Debt Assignment – Bankruptcy and Divorce
While many couples are dueling out over who gets the table and chairs, other couples are trying to figure out which spouse should be stuck with debt after a divorce is finalized. Across the country of the United States, there are a lot of different ways that the state governments deal with assigning the debts. Most states follow a common law practice, but several states recognize community property. The state of Arizona is one that recognizes community property and that will greatly affect debt assignment as couples finalize their divorce.
Determining Whose Debt it Is:
In a state that recognizes community property, almost all things in a marriage are considered property of the marriage unless it is very clear and specific whose property it is. For example, if one spouse owns a car in their name, then it would remain their property. The same continues to be true for debt. If debt is collected in one spouse’s name and not the other, without agreement from the other spouse, than the debt will remain in that person’s name. However, in many cases, a debt is incurred on a joint credit card or under both spouse’s name.
Dividing Community Property:
In community property states, there are basic procedures that every couple must go through to divide the property of their marriage as they go through a divorce. This will, for a majority of cases, involve lawyers and judges who are designated to help the couple split their property for them and to keep things even. For community properties such as debt, the court will help to decide whose debt it actually is. In cases where it is deemed that the debt belongs to both people in the marriage and there was no specific debt belonging to any individual spouse.
When the debt is community property, then the court will equally divide community property among both spouses. Debt will be shared equally among both individuals after the divorce is finalized, and so the debt can be evenly paid by each person involved. This can sometimes cause problems among divorcees, which is why lawyers and the court must decide and assign the debt rather than allowing the couple to do some themselves.
Bankruptcy in a Community Property State:
If a spouse is forced to file for bankruptcy in a marriage or throughout a divorce, then this can affect both people as they finalize their divorce. Because the state of Arizona is a common property state, there are many situations in which the debt and state of bankruptcy can be shared by both spouses. It is possible for a spouse to claim full responsibility for the bankruptcy and protect their spouse from the financial repercussions of bankruptcy. They can protect their current or ex-spouse from liability and assume the full bankruptcy on their own. If this is not done, however, the state of Arizona will evenly share the debt among both spouses. This can result in many problems for the couple as they go through the divorce, so it is important to specifically assign debt in a marriage, especially as the couple goes through the divorce process.