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Division Of Debts In A Divorce Proceeding

Division Of Debts In A Divorce Proceeding

In Arizona, if a debt was incurred during the marriage of the parties and not before they got married, that debt is most likely going to be divided equally. The general rule of thumb is debts incurred during marriage are presumed to be for community (marital) purposes and therefore will be divided equally. But there are exceptions. If the debt was incurred during the parties’ marriage, that debt will be assigned to the spouse who incurred that debt prior to the date of marriage.

Also, any debt that is incurred by a party after the divorce petition is served in a divorce case will be assigned to the spouse who incurred the debt. This is because the date when the divorce petition is served is a very important date; it severs the application of the community property laws in Arizona. However, generally any debt incurred during the marriage will be considered a joint obligation, because under Arizona law, each spouse has the power to bind the community (marriage) to any debt unless it fits within one of the exceptions above or any of these exceptions:

  • Any transaction for the acquisition, disposition, or encumbrance of an interest in real estate other than an unpatented mining claim or a lease of less than one year.
  • Any transaction of guaranty, indemnity or suretyship.
  • Actual damages and judgments from conduct that resulted in criminal conviction of either spouse in which the other spouse or a child was the victim.
  • Excessive or abnormal expenditures.
  • Destruction of property.
  • Concealment or fraudulent disposition of community or joint property.

The first two reasons above are mandatory, meaning that the judge has no discretion about whether to award the debt to one or both parties in the Arizona divorce case. He must order only one of the spouses to pay it. With regard to the rest of the reasons, the judge may order one spouse to pay most or all of it or he could just treat it like any other community debt and assign it equally to both spouses. Examples of debts that probably will be assigned to just one spouse are those that were incurred for a mistress or lover; those that were incurred for things that unquestionably could not benefit the other spouse; debts that were incurred (without the other spouses consent) primarily for the benefit of third parties (such as relatives, friends, business associates, etc.); and a variety of others, but rare situations.

Even if a debt is clearly a community debt under Arizona law, it does not have to be divided equally. The judge has the discretion to order a 60/40, 70/30, or any other ratio that is not 50/50, but this rarely happens. When it does happen, it happens because there are extenuating circumstances. In one of the more notable cases of this in Arizona, the husband was elderly and married a much younger woman. This husband put his wife’s name on the title to his house. Within a very short period of time after they got married, they separated and the wife filed for divorce, seeking half of the (substantial) equity in the house. The court decided that it would be grossly unfair to let this woman get away with this windfall.

Although the example just cited deals with property division rather than debt division, the same principles apply. If a woman marries a man, then runs up a massive amount of credit card debt or incurs a massive loan (to start a business, for example), it is not hard to envision a judge refusing to assign half that debt to the husband if the wife divorces the husband shortly after incurring all that debt. Another situation where debt is awarded mostly to the party who incurred the debt is with regard to student loans.

If one spouse incurs a large student loan debt and the parties divorce shortly afterward, a judge could find that it is grossly unfair for the massive student loan debt to be divided equally, even though that debt was technically incurred during the marriage and therefore is presumed to be community debt, because probably only one of the spouses is going to benefit from the fruits of that educational debt. Nevertheless, there are also many judges that will take a harsh, technical view of such matters and divide the debt equally.

This is another reason why most people should have a premarital (prenuptial) agreement. In a premarital agreement the parties can specify that each spouse is responsible for all debt in his or her name alone, or they can draft any other disposition that is reasonable and sensible. The bottom line is that although most debts are divided equally, there are increasingly more situations in which a judge will unequally divide the debts in order to avoid a grossly unfair result. Legal advice is critical before agreeing to split the debt equally, as you may have the ability to get a much better result than that. Finally, how to mechanically divide debt can get tricky because it is rare that half the debt is in the name of one spouse and the other half of the debt is in the name of the other spouse.

What we try to do is to assign responsibility for the debts as equally as possible. If there is a major imbalance in the division of the debt, one spouse may need to have an order in place against the other spouse for reimbursement for the difference. Also remember that creditors are not affected by how the debts are assigned in your divorce decree, even if the divorce decree was the result of a trial in which the judge ordered each spouse to be solely responsible for specific debts. This is because the creditor is not a party to the divorce case and therefore the judge has no rights over the creditor.

For example, if it is a debt that is in both spouses’ names, but the judge ordered the wife to pay that debt, if the wife does not pay it the creditor can sue the husband for the debt. The husband’s only recourse would then be to pursue the wife in family court for a judgment for what the husband had to pay to the creditor that really was the ex-wife’s responsibility.

For more information on Division Of Debts In A Divorce, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (602) 466-7055 today.

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