Community Property Questions re Debt

[LittleNapolean]

What is the name of your state? Arizona

Is there any obligation to inform your unsecured creditors (let's assume a credit card company) of a change to your marital status (married to separated or divorced) on an account in the name of only one spouse in order to consider any future charges on the account to be free of the community property "taint"? Assume the card has a zero balance at the time of separation/divorce. How much time after notification would it be safe to presume the credit line is no longer tainted with community property status?

Can the "taint" of community property status on an credit card with a balance at the time of divorce/separation be removed by washing the debt thru a process of paying it off with "untainted money" (assume a credit card transfer from a solely held account after the divorce/separation) and using the then clean account to repeat the process for other credit card balances? Would notification (from the first question) make a difference here?

Last question, let's assume a credit card with a balance in the name of one spouse existed at the time of divorce/separation and after the divorce a series of payments and new charges were made to the card. How would a court determine what portion of the new balance consisted of community property debt that survived the divorce and what portion consisted of debt that was only the responsibility of the card holder?

 

[Ladynred]

Without specifically checking AZ marital law, I'll try to answer.

Is there any obligation to inform your unsecured creditors (let's assume a credit card company) of a change to your marital status (married to separated or divorced) on an account in the name of only one spouse in order to consider any future charges on the account to be free of the community property "taint"? Assume the card has a zero balance at the time of separation/divorce. How much time after notification would it be safe to presume the credit line is no longer tainted with community property status?

You're not obligated to inform your creditors of your marital status, though you are certainly free to do so. For the most part, once there is a legal separation and/or divorce, the 'community' ends and so does the community liability for any debts. So if an account had a zero balance at the time the marriage ended, then anything charged AFTER that date would be separate debt of the card holder.

Can the "taint" of community property status on an credit card with a balance at the time of divorce/separation be removed by washing the debt thru a process of paying it off with "untainted money" (assume a credit card transfer from a solely held account after the divorce/separation) and using the then clean account to repeat the process for other credit card balances? Would notification (from the first question) make a difference here?

Interesting question. Technically you're just shifting the debt incurred during the marriage, it was still incurred while the community existed and is really still a marital debt. I'm inclined to say this wouldn't work, so you might want to ask an AZ lawyer familar with the CP laws.

Last question, let's assume a credit card with a balance in the name of one spouse existed at the time of divorce/separation and after the divorce a series of payments and new charges were made to the card. How would a court determine what portion of the new balance consisted of community property debt that survived the divorce and what portion consisted of debt that was only the responsibility of the card holder?

Any debt incurred AFTER the date of legal separation/divorce that ends the 'community' would be separate debt and the date on the legal papers/decree would be the proof.

 

[LittleNapolean]

Thanks for the reply Ladynred

My comments:
My thinking in Q2 was that if I, for example, paid off a CP debt after divorce with credit that was in my name only from a different creditor that it would be difficult for that new creditor to argue that it was a CP debt simply because of HOW I used the credit they extended me. As you said in your answer to Q3 any purchases (and I would presume cash advances, balance transfers, etc) made after the date of divorce/separation are not CP debts.

Is it a loophole? Is it a sham?

Take it one step further, I apply for new credit entirely after a divorce. I obtain a loan from that creditor and pay off a CP credit card debt. That new creditor has never even heard of my ex-spouse, it would seem like an enormous stretch if I defaulted on the new loan that the new creditor would have any legal right to sue my ex-spouse for my new debt arguing that I somehow transmuted it into CP debt by virtue of using it to pay off my old CP debt.

I can argue it even further with an example of re-financing a home after a divorce, a common way to eliminate a CP debt. If the new loan which is in my name was defaulted on would my mortage company have any right to sue my ex-spouse arguing that the new mortgage is actually CP debt because the new loan was used to pay off an old CP loan?

 

[Ladynred]

Yes, I acknowlege that transferring the balance to a NEW creditor post-separation/divorce may work by creating a 'separate debt' situation. It could very well work since, as you noted, the new creditor would not know anything of your prior debt status.