Dealing with divorce debt in Arizona
So, you are thinking of taking the first steps towards divorce or maybe you are already heavily engaged in the process. With almost every American family having some form of debt, even if your family has a high total net worth, it is likely there will be some negotiation in dividing the debts throughout your divorce process. In the end, you and your spouse are free to reach any agreement you desire (assuming the Court approves the agreement as being fair and equitable); however, as can be imagined, sometimes those agreements are hard to come by and your creditors may see your agreements much differently than you do.
In Arizona, generally speaking, any debt that you incurred prior to the date of your marriage and after the date of service of the divorce petition is considered your sole responsibility after the divorce is final, at least presumptively. And any debt incurred during the marriage will be presumptively considered by the Court to be the responsibility of both you and your spouse.
Exceptions to Debt Responsibilities in Divorce
Okay, that all seems like common sense, right? Well, it’s not always that clear cut. Here is just one example where the situation might vary from what you would expect.
Even if the debt was incurred “during marriage” the Court will most certainly be open to looking at whether a particular debt was wasteful or not for the benefit of the community. Such wasteful spending is not a broad category, but might include debt associated with a spouse’s gambling problem, illegal activities such as drugs or prostitution, attorney’s fees and other fines and fees paid to defend against a criminal charge during marriage, unilateral misappropriation or fraud which leads to financial liability, intentional tortious conduct of a spouse and the exhaustion of significant sources of community
funds by a spouse on infidelity or gentleman’s clubs – just to name a few. So, if you intend to buy your mistress a new car, don’t expect to be able to stick your wife with half of that debt after the ink dries on your divorce Decree. That being said, however, lavish shopping habits, spending too much money at the bar or on alcohol, charitable giving and poor business decisions and investments may very well not be considered wasteful by some judges. The latter is often frustrating to litigants, and for good reason, but I’ve heard more than one judge say to a litigant that you marry a person along with all of his or her bad habits. The bottom line is that when you are considering whether to make such a waste claim in your divorce, it is imperative that you sit down with your attorney and weigh the potential for reimbursement for alleged waste against the cost of litigating this issue. Discovering the nature of a particular expense or debt can sometimes be extremely costly. This cost-benefit analysis will shed some light on whether it is practical to shake the hornet’s nest from a financial standpoint.
Timing of Filing for Divorce and the Divorce Decree
So, you’re confident you have a grasp on how debts will be allocated in your Arizona divorce. Now, the second step is that you obtain a crystal clear understanding about how much debt you and your spouse have. Hopefully, you’re reading this before you have actually filed for divorce or have been served with divorce papers. If you don’t have an understanding, find out , as knowledge is power and it is very common for documents to mysteriously disappear after the announcement has been made. It is also typical for significant amounts of debt to be incurred by a spouse (either unscrupulously or
as a matter of basic financial survival) after he or she is served with papers. A strong grasp of your finances as of the date of service will be crucial in securing a fair and equitable end result.
Before entry of your divorce Decree, if there are any accounts, debts, or other finances you haven’t enlightened your spouse with, now would be the time to do so. After the divorce decree is final, any debts you incurred that were not disclosed during the divorce proceedings will be your responsibility regardless
of whether or not they originated before, during or after your marriage. Reciprocally, your ex-spouse will be entitled to half of any assets you thought
would be a good idea to conceal by keeping in your back pocket. Full disclosure is always wise. Asking for forgiveness after the fact will always afford you a worse deal than simply being up front at the onset – not to mention the possibility for sanctions and being on the hook for your spouse’s attorney’s fees.
Creditors in Divorce
If you are successful in getting the Court (or your spouse) to agree that certain debts are your spouse’s responsibility and not yours, well then congrats! The bad news is that the creditor may see it much different. A court has no jurisdiction over third-party creditors. Further, your creditor sometimes has its hooks in both of you and does not care (and again is not bound by) what your Decree says. So even though your divorce Decree may make your spouse responsible for the large debt payments associated with the new speed boat, that doesn’t mean the lender will sue only him when he stops paying.
This is why it is important to always have indemnification language in your Decree in order to protect you in this situation, so at the very least, you have a viable cross-claim against your ex-spouse when that lawsuit is brought by the creditor. This is particularly important for large debts such as a mortgage. You will also always want to consider pushing for a refinance or for these larger debts.
Divorce and Debt Takeaways
- Important things to take away are:
- Plan ahead with the help of your divorce lawyer so you can be aware of the issues mentioned above and many more. Make it your
priority to be fully informed. - Make sure your divorce lawyer is competent and qualified.
- Don’t rely on information from less than authoritative sources. You may hear a lot of things from friends, family, or the internet but make sure you make your decisions based on information from trustworthy sources.
- Hang in there! Divorce is never an enjoyable process, but you will get through it and be able to start your next chapter!
If you would like to speak with a divorce attorney, please contact the Head of the Rose Law Group family law department, Kaine Fisher at 480-240-5649 or kfisher@roselawgroup.com.
