As part of a divorce in Texas, the parties have to divide the debt accrued during the marriage. In Texas, this is called division of “liabilities,” although the word “debt” is also often used informally.
The first step in dividing the debt is to find out what it is. This is normally done through a process called Discovery, where the parties exchange statements, sworn affidavits, financial inventories, and other relevant items to figure out what the actual debt of the estate is. Credit reports, bank statements, loan records, credit card reports, and state and federal tax records are most often used for this, although the list is not exclusive.
The next step is to characterize the debt as either “separate” or “communal.” Separate means that the debt is assigned to the party who incurred it, and this is most commonly any debt which was incurred before the marriage occurred.
If the debt is Communal on the other hand, then it belongs to the marital estate, and is divided up by the Court as part of the divorce. The legal doctrine under which the Court will divide the debt is the “just and right division.” However, that leaves a lot of discretion for the Court to make a decision. The Court then makes said decision based on the following most common factors: ability of a party to pay, who actually incurred the debt, the division of other debt in the divorce, and the division of assets in the divorce.
While the Court normally tries to divide the debt as fairly as possible, it is entirely probably for one party to end up with more of the debt than the other party, depending on the factors listed above.
In scenarios where one party is awarded a home with the mortgage, that party that was awarded the home is normally also awarded the mortgage. However, the Court cannot order the mortgage company to take one of the parties’ names off the mortgage. A common workaround method for this is that the party that is awarded the home is also ordered to refinance within a certain time period (normally about six months to two years), and at the time of refinance, to take the name of the other party off. The party that is awarded the home is also then ordered to pay the mortgage note, and to indemnify the other party a payment is missed and the mortgage company pursues both parties before a refinance can occur. if the If the home cannot be refinanced within the time allotted, it may be sold, given back to the other party, or whatever else the Court feels is proper to do in such a case.
Another common debt are student loans. Student loans which existed before the marriage are considered separate debt of the party that incurred it. However, student loans which were taken out during the marriage are normally considered communal debt and belonging to the martial estate, meaning they can be divided. This creates a potential problem where a party which incurred student loans can ask the Court to award some of that debt to the other party. Thankfully, the Court has discretion here and will consider many factors in making this decision.
If you require an attorney for a divorce where debt is a central issue, the attorneys at Ilionsky Law, PLLC are standing by to provide you with experienced counsel to expertly handle your divorce from start to finish. Give us a call at (713) 482-1974 to discuss your options and how we may help you.