What happens to our property and debt if we get divorced?

Division of property and assets can be one of the most complex and emotional parts of a divorce.

The state of California is a “community property” state. This means that, for the most part, assets and debts incurred during the marriage belong to both spouses equally. Even if only one spouse seems responsible for the asset/debt (i.e. a credit card in one spouse’s name), it is typically treated as a shared asset/debt. Therefore, in the event of divorce, the court will seek to split the couple’s assets, property, and debt as equally as possible.

However, when dealing with large amounts of debt, the situation differs slightly. If the value of community debt is greater than the value of community assets, the court will not necessarily split the debt equally; in these cases, the court can assign the majority of the debt to the spouse who is more financially equipped to pay them off.

The principle of “community property” applies only to assets and debt acquired during the marriage. Assets acquired or debt incurred before the date of marriage (or after the date of separation) belong separately to each spouse. Therefore, it is important to officially determine the date of separation; any change in debt or assets after this date will be the responsibility of each individual spouse.

The division of debt sometimes makes it easier for the court (or the separating parties themselves) to even out the “net share” for each person. For example, if one spouse takes something of high value (e.g. a house), you can even out the overall division by giving that spouse a larger share of debt (e.g. the credit card debt).

Couples with a premarital agreement, a.k.a. prenup, may have an easier time dividing up property and debts. Prenuptial agreements vary widely and some will include more stipulations than others, but these agreements typically outline what will happen to each person’s property—and shared property—in the event of divorce.

While division of property and debt can be a complex undertaking, not all of it has to take place in the courtroom. Separating couples can work with a family law attorney or mediator to come with up a plan for separation of property that both parties feel is fair. If you are able to come to an agreement, a judge can simply sign off on the order to make it official and legally binding.

California courts recommend following these steps to effectively divide property and debts:

1. Make a list of everything that you own.
2. Figure out which items are separate property and which items are community property.
3. Determine the fair market value of each item. (These values will eventually become part of the Schedule of Assets and Debts, where each party must declare all assets and debts, including separate and community property.)
4. Compare the Schedules of Assets and Debts to see if you both agree about the status (community vs. separate) and value of each item.

Once this is completed, you can consult a family law attorney or mediator about the best way to move forward. Depending on your financial situation and whether or not you agree with the other party’s Schedule of Assets and Debts, you can proceed to drafting an agreement or find another way to reconcile your differences.