Paying Off Debts in a California Divorce
Here’s an example of a question I often receive:
Before my marriage I had a 750-credit score. Now I’m getting a divorce and my score is around 500 due to foreclosure and a pile of charge offs in my name because she had bad credit when we got married and everything was put in my name.
We have assets to sell and pay off the debts, but my wife says she doesn’t want to pay them off. She says I should settle the debts with my creditors which will affect my credit for 7 years.
The question is, do I have the right to want all the debts paid off so I can restore my credit rather than settling with creditors? What does the law say about this situation?
We have enough assets to sell and pay off the debts. But she says she doesn’t want to pay the debts in full and wants to settle with creditors instead which will still hurt my credit. She doesn’t care about credit because almost all of them are in my name. Do I have the right to want to pay all of the debts that are in my name and not just settle with creditors?
Generally speaking, debt acquired during the marriage is community debt under California divorce law. (Exceptions exist but based on your question I assume all your debts are for goods and services and those are community debts). Debt acquired after separation (but before a California divorce judgment is issued) is separate property debt.
I infer you wish to divorce without a lawyer. You and your wife must serve each other with disclosures regarding your income and expenses, Form FL-150, and your assets and debts, Form FL-142. On FL-142 you must list the assets and debts of the community and indicate what assets, if any, are separate property or in which there is a separate property component.
Dividing debts in a California divorce can get complicated. Dividing debt may result Epstein/Watts issues. Epstein credits In Re Marriage of Epstein (1979) 24 Cal 3d. 76, relate to rights of reimbursement which a party may be entitled as result of the payment of community obligations with separate funds. Watts credits, In Re Marriage of Watts (1985) 171 Cal App 3d 366 relate to reimbursement to which a party or the community may be entitled as a result of one parties’ use of community assets since the separation date. That stuff usually requires a lawyer.
TAKE AWAY FROM THIS POST: Your wife doesn’t dictate what the parties do with community debt. I believe you haven’t yet filed for divorce. Once you do so, you should prepare the disclosures (I’m still assuming you’re doing this by yourself, you may want to hire a divorce and family law attorney to prepare these disclosures for you. This can be done as a flat fee service without hiring the lawyer to formally represent you; it’s relatively inexpensive) and have them served. If you can’t agree on what to do with the debt you can have a trial in which the court will divide the debt.