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If you really think the house will be worth more in the future, this may not be a good decision.
However, you have to also think about the debt as you will also be on the hook for it and you can be sued over it as you live in a community property state.
If you can get the 40k and just walk away and get her to assume the debt, this may be a good deal because that house may not turn around economically for some time.
The other issue is your business and if you owe 80k from that, your wife may be on the hook for that as well so you may be in the red anyway.
At this point, you need to think of your long-term and short-term situation.
If you can just walk away from the debt, 40k may be a good idea. I would even say 20k may be okay if she agrees to assume all the debt, otherwise you're still just breaking even. The other option if you cannot agree is not that great as the Judge may make you sell the house and you won't get anything from it as the economy stands right now so it is in your best interest to settle.
The best option is 40k and her assume the debt, but if you can get 20k and her assumming the debt, that's almost as good as getting 40k net as well.
I would think that she would be OK with keeping her dept and the house
She has a 401k and company stock I can leverage against her if it comes to that. Also take monthly spousal support. I don't care anymore about the house, but I don't want to walk away with little or nothing. I don't hate her. I don't want to hurt her, but she is trying to take advantage of me.
Then I would try for the 40k and she takes her own debt and holds you clear.
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If I'm forced to hire an attorney, which I can't afford, can or will she be obligated to pay for the service to me?
No she will not
She can if it is agreed to in the divorce degree but she would not be obligated to pay for the service otherwise
There is a chance that the Judge can order if you cannot come to an agreement but the chances are extremely low.