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Information on How Debt Is Split in Divorce

Normally, when people get divorced, they think about how the assets will be divided. Few stop to consider how the debt will be divided, and who will have to pay for debts that accumulated during a marriage. However, dividing a couple’s debt after they split up can be extremely complicated—even more complicated than dividing assets. Exactly how complicated depends on the financial situation of the couple at the time of divorce, as well as the amount and type of debt accumulated during the marriage. Generally, marital debt is divided the same way assets are. In a community property state, such as California, that should mean debts are divided relatively equally. Unfortunately, that rarely happens.

In order to understand how debt is divided, it is important to first understand how family law in the United States influences debt and property division during a divorce.

State Laws Regarding Divorce & the Division of Debt

In the United States, there are two main categories of family law that apply to marital assets and debts in divorce. Each state follows either one or the other.

These two categories are:

  • Community property
  • Equitable distribution

Where a couple was married and where they lived often determines the law by which property and debt is divided during a divorce. While each state generally follows the basic tenets of either community property or equitable division law, how they apply the law may be different. The application of the law varies and may change depending on how / where property was purchased or where debt was accrued.

For example, if you and your spouse currently live in California, but had previously lived in Washington—where you purchased and still own property—either California or Washington’s law may apply to the assets in Washington.

Accordingly, how the remaining mortgage and ownership of the property is divided at divorce will depend on which state’s law actually applies. In these types of situations, it is extremely important that you speak with a knowledgeable attorney to find out which state law applies to your situation.

Community Property States

A few states, including California, are “community property” states. These states recognize three categories of property:

  • Community property
  • Separate property
  • Quasi-community property

Community Property

The “community” is created by the marriage or registered domestic partnership of two people. Community property and debt is generally all property and debt acquired during the marriage and prior to separation. However, this can change depending on how and when the property was acquired.

Separate Property

As a general rule, separate property and debt is:

  • All property and debt owned by a spouse prior to marriage or domestic partnership
  • Any property or debt that was acquired after the couple separated
  • >Any inheritances that one spouse receives, either during the marriage or before it
  • Any gifts one spouse is given during the marriage
  • Any property and debt acquired in one spouse’s name with separate funds (as long as the property was never used for the benefit of the marriage)
  • Property and debt that the spouses agree will remain separate

Quasi-Community Property

Quasi-community property is property acquired by one or both spouses while living in another state that would be considered community property if it had been acquired in California. Quasi-community property and debt is usually treated the same as community property and debt. However, there are some very important exceptions, including when state laws conflict.

How Is Property & Debt Shared in a Community Property State?

In a community property state, all property purchased and all debts incurred during the marriage are shared equally. This means that even a non-working spouse is entitled to 50% of the working spouse’s earnings and each spouse is responsible for 50% of any debt incurred—regardless of whether they were the one who incurred the debt (there are some exceptions to this, discussed below).

Additionally, unlike equitable distribution states, property and debts acquired solely in the name of one spouse are still considered community property. In general, this means that anytime one spouse buys something in his or her own name or takes out a credit card, that property or debt will likely still be considered community property and both spouses will share equally in the rights and responsibilities.

However, there are some important exceptions to this, such as when a spouse uses separate property to purchase property or when the debt was for the sole benefit of one spouse and not for the marriage. In these situations, the court will evaluate the debt and property to determine whether it should be classified as either community or separate property before assigning it in the divorce settlement.

Why Is It Important to Classify Property & Debt?

The distinction between community and separate property is extremely important. How property and debt is classified can impact what assets you are awarded and what debts you are required to pay at divorce.

However, because separate property and debt can be acquired during the marriage, it is important to understand exactly how the court determines when certain property and debt should be classified. This issue can become tricky and difficult to navigate, especially when spouses co-mingle their assets and debts or use separate assets to purchase property or pay for the debts of the community.

What Criteria Does the Court Use to Classify Property & Debts?

The status of property is generally determined when the property or debt was acquired and the law or statute that was in effect at that time.

For example, any property or debt acquired prior to the marriage will be considered separate property. Additionally, the court will generally look at how the property or debt was acquired and how it was used before making a final decision on how it should be apportioned. Not surprisingly, how property and debt are classified can be contentious, and it is always wise to seek out the help of a qualified expert.


The issue of determining whether property or debt should be considered community property or separate property becomes problematic when spouses “co-mingle” their money. Co-mingling occurs when one spouse mixes separate property with the community property. An example of co-mingling would be when one spouse receives a large inheritance and instead of placing that inheritance in a separate account, places it in a joint account. Once the money is placed in the joint account, the court may consider the money to be community property and thus divided equally at the time of divorce.

The Date of Separation

The importance of the date of separation cannot be overstated. Once spouses separate, all money earned and all debts accrued are considered separate and the community will no longer be liable for the debts that either spouse accrues. Additionally, if one spouse uses his or her separate money to pay a community debt, the person who paid the debt may be eligible for reimbursement.

How to Determine the Date of Separation

In California, the date of separation is determined by a two-part test:

  • When the spouses physically separated. Physical separation can be based on when one spouse physically moves out of the house or when the spouses began sleeping apart.
  • When one spouse had the intent to end the marriage. A trial separation is not enough to satisfy this element; at least one of the spouses must have the intent to get a divorce.

Equitable Distribution Laws

Unlike California, most states follow the principles of equitable distribution. Equitable distribution states divide property and debt in a manner that the court deems to be the most fair to the couple involved, meaning debt and property are not equally divided. Additionally, equitable distribution states evaluate separate property and marital property differently than community property states do.

If you lived in an equitable distribution state during your marriage, it is possible that some debts and assets fall under the laws of equitable distribution rather than community property. You should check with an attorney if you are unsure which law applies to you.

Community Property States: Sharing of Assets & Debts

In general, community property states only consider property and debts that were accrued during the marriage when making a final divorce settlement. Additionally, California has a presumption that all property acquired during the marriage and prior to separation is community property and is owned equally by each spouse, even property that was bought in only one spouse’s name.

However, it is the duty of the person claiming that certain property is separate to prove to the court that the property should be considered separate. For example, if one spouse claims that property purchased during the marriage should be considered separate property, that spouse should be able to present the court with documentation or other evidence to establish that the property was purchased with separate funds.

Debt Division & Community Property Laws

While the assets and debts in a community property state are to be shared equally—each spouse owning 50% of assets and liable for 50% of debt—the reality is that when a court distributes the assets and debt at divorce, one spouse may end up paying more than the other or retaining more assets than the other.

Some things the court considers when dividing property:

  • The income of the parties
  • Spousal and child support
  • Whether the debts exceed the assets
  • Whether the debt was used for the benefit of the community

However, one thing that California does not consider when dividing the debt is fault. California is a no-fault state. Regardless of how the marriage ended, the debt and assets are divided equally.

Who Is Liable for the Debt?

Who is liable for debts during or after a divorce will depend on the type of debt. In general, there are three types of debt:

  • Contract - Contract debt is any debt acquired by entering into a contractual agreement. This can include car loans, mortgages, business loans, and any other type of loan. Both parties can be liable for contract debt depending on how and when it was incurred.
  • Tort - A tort debt is a legal debt usually assigned because of an act of negligence or intentional harm. An example is a lawsuit from a car accident or any other type of lawsuit for money. How tort debts are divided will depend on whether the activity that caused the lawsuit was for the benefit of the community; if it was, both spouses will likely be liable, if it wasn’t, then only the guilty spouse will be liable.
  • Statute - A statutory debt is a debt assigned by state law, such as taxes, child support, or spousal support. In the case of child or spousal support, the spouse who was ordered to pay will be liable. In the case of taxes, both spouses will likely be liable if the tax was for something related to the community, such as income taxes.

Debt Acquired Before Marriage

Generally, any debt acquired prior to being married belongs to the person who originally owed the debt. (There are some special cases where the court will hold the community liable for debts acquired prior to marriage, but this situation usually only applies while the couple is still married and not considering divorce.) If you are concerned that you may be liable for debts, you should speak with an attorney.

When Debts Exceed Assets

When the debts of a marriage exceed the assets, the court can divide the debt in a manner that seems just and equitable. Generally, this means that the excess debt (the amount of the debt that exceeds the assets) may be assigned to the party that is in the best position to pay the debt.

Debts Acquired After Separation & Prior to the Divorce Judgment

There are some circumstances when spouses are responsible for debts incurred after the date of separation, but prior to the entry of the final divorce judgment. Generally, this occurs when one spouse incurs debt for what the court considers the “common necessaries of life.”

The common necessaries of life include:

  • Child support
  • Food
  • Rent
  • Utilities
  • Transportation
  • And more

When debts for the common necessaries of life are incurred during the separation, the court will usually assign the debt to the spouses according to their ability to pay as well as their respective needs. However, any debts that are not for the common necessaries of life are generally considered separate debts and must be paid by the party who incurred the debt.

When a spouse incurs debt after the judgment is entered, but prior to the finalization of the divorce, that debt is attributed to the spouse who incurred it.

Are Student Loans Community Property?

Student loans present a special circumstance under California law and are evaluated according to whether or not the education received substantially benefited either the person or the community.

Student Loans Taken Out While Married

There are two different scenarios for how the debt from student loans taken out during the marriage is allocated. If the education or training received substantially enhanced the earning capacity of the spouse who took out the loan, then that spouse may likely be solely responsible for the loan.

However, if assigning the entire student loan debt to the party that took out the loan is unjust, then the assignment can be modified or reduced. Usually, an unjust situation arises when the community substantially benefited from the education received by the spouse.

Example - Jane decides to go to medical school. In order to pay for medical school, Jane takes out $200,000 in student loans. After completing medical school Jane’s earning capacity goes from $30,000 a year to $250,000 a year. During their marriage, Jane’s salary allowed her and Bob to buy a fancy new home, worth more than $700,000, and expensive sports cars.

Jane has been working as a doctor for more than 20 years when she and Bob decide to divorce. At the time of divorce, Jane still owes $100,000 on the student loans. In this situation, the court will likely find that the community benefited substantially from Jane’s income and to require Jane to pay the entire remaining balance on the student loans would be unfair because both she and Bob benefited from her higher salary. However, how the court divides the remaining balance will depend on Bob’s ability to pay and whether paying a portion of the balance would be unjust or present a financial hardship.

There are other situations that can affect the court’s evaluation, including:

  • Whether both spouses took out student loans
  • Whether the student loan was taken out more than 10 years before the divorce
  • Whether the training received reduced the spouse’s need for support otherwise required

Home Ownership & Mortgage Payments

In general, mortgage payments and the equity in the home is divided equally between the spouses, each spouse owns 50% of the house and owes 50% of the remaining mortgage payment.

Upon divorce, the court may order that the couple:

  • Sell the house and use the proceeds to pay off the mortgage, with each spouse getting 50% of any money left over.
  • Require one spouse to buy out the other spouse’s share of the home and refinance the home in their name.

Mortgage Payments Made After Separation

Under California law, when a spouse uses separate property to pay a community debt (ex: a mortgage), that spouse may be entitled to reimbursement for some or all of the payments made. Additionally, when one spouse occupies the home and the other lives elsewhere, the spouse who did not live in the home may be entitled to an offset on the divorce settlement for the fair rental value of the home, had it been rented. These reimbursements and offsets are called “Epstein Credits” and “Watts Credits”.

Paying Community Debt from Separate Funds: “Epstein Credits”

Epstein credits may apply to any payments one spouse makes for a community debt after the couple has separated. However, the payments must have been made from that spouse’s separate funds.

After spouses separate, the income earned by each spouse becomes separate property.

So, if one spouse pays the mortgage, a car payment, or a credit card payment from their salary, or any other funds that the court determines are separate funds, they may be entitled to Epstein credits. However, if the debt was paid from a joint checking account, then the court will likely determine that the payment was made using community property, and therefore no credit would apply.

How to Establish That You Are Owed Epstein Credits

The person claiming the Epstein credit has the duty to prove to the court that the debt was a community debt, and that the money used to pay the debt came from separate funds. Accordingly, it is always a good idea to keep accurate records of all debts arising from your marriage as well as any payments you made after separation. Additionally, you should be able to show the court what the balance of the debt was at the date of separation, how much you paid, and that payment was made from your own funds.

Example - George and Judy bought a house. When they split, George moved out and opened a new bank account in his name only. He continued to pay 100% of the mortgage from his salary. Judy still lives in the house. George can ask the court for Epstein credits for the months he paid the mortgage after he and Judy separated. Because community property is shared equally, that credit can be up to 50% of the cost of the mortgage.

Sole Use of Community Property After Separation: “Watts Credits”

A Watts claim is a request for reimbursement to the community for the exclusive use of community property after separation. A Watts credit is generally the amount of income that the community lost because the home wasn’t rented out to a third party. An example of when a Watts claim may apply is when one spouse continues living in the home after separation. The spouse that remains in the home may be required to pay the community what would be the equivalent of rent.

Example - George and Judy own a house together that is completely paid off. After they separated, George continued living in the house and Judy moved out. Because George is getting the sole benefit of using the house that they both own, Judy can ask the court for Watts credits to offset that benefit he is receiving. In this case, the Watts credit would be in the form of rent, which would be based on the fair market rental rate.

Sole Use of Community Property While Paying Debt: “Jeffries Credits”

A Jeffries credit is a combination of Watts and Epstein credits. A Jeffries credit might apply when one spouse pays the mortgage, and still lives in the house. In this scenario, the spouse living in the home is getting the benefit of the home, while the other spouse is not. The spouse living in the home can still be charged Watts credits, which is essentially the fair rental value of the home, but can offset how much she owes by the amount she paid in mortgage payments.

Example - George and Judy own a house and owe $100,000 on the mortgage. The monthly payment $1,000. When they separated, Judy continued to live in the house, while George moved into an apartment. Judy makes the entire mortgage payment every month from her own money. The fair rental value of the house is $2000. Accordingly, the net monthly benefit to Judy is $1,000 (Fair rental value – mortgage payment).

Judy can request an Epstein credit for George’s share of the $1,000 a month mortgage payment she made from her separate funds. However, George can request a Watts credit for his share of the $1,000 benefit the community would have gotten had the house been rented out to a third party. In this case, Judy can ask the court to apply an off-set in the form of a Jeffries credit, which is the difference between the amount Judy is owed under Epstein and the amount she must pay under Watt’s.

When calculating Epstein, Watts, and Jeffries credits, the court can also consider any money paid towards taxes and upkeep as well as other relevant items. Epstein and Watts credits can add up over time and it is important that you keep all receipts or records for the court.

When Can a Spouse Be Reimbursed for Watts or Epstein Credits?

Watts and Epstein credits are applied against the divorce settlement. For example: if both you and your spouse are awarded $100,000 in your divorce, but your spouse has been living in your home since the time you separated and you have been paying your spouse’s share of the $2,000 mortgage, the court may determine that you should get an Epstein credit for the extra $1000 you paid. If the credit is for $10,000, the court can award you $110,000 and your spouse $90,000 to adjust for the Epstein credit. Accordingly, a divorce settlement can be significantly affected if any Watts or Epstein credits are applied.

Is the Court Required to Apply Watts, Jeffries & Epstein Credits?

No. Watts and Epstein credits are discretionary, so the court is not required to award them. In general, a court will order Epstein, Watts, and Jeffries credits when it is reasonable to do so, which usually means the credits be paid so as not create a hardship on the spouse that owes the money.

Epstein Credits for Other Payments

Epstein credits can be requested any time separate money is used to pay for community debts after separation. Just as with mortgage, the payor must show that the money came from separate funds. However, the court will likely not order reimbursement when it would be unreasonable to expect it.

Some examples of this are:

  • When there was a previous agreement that payments would not be reimbursed
  • When the payment was intended to be a gift
  • When the payment was for an asset the paying party was using
  • When the payment was made instead of making child or spousal support payments

In each situation, the court is entitled to exercise its discretion when ordering reimbursement payments.

If One Spouse Owned the Home Prior to Marriage

The above scenario assumed that the house was purchased after the couple was married and the home belonged to the community. These days, that is frequently not the case. Many people marry and one or both may already own a house. In this scenario, any equity that accrued in the house during the marriage may be considered community property. Likewise, if the house was refinanced during the marriage, then the cost of the refinancing and the remaining balance would likely be considered marital debt. Because of the complicated nature of determining the division of assets and debts in this type of situation, it is important that you speak with a professional in order to ascertain what your rights and obligations are.

Bankruptcy, Divorce & Community Property Laws

If you are in the middle of a divorce and either you or your spouse want to file bankruptcy, it’s important that you understand how filing can affect the outcome of your assets and debts during divorce.

There are two types of bankruptcy proceedings. Individuals and / or couples can file either:

  • In a Chapter 7 proceeding, unsecured debt can be discharged and property that isn’t exempt can be seized to repay any debts.
  • In a Chapter 13 proceeding, the court sets up a repayment schedule (3-5 years) that allows filers to repay a percentage of the debt they owe creditors.

Filing Bankruptcy Prior to the Divorce Finalization

Filing bankruptcy prior to when the divorce is finalized means that all of the community property will be part of the bankruptcy estate. Accordingly, the bankruptcy proceedings will protect any exempt community property from seizure by creditors. However, the reverse is also true—because all community property becomes part of the bankruptcy proceeding, creditors can go after any non-exempt shared property to satisfy debts, even if only one spouse files for the bankruptcy.

Filing for Bankruptcy After Divorce

When a couple divorces, the court generally divides the community property and debts between them. Once the property is divided, it becomes separate property. Accordingly, once the property is no longer community property, then filing for bankruptcy will not affect the assets of a former spouse.

How Does One Spouse Filing Bankruptcy Affect the Other?

While married, if one spouse files bankruptcy, then the bankruptcy still affects the credit and assets of the non-filing spouse. Specifically, all community property is still part of the bankruptcy proceeding and can be sold off to satisfy the debts of the spouse filing for bankruptcy protection.

However, the spouse who didn’t file bankruptcy is usually given the right of first refusal to purchase any community property that is scheduled to be sold.

What Debts Will Be Wiped Out from the Bankruptcy?

This will depend on whether you file before or after your divorce is finalized. In general, if you file before your divorce is finalized, then all joint community and separate debts will likely be discharged. However, only the spouse filing the bankruptcy will receive a discharge from separate debt. The non-filing spouse is still liable for his or her separate debts. If you file for bankruptcy after the divorce is finalized, then only your separate debts will be eliminated. However, child and spousal support are never dischargeable.

Credit Card Debt Acquired During the Marriage

As a general rule, credit card debt acquired during a marriage, whether it is in one or both spouses’ names, is considered community property. Thus, both spouses will be liable for the payments. However, the court may make an exception if you can show that the credit card debt was in your spouse’s name only and that it was used solely for his or her own benefit.

Under California law, “all separate debts, including those debts incurred by a spouse during marriage and before the date of separation that were not incurred for the benefit of the community, shall be confirmed without offset to the spouse who incurred them.” Ca Fam. Code § 2625. This means the court can determine that any debt incurred by one spouse during the marriage that did not benefit the marriage is separate property. Accordingly, the spouse who incurred that debt will be solely responsible for it.

In determining whether credit card debt is separate property, the court will look at several factors:

  • When the debt was incurred
  • Who the creditor was
  • What the debt was for
  • Who currently owns the property for which the debt was incurred (if applicable)
  • What payments were made after separation
  • >Who made the payments after separation
  • What income or money was the source of those payments

An example of a debt incurred during the marriage that the court found to be separate property is credit card debt when the credit card was taken out by one spouse, without the knowledge of the other, and used for as a source to fund gambling activities.

Will I Have to Pay Attorney’s Fees for My Former Spouse?

Possibly. California law requires that both parties be adequately represented in order to preserve their legal rights. If one spouse can afford an attorney, but the other cannot, the court can order the spouse in a superior financial position to contribute money to pay for the attorney fees of the other.

It is fundamentally unfair for one to have a legal advantage over the other because they are able to afford a lawyer.

When considering whether attorney’s fees must be paid for the other spouse, the court will evaluate the relative financial circumstances of each spouse. However, simply because one spouse has a substantial amount of money compared to the other does not necessarily mean that the court will order the spouse with the most money to pay the attorney fees of the other. In general, the unrepresented spouse must be unable to afford their own attorney—not just have a lower income.

Speak to a San Bernardino Divorce Lawyer Now: (909) 315-4588

As you can see, dividing assets and debts during divorce can be extremely complicated, depending on how much property and debt a couple has accrued. Additional factors are whether the couple had separate property that was co-mingled with marital property, whether they lived in and acquired property and debt in other states—even other community property states.

Because of the difficulty of dividing debts and assets, as well as proving which debt and which property belongs to who, it is advisable that you speak with a knowledgeable attorney to ensure that your rights are protected. Contact us today.

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