Financial Infidelity Can Lead to Bankruptcy Under California Divorce Law

Affairs of the Checkbook: a Growing Problem…
When the word “infidelity” comes to mind, most people think of an extramarital affair, of a husband, wife or significant other cheating by sneaking around with another lover.  In fact, America is so obsessed with the concept that there is an entire industry called daytime TV devoted to different versions of the issue. However, despite the fact that affairs of the heart receive most of the attention, affairs of the checkbook can be equally damaging and are rising in number. Financial infidelity can be defined as one member of a couple, who have consolidated their finances, lying about expenditures, credit card accounts, bank accounts and even earnings. According to Forbes, one in three Americans who have combined their finances admitted lying to their spouses about money, and another one-third of these adults said they’d been deceived.
A Personal Story
Although I have not had to deal with financial infidelity personally, the topic does remind me of a well-known story from my hometown. I grew up in Bloomfield Hills Michigan, an affluent suburb of Detroit.  One of the Dads who coached my little sister’s soccer team was a well-liked and well-respected auto executive who outwardly appeared to have everything going for him. Unfortunately, this man, who we’ll call Jim, developed a gambling problem. At the time, Windsor, Canada, which is across the river from Detroit, housed the area’s only available casinos. Jim started to visit the casinos rather than going to work and eventually began to rack up large debts. His work suffered and he was fired. Rather than tell his family what happened, Jim woke up every morning, put on a suit and pretended to be heading off to work. However, rather than going to the office, Jim dutifully visited the casinos. Rumor has it that he gambled away most of his families savings before going on a spree of bank robberies to fuel his gambling habit. When he was eventually caught, the community was shocked and saddened. Jim’s family was devastated and put in dire financial straits. While this example is admittedly extreme, it provides an important lesson. The financial decisions of your spouse deeply affect you.
How a Financial Affair Can Lead to Bankruptcy
Other blogs and articles have covered the trust issues that are created by financial infidelity, so I won’t rehash them here. Instead, I want to delve into the ramifications that affairs of the checkbook can have on an innocent spouse. It is all too common in marriages for either the husband or wife to be solely responsible for managing finances. As a result, it’s not as difficult as you might imagine for one spouse to make expenditures that the other is unaware of. Similarly, large expenditures made over short period of time can fly under the radar. When joint credit is used, both parties to the loan are guarantors who are ultimately responsible for payment. If one spouse files for bankruptcy or cannot afford to make payments, the other will be solely liable. In situations where the breadwinner is the party sneaking around financially, poor decisions can wreak havoc on the more financially dependent party, especially in community property states. For example, if a wife who earns the majority of the household income spends lavishly on a joint credit card without telling her husband and the couple separates as a result, the husband will be on the hook for those purchases just as much as the wife. In community property states like California, the courts see the debts accrued over the course of the marriage as the responsibility of both parties. In the example above, the husband would have to take responsibility for his share of his ex-wife’s financial recklessness despite the fact that he earned far less money than his ex and did not spend the money himself. Situations like this often lead to one party being forced to pay the high cost associated with bankruptcy to get rid of the debt. In community property states, even if the wife were to have incurred the credit card bills on her own account, in her own name, the husband would still be liable for his portion. By contrast, in equitable distribution states, attorneys and a judge determine who owes what. In other words, in equitable distribution states, if your spouse racked up a lot of credit card debt in secret, you’re more likely to come out of your marriage not owing any of that money. Bankruptcy attorney can tell you where the story often ends: consumers who find themselves saddled with the debts of an ex-spouse are often forced to pay a bankruptcy lawyer to discharge the debt.
John O’Connor is a consumer class action attorney and founder of the National Bankruptcy Forum, a resource for consumers looking for information about bankruptcy.