Most adults in Arizona owe at least some debt, and that isn’t necessarily a bad thing. Paying off loans builds credit history and can be a better financial decision than paying for something in full up front. But it’s impossible to know where life will take us, and there can be severe consequences if a person becomes unable to make their monthly payments. This can also be a concern for that person’s partner. Arizona is a community property state, so both spouses can be held liable for debt that only one spouse incurred during a marriage. But what about debts incurred before marriage? Read on for more information about this topic. To discuss how it impacts your legal needs with an experienced Arizona legal professional, call 480-263-1699.
What is Community Property?
In the United States, there are two main legal theories used to divide marital property in divorce: community property and equitable division. Per A.R.S. § 25-211, Arizona is a community property state. This law states that all property (assets and debts) acquired during a marriage belongs to each spouse 50/50 with two exceptions:
- Property acquired by gift, devise, or descent (inheritance)
- Property acquired after a petition for divorce, legal separation, or annulment was served if the petition results in divorce, legal separation, or annulment
But when the discussion is marrying into debt, debt acquired during a marriage isn’t relevant. This means that debt acquired before a marriage is separate property and not subject to property division in divorce. Sometimes, separate property assets can become commingled with community property assets during a marriage, requiring tracing to divide in divorce. For example, a spouse may purchase a home before marriage but pay it off during the marriage with their income, which is a community property asset. But if a spouse helps their spouse pay off separate property debt with community property funds during a marriage, this won’t commingle the separate property debt into community property.
Consent Decree
While the information above describes how a judge should divide property if a case proceeds to trial, the spouses can agree to divide assets any way they see fit through a consent decree. This is where a spouse could end up responsible for their spouse’s separate property debt. If the spouse with separate property debt has a good divorce lawyer, the other spouse might end up agreeing to pay just to move the divorce along. This is why it’s important in divorce to retain high-quality family law counsel, especially if your ex is represented by an attorney. Otherwise, you could end up responsible for far more debt than you ever imagined.
Prenuptial and Postnuptial Agreements
A family law judge won’t order a spouse to pay their spouse’s separate property debt in divorce in Arizona. But two spouses could get married in Arizona and later move to another state, eventually getting divorced there. This could result in property division turning out far different than the spouses’ knowledge of divorce. Someone who wants to feel absolutely sure about marrying someone with significant debt may want to consider a prenuptial or postnuptial agreement. This is a contract that predetermines how certain issues will be resolved if the couple ever gets divorced. It can save time, stress, and attorney’s fees if that divorce ever occurs. A prenuptial agreement is one entered into before marriage, while a postnuptial agreement is one entered into during the marriage. Asking a partner to sign one of these agreements can be an uncomfortable experience, but it makes things so much easier in the future if the couple ever divorces.
Bankruptcy for Mixed-Debt Spouses
Whenever debt is the topic, bankruptcy can be at least one possible resolution to the discussion. Spouses can file a joint bankruptcy petition together, or a spouse can file an individual bankruptcy petition despite being married. This is observed most often when one spouse has pre-marital separate property debt. Here, the spouse will typically file for chapter 7 bankruptcy as opposed to chapter 13 bankruptcy. This is because chapter 7 bankruptcy clears debt in a matter of months, whereas chapter 13 bankruptcy pays off debts over the course of 3 or 5 years. Furthermore, the chapter 13 payment plan is calculated based on household income, not individual income, making it difficult to complete without a spouse’s participation.
Chapter 7 eligibility is also based on household income, but since no repayment is required, it is simpler for a spouse to complete individually. If a spouse files an individual chapter 7 bankruptcy petition, their spouse will be protected from creditors for community property debt collection, but that protection ends if the couple ever legally ends their marriage. Another concern is that a married person filing for bankruptcy individually can only apply exemptions as an individual to their assets. Many exemptions double in value for married couples filing for bankruptcy jointly. If community property assets aren’t covered by bankruptcy exemptions, the trustee can seize them to pay off debts.
Another consideration for mixed-debt spouses is what could potentially happen if a spouse files for bankruptcy after divorce. In a community property state, divorce orders may specify which spouse is liable for a marital debt. But creditors don’t have to abide by those orders if the spouse ordered to pay the debt files for bankruptcy. If a spouse ordered to pay community property debt after divorce files for bankruptcy, the creditor can and likely will pursue the other spouse for the remaining balance. This could force that spouse to file for bankruptcy, too. Keep this in mind if you ever find yourself negotiating debt during the property division phase of divorce or if you are considering not joining your spouse in a bankruptcy filing.
Your One-Stop Shop for Bankruptcy and Family Law Needs in Arizona
While there is no greater incentive to marry than love, at the end of the day, marriage is a contract. Contracts require negotiation, and a breach or termination of the contract could eventually result in a case going to trial. Would you represent yourself if you were being sued for breach of contract? If your answer is no, you shouldn’t represent yourself in a divorce case, either. What may seem like a simple divorce at the surface level can eventually evolve into other matters like a child custody battle or an order of protection dispute. The government does not assign an attorney to your divorce or bankruptcy case like they would if you were being prosecuted for a crime- it is that person’s responsibility to go out and retain their own legal counsel. This is undoubtedly an intimidating process, but our firm aims to reduce your personal risk by offering free initial consultations by phone. Our Arizona legal team has lawyers experienced in both family law and bankruptcy matters. We put that experience to work by making sure your rights are fought for tirelessly with efficiency that helps save you money. There is no fee to get started and speak with an experienced Arizona legal professional about whatever your situation may be. Schedule your free consultation by phone today to visit our website or calling 480-263-1699.
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