How Can Debts Impact a Divorce Process?

What You Need To Know About Divorce & Debt

The average family in Arizona carries a significant load of debt. Families who have recently purchased a new home, have student loans, or have unpaid medical bills may have much higher household debt. So how do debts impact the divorce process in Arizona?

Arizona’s Community Property Law In Divorce

Generally speaking, the division of debt during a divorce will follow the same rules as the division of property in the same situations. Just like assets are generally divided 50-50, most debts are also divided equally between the two parties.

An important distinction will need to be made with the court and your Gilbert divorce lawyer regarding marital and separate debts. Only marital debts, those that were incurred during your marriage, are subject to Arizona’s community property law and a 50-50 division. Individual debts are handled differently.

Arizona’s community property law requires that assets and debts be equally divided between spouses in most situations, with some exceptions. In this aspect, Arizona divorce law is different from many other states, which require divorcing spouses to divide debts and assets “equitably,” which is not necessarily equal.

Identifying Separate & Marital Debts In Arizona Divorces

Debts are considered marital if they are incurred during the marriage, while a separate debt is one that was brought into the marriage by one of the spouses. For example, when a couple buys a home after getting married, the mortgage is considered marital debt and would be split 50-50. However, outstanding student loans from before the couple’s marriage are separate and would stay with the respective spouse after the divorce.

As you and your Mesa divorce attorney discuss how your debts will likely be divided by the court, the first step is determining which are marital and which are separate. It’s crucial to ensure that all of your debts and assets are divided in a divorce. These include mortgages, vehicle loans, personal loans, personally guaranteed business loans, and education loans, along with medical and credit card debt. In divorce court or negotiation, it’s helpful to have copies verifying the current balance of all of your accounts.

It’s easy to accidentally overlook debts, but forgetting even one account can complicate and drag out the divorce. Review your monthly bank account statements, talk with your accountant, and consider running a credit check to make sure that all of your debts are accounted for in the proceedings.

What Are The Options For Dividing Debt In a Divorce In Arizona?

Although a 50-50 split will be required in most cases, divorcing couples generally have several options. Discuss these options with your Mesa divorce lawyer to help you decide which option may be best for you.

Option 1: Divide Debts Equally

The first and sometimes easiest option is to divide marital debts equally. If the spouses hold $20,000 in collective debt, each party is responsible for paying $10,000. Remember that if debts were incurred during the marriage, it doesn’t matter whether just one or both spouses’ name is on the account; both individually and jointly incurred debt during the marriage is counted as marital under Arizona law and therefore required to be split 50-50.

Option 2: Divided Assets and Debts Together

This approach enables divorcing spouses to split all of their assets and debts collectively. One spouse may be able to assume a greater percentage of the marital debt while also receiving a greater percentage of their property. In many cases, this means that one party – often the one who will have primary custody of the children – will be able to keep a secured asset such as the home, while also taking responsibility for the majority of the debt, in this case, the mortgage. However, situations like these may be subject to lender approval and can become more complicated if the spouse does not have enough income or assets on their own to be approved to take on the mortgage alone.

Option 3: Pay Off Debts as Part of the Divorce Proceedings

If you have enough assets, some couples use the divorce process to pay off some or all of their debts. For example, the couple may choose to sell their home and then use the proceeds to pay off their remaining debts. Of course, both parties will need to work together on this process and will need to have enough liquidable assets to make it work, so it may not be a good option for everyone, but it can provide a clean slate for moving forward.

Because dividing assets during a divorce can be very complicated and overwhelming, always consult with your Glendale divorce attorney, who can help you understand your options, provide legal advice, and represent you in proceedings.