In the current economy, couples who are considering a divorce need to be as concerned about how their debts will be divided as they are about their assets. In a divorce in a community property state like California, any debts of the marital estate will be divided equitably. This includes debts that are only in one spouse's name, but were incurred during the time of the marriage. Thus, spouses may be liable not only for debt held jointly in both of their names, like a mortgage, but for debt held only in one spouse's name, like a car loan.
Bankruptcy May Be The Best Choice
For divorcing couples with heavy debt loads, bankruptcy may be the best answer to relieving at least some financial stresses. Bankruptcy can be filed before, during or after a divorce. Spouses may file the bankruptcy jointly or separately.
Generally, it may be in the spouses' best interests to file a joint bankruptcy on their marital debts before filing for a divorce. This way, they may be able to eliminate some debts that otherwise would be subject to division during the property settlement portion of the divorce. For example, if the couple has a lot of consumer debt like credit cards, they may be able to discharge that debt in a Chapter 7 filing. Conversely, if the couple is facing foreclosure on their family home, they may be able to restructure their mortgage and other debts with a Chapter 13 filing. Using a joint bankruptcy to decrease the debt load can make the divorce process less contentious.