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Is a spouse liable for business debt in a divorce?

On Behalf of | Feb 3, 2023 | Divorce

California, along with eight other states, is a community property state. This means that between the date of marriage and the date a concrete decision is made to end the marriage (date of separation), all property acquired and debts taken on by either spouse are jointly held.

In the event of divorce, that marital or “community” property, composed of both earnings and losses (i.e., debt), is split 50/50.

In an amicable divorce, the spouses parting company may agree to dividing the community property fairly and equitably and might choose to assign business debt to one spouse or the other.

However, in the eyes of the law, until there’s a court order finalizing property division, all community property is held by both spouses equally.

Prenuptial and post-nuptial agreements

The property division discussion changes at once if either prenuptial or post-nuptial agreements are in place. These agreements, prenups executed prior to marriage and post-nups executed after the wedding date, specifically address how assets will be divided in the event of divorce.

In California, for a post-nuptial agreement to be upheld, it must satisfy the following criteria:

  • It’s a written document.
  • It’s entered into voluntarily by both spouses.
  • There are no unconscionable, unfair or one-sided terms.
  • There is full and fair disclosure of pertinent information when the document was executed, reflecting the utmost good faith and fair dealing.
  • The document is signed by both spouses.

But even with prenups and post-nups in place, questions and disputes may arise when a marriage comes to an end. For all these matters, it’s wise to have the sound counsel of attorneys experienced in this area of the law.