Often, there are co-obligors for discharged debt. Examples include spouses, co-owners of real estate, a principal and a surety on a loan, and household recipients of public assistance overpayments. When the debt is discharged, the liable parties may no longer live together. What share of the cancellation of debt income is attributed to each of the liable parties?
In a community property state, each spouse should be assessed 50% of the cancellation of debt income.1 The discharge of a joint and several or solidary obligation should not be treated as income to each co-obligor in the full amount of the discharged obligation.2 Where there are co-obligors, you should argue for an appropriate reduction of the amount of cancellation of debt income attributable to your client.