{"id":2298,"date":"2013-10-30T09:42:05","date_gmt":"2013-10-30T09:42:05","guid":{"rendered":"http:\/\/scoresbyfamilylaw.com\/blog\/?p=2298"},"modified":"2019-11-23T22:26:37","modified_gmt":"2019-11-24T05:26:37","slug":"debt-allocation-divorce-decree-affect-creditors-rights","status":"publish","type":"post","link":"https:\/\/scoresbyfamilylaw.com\/blog\/2013\/10\/30\/debt-allocation-divorce-decree-affect-creditors-rights\/","title":{"rendered":"Debt Allocation in Divorce Decree Does Not Affect Creditors’ Rights"},"content":{"rendered":"

In the absence of a premarital agreement, most debts incurred during marriage in Arizona\u00a0\u00a0are “community” debts, meaning the debts are owed by both the husband and the wife.\u00a0 It makes no difference that only one spouse signed for the debt.\u00a0\u00a0\u00a0 Under A.R.S. Section 25-214.B., with limited exceptions outlined in subsection C, either spouse alone<\/em> has the power to “bind the community.”\u00a0\u00a0 In other words,\u00a0BOTH<\/strong> spouses are liable under Arizona\u00a0law for debts incurred by\u00a0EITHER\u00a0during the marriage.<\/strong><\/p>\n

In a divorce decree, the judge allocates the responsibility for the community\u00a0debts between the husband and the wife.\u00a0 For example, suppose\u00a0Husband and Wife\u00a0have the following\u00a0three credit card debts between them, all incurred during their marriage:\u00a0 A Visa card in both names with a $6,000 balance; an American Express card in Husband’s name with a $4,000 balance; and a Discover card in both names with a $2,000 balance.\u00a0 In the divorce decree, the judge orders the Wife to pay the Visa and the Husband to pay the other two debts, thereby ordering each party<\/em> to pay a total of $6,000 in debt.<\/p>\n

After the divorce, Wife makes extra payments on the Visa card and gets it paid off in one year.\u00a0 Husband only makes the minimum payments on the AmEx and the Discover cards allocated to him, and one year after the divorce, the balances on the cards allocated to Husband still total $5,700.00.\u00a0 Then Husband stops making his credit card payments altogether.\u00a0 The creditors pursue collection of the debts from both Husband and<\/em> Wife.<\/p>\n

Wife objects to the creditors, telling them she doesn’t owe the AmEx and Discover debts–that Husband was ordered to pay them in the divorce.\u00a0 Is Wife correct?\u00a0 Does the divorce decree legally protect her from liability on the AmEx and Discover debts?\u00a0 NO!\u00a0 The creditors were not parties to the divorce decree, and the judge in the divorce case had no authority to take away the creditors’ legal right to pursue collection from both Husband and<\/em> Wife.\u00a0 The divorce decree debt allocation is no defense to the creditors’ collection efforts against Wife.<\/p>\n

In fact, until Wife actually pays some or all of the debts Husband was ordered to pay in the divorce decree, Wife has virtually no recourse.\u00a0 In our example above, suppose Wife pays off AmEx and Discover to get the creditors off her back.\u00a0 Even after Wife pays the AmEx and Discover debts, her only remedy is to pursue collection against Husband.\u00a0 Wife may take the Husband back\u00a0to family\u00a0court and obtain a judgment against him for the amounts she paid to the creditors Husband was ordered to pay, but if Husband is truly a deadbeat, how collectible will Wife’s judgment against him\u00a0be?<\/p>\n

In practice, it is sometimes impossible to avoid situations like the above example, but\u00a0there are\u00a0some steps I can take to try to\u00a0reduce<\/em> the likelihood that\u00a0the other party’s debts will\u00a0come back on my client.\u00a0\u00a0\u00a0For one,\u00a0I try to obtain settlements that allocate to\u00a0my client\u00a0only joint debts or debts in my client’s sole\u00a0name.\u00a0 I never want my client to agree to pay debts in the other party’s<\/em> sole name. \u00a0If a debt incurred during the marriage does not appear on my client’s credit report (i.e., the debt was incurred by the other party alone), there is a good possibility that if the other party defaults on that debt, the creditor will never realize that the debt was incurred during a marriage and that there may be\u00a0an ex-spouse out there (my client) who is also liable for the debt.\u00a0 Often the creditor simply checks to see who signed the credit app and pursues only that debtor.<\/p>\n

Another option is to pay off debts using sale proceeds from a marital asset.\u00a0 For example, if the parties own a home together that is being sold as part of the divorce, the parties may agree to use the house sale proceeds to pay off all credit card debt first and then divide up between them the remaining<\/em> house sale proceeds.<\/p>\n

Finally, if the parties have good credit, they may be able to each open new credit cards after<\/em> the divorce case is filed and served and then\u00a0balance-transfer their respective portion of the\u00a0marital debt (the debt incurred during the marriage) to their separate-debt credit cards (the cards opened after the date of service of the divorce papers).<\/p>\n

Copyright \u00a9 2013 by Scoresby Family Law \u2013 J. Kyle Scoresby, P.C. All rights reserved.<\/p>\n

You can also watch my video on debt allocation and creditor’s rights below.<\/p>\n