Handling Marital Debt During Divorce in Texas

Divorce can be complicated, especially when dividing assets and debts between spouses. In Texas, a community property state, handling marital debt is a crucial part of the divorce process. Understanding how marital debt is managed can help you navigate the proceedings more effectively and ensure a fair distribution of financial responsibilities.

Community Debt vs. Separate Debt

In Texas, the community property system is used, which means that most assets acquired during a marriage are considered jointly owned by both spouses. This approach extends to debts as well. Typically, any debt incurred by either spouse during the marriage is regarded as a community liability, even though we do not technically call it “community debt.” It is subject to division by the court, and includes obligations such as mortgages, credit card debts, car loans, and other financial responsibilities. Debts incurred before the marriage or after separation are usually treated as separate debts, but since we do not have “legal separation” in Texas, the judge may award debts incurred after separation to the other spouse. Similarly, debts, such as a loan for a business owned by one spouse prior to the marriage, are generally considered separate. Debts acquired during the marriage are presumed to be community debts unless proven otherwise, making both spouses equally liable for repayment. That does not mean, however, that each pays half of any given debt. The judge may award all of one debt to one spouse and an equal value liability of another debt all to the other spouse. Keep in mind that the court order only applies to the two spouses and does not prevent the creditor from collecting from the spouse who originally signed for the loan.

Division of Marital Debt

The division of marital debt in Texas is governed by the principle of “just and right” division. This means the court aims to divide debts (and assets) fairly and equitably, though not necessarily equal. Several factors influence how debts are divided.

Spousal Income and Earning Capacity

The court may consider each spouse’s income and earning potential when dividing debts. A higher-earning spouse may be assigned a larger share of the debt.

Contribution to Debt

The court may examine which spouse incurred the debt and for what purpose. Debts incurred for family expenses are more likely to be considered community debts.

Fault in Divorce

While Texas has no-fault divorce, the court may consider fault in certain cases. For instance, if one spouse’s reckless spending contributed to the couple’s financial difficulties, the court may assign that spouse a more significant share of the debt.

Custody and Child Support

If one spouse is given primary custody of the children, the court may allocate more debts to the non-custodial parent to balance financial responsibilities.

Assets and Liabilities

The overall division of assets and liabilities is considered to ensure an equitable distribution. A spouse receiving more assets may also be assigned more debt.

Types of Marital Debt

Understanding the different types of marital debt is needed to achieve a fair and equitable division of financial responsibilities during divorce. Marital debt refers to the liabilities accumulated during the marriage that both spouses are typically responsible for.

Credit Card Debt

This is one of the most common types of marital debt. Credit card debt is likely considered community debt if used for household expenses. However, if one spouse used credit cards for personal expenses, such as extravagant purchases or vacations, the court may assign that debt to the responsible spouse.

Mortgage Debt

The mortgage on the family home is usually one of the most significant debts in a marriage. In a divorce, the division of this debt often depends on who retains ownership of the home. If one spouse keeps the house, they may assume responsibility for the mortgage. However, this does not prevent the mortgage company from collecting against the other spouse later in case of a loan default. Many times both spouses signed the note when the house was originally purchased and part of the documents required following divorce may entail one spouse gifting their portion of the house to the other, while the spouse retaining ownership of the house signs a “Deed of Trust to Secure Assumption,” granting foreclosure rights to the non-owner spouse in case the owner spouse defaults on the original loan. Another device often used is an order to refinance the house after divorce to remove the non-owner spouse’s name from the loan.

Car Loans

Similar to mortgage debt, car loans are generally assigned to the spouse who keeps the vehicle. If both spouses are on the loan, refinancing the car in the name of the retaining spouse may be necessary to remove the other spouse from liability.

Student Loans

Student loans are often considered separate debts because they typically benefit the individual who took out the loan. However, if the education significantly increased the family’s earning potential during the marriage and the debt was incurred during the marriage, some courts might view the debt differently, considering partial responsibility for both spouses.

Common Challenges in Dividing Marital Debt

Dividing marital debt can be complicated, and several challenges may arise. A spouse may try to hide or incur new debt during the divorce process. Transparency and thorough financial disclosure are crucial to prevent such issues. Joint debts can affect both spouses’ credit scores.

If one spouse does not pay their assigned debts, it can negatively impact the other spouse’s credit. Refinancing may be necessary to separate joint debts. For example, if one spouse owns the family home, they may need to refinance the mortgage in their name to remove the other spouse from liability. Otherwise, even if the spouse who is awarded the house pays all the house payments on time, if the non-owner party’s name is still on the loan, that party may be unable to buy a new house because of the potential liability of the old debt still on their credit report. Ensuring compliance with the court’s debt division orders can be challenging. If a spouse fails to pay their share of the debt, legal action may be required to enforce the agreement. Suits to enforce a property division generally must be brought within one year after the divorce became final, with some exceptions for later breaches of contract. It is extremely important that the divorce decree be very specific about which debts are awarded to which party and any obligations to refinance or repay the debts be clearly written to be enforceable. Too often, parties fail to specifically mention debts because they assume that the other party will pay them, only to find later that they have lost the opportunity to complain because it was not included in the order.

Strategies for Managing Marital Debt in Divorce

There are several strategies to manage marital debt during divorce proceedings.

Negotiate an Agreement

Whenever possible, negotiate a settlement agreement with your spouse that outlines the division of debts. This can help avoid court proceedings that can be lengthy and costly. Make sure that agreement is very specific and does not omit any debts.

Seek Mediation

Mediation can resolve disputes over debt division. A mediator is a neutral third party who helps both parties reach a satisfactory agreement.

Work with an Experienced Attorney

An attorney specializing in divorce and family law can guide you through the process, advocate for your interests, and ensure a fair division of debt

Experienced Legal Help for Dealing with Marital Debt in Divorce

Divorce can be a challenging time, particularly when it comes to dividing assets and debts. At Laura D. Heard Law Firm Inc., our experienced team is here to guide you through the complexities of marital debt division and ensure a fair and equitable outcome. Contact us today at 210-775-0353 to schedule a consultation. We are committed to helping you navigate the challenges of divorce and emerge stronger.