Is Your Spouse Indebted to You? : Dividing Debts and Liabilities in Divorce

In some cases, debt plays a major role in the failure of a marriage. Furthermore, debts may also have major impact in fostering contention in divorce proceedings. Often times, spouses are under the impression that debts incurred by the other spouse will release the non-incurring spouse from any responsibility paying any such debts upon divorce. The reality of the situation is sobering. In Texas, the court will presume that all debts at the time of divorce are obligations of the community estate. Generally, unless the spouses agree on who will be responsible for the payment of an obligation incurred during the marriage, the Court may order what debts each spouse will pay as a part of a just and right division of the community property.

One should make a detailed list of all account numbers, amounts owed, and which spouse incurred each of the debts. Make sure you are aware of all debt in your spouse’s name, your name or both names. Full financial disclosure is important during settlement negotiations.

As with the division of assets, the Courts have enormous discretionary powers when it comes to dividing the debts and liabilities upon divorce. There are no absolute rules, but generally the debt associated with a particular piece of property will be allocated to the party who receives that property. Be aware, one commonly overlooked fact is that a contract you have with a creditor doesn’t change regardless of who the Court orders to pay which debt. In cases regarding mortgages or car loans, the judge may order the asset to be sold and the proceeds to be used to pay off the loan to prevent default.

Unless the spouses have reached an agreement, once the divorce has been filed, the Court may order the party who incurred the debts to pay them. This does not necessarily hold true, however, when it comes to expenses attributable to the children of the marriage. You should be extremely cautious about incurring debts of any kind while a divorce is pending. In some instances, excessive debts incurred during the pendency of the divorce proceeding can be detrimental to the party incurring the obligation(s) if the Court finds that the debt was created in retaliation.

This is a complex area of the law. It is important to discuss these issues with your family law attorney. Moreover, it is critical that your attorney is experienced in drafting a settlement agreement that will protect your rights and interests in the future.

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