Equitable Distribution, Community Property and Personal Debt

In the United States in a divorce, courts use one of two regimes in the distribution of┬áproperty and division of debt – community property and equitable distribution.

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, and Alaska, which allows couples to opt into a community property routine) all assets, income and debts accumulated during the marriage are marital or community property. This means courts distribute assets and liabilities equally between spouses. Courts split debts incurred during the marriage down the middle, unless a debt exists for which only one spouse benefits. Such a debt would be considered personal debt, with that spouse solely responsible for repayment. Separate property of either spouse is defined as any property either spouse owned prior to the marriage. Each spouse keeps his or her separate assets.

In equitable distribution states (the other 41 jurisdictions), the court awards each spouse a percentage of the marital assets based on what it deems to be fair or equitable. This distribution is based on factors outlined in the state’s law. Division of debts is done the same way, with the court often giving a larger percentage of the marital debt to the spouse who earns more money.

In deciding equitable distribution, the court considers the particular circumstances of the divorce case, as well as individual economic and emotional circumstances of each spouse. Separate property is defined and generally distributed in the same manner as in community property states.

The court also considers the contributions (tangible or intangible) of one spouse, to the training, education or increased earning power of the other spouse, each spouse’s age, employability, vocational skills and earning power. The value of any separate property retained by either spouse is examined and may be divided as the court deems necessary, to make the divorce settlement fair, just and reasonable.

Each state’s laws differ, but generally, in equitable distribution states the court considers a few primary factors when distinguishing between marital debt and personal debt for division purposes. For any debt in question, the court examines the purpose for which the debt was acquired, whether the debt was incurred by one or both spouses, which spouse benefited personally from the debt and which spouse is more financially able to repay the debt. Most of the time, when a debt secures an asset by which one spouse personally benefits, the court typically requires the spouse receiving the asset to pay any and all debt associated with the property.

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