Divorce often involves the financial separation of people who have shared their lives, houses and paychecks for years. People in Texas often focus on asset division and retention during property division proceedings.
However, the marital estate also consists of the debts accumulated during the marriage. Divorcing spouses must address the financial obligations that they assumed during their marriage as part of the divorce. Spouses frequently worry about assuming financial responsibility for one another’s student loans, credit card balances, medical debts, car loans and business loans.
Establishing a reasonable arrangement for marital debts can be as important as addressing high-value marital property in a Texas divorce.
What community property rules mean for debts
Both marital property and financial obligations are part of the marital estate. They are subject to community property rules during a divorce. Although many people assume that community property division automatically leads to a 50/50 split, that is not necessarily true.
The Texas community property statute actually requires a fair or just division of property and debts. Judges may begin with a presumption that an even split is appropriate, but evidence provided by either spouse could counter that assumption and alter the final property division decree.
Spouses deciding how to divide debts need to consider several key factors. The first is their ability to pay for debts after the divorce. The second is which debts are truly community property and which might be eligible for exclusion.
Debts that originated before the marriage, such as student loans, may remain the separate responsibility of one spouse. Debts taken on for purposes that damaged the marital relationship, including secret gambling debts or credit card balances accrued while conducting extramarital affairs, may also remain the responsibility of one spouse. If the debts are the results of intentional dissipation or wasteful spending to diminish the marital estate, that can also influence what a judge decides is appropriate.
Spouses can potentially agree to an arrangement through a mutual settlement where they each take responsibility for certain debts. It is common to use debts to balance marital assets or to allocate them based on the likely future income of the spouses.
However, there is also the risk of a default to consider. If either spouse fails to make payments or if they file for bankruptcy after the divorce, the other spouse could end up paying the price for their irresponsible financial decision. To avoid that risk, spouses might agree to use marital assets to pay off marital debts instead of taking responsibility for them after the divorce.
Reviewing financial circumstances and prior spousal conduct with a skilled legal team can help people evaluate different solutions for dividing debt in a Texas divorce. Working with a divorce attorney can help people to better understand their options and establish appropriate property division settlements.