One of the most contentious issues that couples grapple with during a divorce, is how to divide marital property. The real property tug of war around “who gets what” is easy to get wrapped up in, but one aspect of community property you shouldn’t overlook, is marital debt. According to some studies, a staggering eighty percent of Americans hold some kind of credit, mortgage, or loan, which means “what you owe” can become just as big an issue as “what you get” during divorce.
At Neal Ashmore, we understand that debt plays an important role in life, marriage, and even divorce. That’s why when it comes to fiscal matters, our attorneys work closely with a certified financial expert, to ensure that both your accounts and obligations are divided equitably.
Here are some of the common issues that arise regarding marital debt in Texas, and how our team of expert attorneys can help you reach an efficient solution to each one.
Community Property in Texas
A discussion about marital debt wouldn’t be complete without first addressing how property is divided upon divorce.
Texas is a community property jurisdiction, which means that all assets acquired during the marriage—by either party—belongs to the couple equally. In short, it doesn’t matter whose name is on the account, title, or stock. Anything gained by one is gained by both—which puts a whole new level of gravitas on the phrase what’s mine is yours, to be sure.
For the most part, this sentiment applies to marital debt as much as it does property. The general rule, is that once you are married, all debts acquired from that point forward are shared between spouses as a joint entity.
Separate Property is Exempt from Community Property
Assets that were acquired prior to marriage, however, are exempt from community property. As long ownership can be properly traced and proved, any property you brought into the marriage will leave with you upon divorce. Gifts and inheritances are similarly considered separate property—even if they were acquired while married.
In a broad sense, debt, too, is similarly classified by these standards. Obligations acquired before marriage belong to the individuals, alone, while those entered into after the marriage was finalized, belong to the partners, together. However, when examined on a micro-scale, the reality isn’t quite that simple.
Debt After Marriage: Community or Separate?
While debt acquired after marriage is usually shared as community property, there may be instances where this isn’t the case. In Texas, judges are allowed to consider things like intent and contractual context in certain situations.
So, Who’s Debt is it Really?
To illustrate this concept, let’s say your spouse opened a line of credit specifically to jazz out his motorcycle—which he owned, outright, as separate property from before the marriage. Here, a judge might say the line of credit belongs to him, alone, since the funds were only used to benefit him.
Similarly, if you opened a credit card on your own (without including your husband on the account), a judge might look at your name on the contract, see that the purchases only benefited you, and decide you’re solely liable for the debt.
This could get tricky, though, because if part of the funds in either scenario were used to aid the family in any way, that portion of the debt could feasibly be considered community property. Ergo: a shared debt.
Student Loans
One area where intent and contract names become particularly sticky is when analyzing student loans. Obviously, if the debt was accrued prior to marriage, it can easily be classified as separate property. But what happens if you took out the loan after getting hitched?
How Was The Money Spent?
In these scenarios, a judge is going to look at how the money was spent. If the money went exclusively toward education-related expenses (such as tuition and books), your loans might arguably be classified as a separate debt. But if you made the withdraw to help support the family outside of your classroom (such as with housing and food), then the shared benefit makes that debt look a little bit more like community property.
Is the Education, Itself, a Shared Benefit?
Even if the funds were spent exclusively on the degree, there’s an argument to be made a degree, itself, benefits the family.
Let’s say your wife took out hefty loans to attend medical school, where she trained to be a surgeon and started earning an income that significantly bolstered the family coffers, all while already married. Since her income took the entire family’s finances to the next level, she might argue that her student loans are shared, community debt.
As you can see, the factors that could potentially influence a judge’s debt classification are wide and varied, and if you’re wondering how these elements might affect your specific situation, you should discuss them with your family law attorney.
Dividing Community Debt
Once your debt has been successfully classified, it will be time to divide community debts between you and your spouse.
As is the case with assets, there isn’t really a set formula for divvying up marital debt. You and your spouse might agree to sell your real property, in order to pay off debt first. Or maybe your spouse will concede to alimony if you shoulder the mortgage. Or you, the bulk of the credit card debt, in exchange for the house, outright. The process is a little bit like bartering for the best lunch treats in your elementary school cafeteria. A series of parries and exchanges, where you each agree to take on an undesirable for a better cut of whatever is most valuable to you—be it the boat or the condo or something else altogether.
When tackling a property split, your Neal Ashmore attorney will begin by having you list out your absolute priorities. From there, it will be a matter of comparing lists with your spouse, and settling on an exchange that—while probably not exactly fifty-fifty—is still equal in value for both parties.
Marital Debt Attorneys in Texas
In some ways, classifying debt is almost more arduous than classifying property. The financial nuances involved with this niche blending of family and property law are complicated. Because while general rules might apply, the guidelines can also be bent or broken under the right circumstances, becoming particularly convoluted for individuals locked in a high net worth divorce without a prenup.
The attorneys of Neal Ashmore are experienced in handling all different types of divorce. Between our combined skills and the knowledge of our certified financial expert, we can ensure that your obligations and assets are handled with the utmost care.
If you have more questions about marital debt, call us today at (972) 436-8000, or schedule a consultation online, and let us help alleviate some of the financial stress you might be experiencing in your divorce.
