy in Divorce
Equitable Distribution vs Community Property
Couples going through a divorce are usually seeking to keep their finest assets, but who gets to keep the debt? There are several methods used throughout the United States to determine who gets the debt for couples going through a divorce. Most states follow common law, but some recognize community property. Debt and Bankruptcy in divorce can be complicated, you will want to at least consult with an attorney, even if you represent yourself.
Common law is when debts incurred by one spouse will remain as their own and income earned by one spouse is not automatically considered mutual.
Community property states follow a different approach, which we discuss below. Arizona is included in the list of states that recognize community property. Knowledge about community property and how it works is key to avoiding conflict during a divorce.
Defining Debt Ownership in a Community Property State
Property and Debt ownership follow the same general rule: everything is considered mutual unless there is very clear evidence of specific ownership. An example of a purchase that can be proven as single ownership is a car with only one spouse’s name on it. Similarly, debt made by one spouse, and not the other, will remain as their own. However, most couples will acquire properties and debts using a joint account or both names thus making it community property.
Who Gets What?
Because we are in a Community Property state, Arizona couples divorcing must follow particular procedures. Dividing property can get complicated and messy, so Arizona has provided designated lawyers and judges to help decide who gets what. The court is available for assigning where debt belongs and how to split expenses evenly. The goal is to make sure that all property is divided equally and that both spouses have an equivalent amount of debt to compensate. Evidently, leaving the decision up to the divorcing couple might lead to problems, hence why we have resources to assist you through the already difficult process.
Bankruptcy
Filing for bankruptcy can be very discouraging. It will not only affect you and your financial stability, but also your spouse’s. If bankruptcy was filed during the marriage or before the finalization of the divorce then its adverse effects are now a part of both spouses’ finances. The only way to relieve your spouse from the obligation is to claim full responsibility. If the bankrupt spouse refuses to do so, Arizona will distribute the debt evenly. We fully encourage couples to make sure they are allocating debts in a marriage and when facing divorce, otherwise challenges will arise and make the process even more problematic.