Division of Debts & Assets in Divorce
In addition to major issues like child custody, visitation rights and child support payments, divorces tend to center on another key area, property division. You may have already heard how property division is generally based on whether a state has a community property law or an equitable distribution law.
Community property laws operate for the most part under the assertion that any property acquired by either spouse during the marriage (marital property) should be divided equally, regardless of financial need, ability to earn, or who's to blame for the divorce. Equitable distribution laws are more common and consider the length of the marriage, the income or property brought to the marriage of each party, and many more factors in coming to fair decision on property division. Special rules may govern the division of retirement accounts.
With that said, property division arguments typically revolve around the finer things in life. Who gets the house during the divorce? Who gets the new car? You rarely ever hear these "who gets what" questions when it comes to debts attained during marriage and the divorce process.
How are marital debts divided?
In most states, the law gives the courts the right to divide the parties' joint debts among them, regardless of whose name is on the debts and regardless of which party is at fault in the divorce. The parties can, in many instances, enter into an agreement providing for the responsibility of their debts. However, if the parties cannot agree, the court will divide the debts and property on an equitable basis. Equitably does not necessarily mean equally. Rather, the court will divide assets and debts based on factors such as the parties' incomes, education, custody obligations, future earning potential, and the standard of living enjoyed by the parties' during the marriage.
What happens if an ex-spouse doesn't repay debts?
Even if your divorce decree assigns certain of your joint debts to your spouse, you are still technically on the hook for those debts. Thus, if your ex-spouse fails to take care of those debts, the creditor can still bring legal action against you for the full amount of the debts. You will then have to file a contempt action against your former spouse for violating your divorce decree and seeking reimbursement for any amounts you have paid. In most states, you will also be entitled to your attorneys' fees.
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What are the effects of bankruptcy on a debt division?
Here is a common scenario. You and your spouse obtain a divorce decree dividing your joint debts equally between the two of you. However, shortly after your divorce is finalized, your spouse files for bankruptcy, seeking to discharge his or her debts-including the debts assigned under the divorce decree. Fortunately, in most cases, if the debts are part of a divorce decree, the spouse cannot discharge them in bankruptcy. However, as noted above, if the spouse simply refuses to pay those debts, you may still be on the hook. For more information about bankruptcy issues, visit Total Bankruptcy.
Asset Protection in a Divorce Case
There are two ways to protect your assets in a divorce case: pre-marital asset protection and post-marital asset protection. While the term "pre-marital asset protection" may not necessarily be familiar to you, the term "prenuptial agreement" will likely be. Also known as a premarital or ante nuptial agreement, a prenuptial agreement is a contract between the parties engaged to be married which ultimately provides for the distribution of property, alimony and other monetary issues in event of a divorce. Prenuptial agreements do not control issues like child custody, visitation, or child support.
Most states will generally uphold prenuptial agreements if they are entered voluntarily by both parties and are not unfairly one-sided or hiding any information about one's assets. In other words, a prenuptial agreement must abide to the laws concerning contracts. It is also important that both parties have separate legal representation when being advised of the prenuptial agreement, as one spouse may be able to get out of it by citing arguments like a conflict interest or coercion by the shared attorney.
Post-Marital Asset Protection
You may still be able to protect your assets in a divorce even if you do not have a prenuptial agreement. With that said, you must not overreach in doing so as hiding assets or transferring property to avoid your spouse's claims can lead to not only the loss of protection for that property but also some serious legal trouble.
The scope of your post-marital asset protection plan depends on your role in the marriage. With that said, you should gather evidence of all of your spouse's property, your property and your joint property (even if you're not considering divorce, having an accurate record of your assets is always a smart thing). In other words, you should make copies of all financial records that you are aware of, including tax returns, brokerage and bank account statements, insurance policies, your spouse's business records, and all other property records so that you can best support your claim to the property.
Videotaping all of your property and appraising your home are also good means to protect your assets in a divorce. You should also consider opening up a checking account or credit card account in your name as you will want to keep as much of your property and income separate from your marital property. Once again, keeping detailed records showing that this property was never part of your marital estate will be important here.
As you can see, asset protection and debt division during divorce can get quite complicated. If you have questions about protecting your assets during divorce, speak to an experienced divorce lawyer in your area as soon as possible. Our sponsoring divorce lawyers can answer your questions and provide you with the information you need.
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