Everything You Need to Know about Marital Debt in a Texas Divorce

Under Texas family law, debt, like any other property, can be classified as either separate property or community (marital) property. Generally speaking, both spouses are liable for any debts incurred while they were married, regardless of who actually spent the money or not. Upon divorce and the division of community property, the court will often rule that the person who spent the money on assets will also be liable for any indebtedness resulting from these purchases.

But this is not the case in the eyes of lenders.

For example, even if your ex-spouse agrees to shoulder all future mortgage payments, lenders will still consider both spouses as jointly responsible for the home loan. In other words, if your ex were to miss payments or default on the mortgage altogether, you will be liable for it. Your credit score will also take a hit, compromising your ability to be approved for loans at low interest rates—or even have your loan application approved at all.

It’s for this reason that working with a competent Austin divorce attorney is crucial--it’s the best way to have a smooth property division process.

Your divorce attorney may recommend any of these options when dividing marital debt.

1. You and your ex-spouse can sell your joint property (e.g. the house, car, furniture, or appliances) to pay off your outstanding marital debt before finalizing the divorce;
2. Your attorney can negotiate for you to have a larger share of your marital assets in exchange for paying off your marital debt. Likewise, you can also negotiate to receive larger spousal support payments in exchange for taking on the debt;
3. The same arrangement in number 2, the other way around (i.e. your ex shoulders the debt);
4. You and your ex-spouse agree to divide all marital debt and marital property equally. You and your ex will split all your property and pay off half of the debt each;
5. If you are a homemaker with custody of the children, the court may order your spouse to pay off a larger portion of your marital debt, plus spousal maintenance and child support. In exchange, you get to keep the family home and other assets, such as your spouse’s retirement benefits.

Although there is no one-size-fits-all solution to the question of marital debt, do note that whenever you agree to take on liabilities from your marriage, you run the risk of hurting your credit score. Not only that, there’s the threat of bankruptcy from having only having one source of income (instead of two when you were married) and assuming debt payments.

Fortunately, there are measures you can take to protect and even repair your credit score during and after a divorce.

• Get a copy of your credit report and look for discrepancies. Although uncommon, your credit history may show activity from someone else with the same last name (e.g. your spouse);
• Talk to a consumer counselor, who can provide the tools to negotiate with creditors and a practical payment plan that’s based on your debt-to-income ratio;
• Open a secured credit card so you can make timely payments that will repair your credit score over time.

If you are currently going through a divorce, or about to begin the divorce proceedings, and need an appraisal of your assets and liabilities, schedule a consultation with Austin family law attorney Daniella Lyttle to discuss your financial and legal options. Call the Lyttle Law Firm today to find out how we can help you.