Dividing and Confirming Liabilities – Just as a court has the authority to divide and confirm marital property, whether real or personal, it also has the say so in how spouses’ liabilities are divided and disposed of. This article will describe that process. But first, what are liabilities?
Liabilities are debts that you owe to another person or entity. They are, for lack of a better word, your bills. The most common liabilities involved in a divorce are mortgages, credit card debt, car notes, and taxes. Although the court cannot eliminate one spouse’s obligation to pay a debt owed to a third party creditor, the court can order one spouse to pay the debt, or order that property be sold to pay the debt.
The First Step
To divide and confirm liabilities during a divorce proceeding, the first step is to create a comprehensive list, or inventory, of each spouse’s debts. This can be done by obtaining the following documentation:
- Credit reports.
- Bank and brokerage statements.
- Loan records, including applications, promissory notes, guarantees, mortgage statements, deeds of trust, and any correspondence relating to the loans.
- Financial statements submitted to banks and other lenders.
- Credit card records, including credit applications and itemized account statements.
- Federal income tax returns with supporting documentation.
The Next Step
Once the spouses’ liabilities have been identified, the next step is to characterize the liabilities. As with all property, the court must divide community liabilities and confirm separate liabilities. Once they have all been identified and characterized, a value must be placed on each liability, which is usually done by determining its payoff amount. This must happen before the court can make a just and right division of the community estate.
There are other factors as well that go into determining the value of a liability. They include the length of payment terms, type of interest rate (fixed or variable), deductibility of payments, and whether or not the debt is collectible.
A couple of quick notes:
- Each spouse has the burden to present evidence of the values of community liabilities.
- A division of the spouses’ liabilities must be based on values that are admitted to evidence.
- Expert testimony can be used to establish the value of a liability, such as a CPA.
- Lay testimony can be used to establish the value of a liability, so long as that person has some familiarity with its value.
We hope this blog was helpful. Please don’t hesitate to check our blog archive for more information on this topic or any others that might interest you. If you would like us to discuss a particular family law topic in these blogs, please contact our Nelson Law Group, P.C. office to let us know. We love hearing suggestions from our loyal readers.