California is a community property state, which means all debts and assets are considered to belong to both parties while married. Any debts incurred during the marriage, even on an individual account such as a credit card, may be reported on both spouses’ credit reports regardless of who is responsible in name for paying the debt. Knowing how to protect oneself from credit ramifications after a divorce can help eliminate potential financial problems later.
While a property-division agreement may assign certain financial obligations to one party or the other upon divorce, creditors are not parties to this agreement. Therefore, they may report delinquent payments on both spouses’ credit history and pursue collection activity if one spouse falls behind on payments. Any credit both spouses applied for jointly or any outstanding balances on items entered into jointly, such as car payments and mortgages, remain the responsibility of both parties.
Creditors may not legally change joint financial agreements to individual ones based upon altered marital status. They are permitted to do so at the request of either spouse, however. In these circumstances, a creditor may require a reapplication as an individual to determine whether or not the spouse’s individual credit is sufficient to maintain the loan as originally constituted or even refinancing to eliminate a spouse from the agreement.
When beginning the division of a marital estate, an attorney may begin by looking at the financial health of the spouses as a couple and individually. The attorney might attempt to structure a balanced asset and debt division agreement which affords a measure of protection to both spouses and assigns debts equitably, with the understanding that ultimate responsibility for timely and ongoing payment of marital debts continues to reside with both parties under California law.