How are Credit Cards Handled in a Texas Divorce?

What You Need to Know About Credit Card Debt and Divorce in Texas

A major concern for many of our potential clients during their divorce is dividing up the debt, especially credit cards in Texas divorces. Unfortunately for many married couples this is because they are under water and have more debt than they do assets. Often much of this marital debt is in the form of credit cards.

When meeting with these potential clients their solution is that they and their ex should slip all the credit card debt 50/50. In this blog article, we will discuss how credit card debt is handled in a Texas divorce.

Is It as Simple as Splitting Credit Card Debt 50/50 in a Texas Divorce?

I believe many potential clients thinking is that because there is community property, there must be community debts as well. Marriage does not, by itself, create joint liability for the debts.

Characterization of property as separate or community plays a lot into the question of dividing up property during a divorce. However, characterization of debt does not always determine the question of liability.

The designation of a debt as community property has no effect on which spouse may be liable for the repayment of the debt.

Joint liability for debt may exist if one spouse incurs a debt:

  1. as the agent for the other spouse, or
  2. if the debt is for basic living necessities

First Step to Determining Liability of Debt

One of the first steps to determine which spouse’s properties may be liable is to classify the marital property.

Each spouse may have:

  1. separate and community property
  2. sole management and Joint management of property

Under Section 3.202 of the Family Code:

  1. A spouse’s separate property is not subject to liabilities on the other spouse unless both spouses are liable by other rules of law.
  2. Unless both spouses are personally liable as provided by this subchapter, the community property subject to a spouse’s sole management, control, and disposition is not subject to: (1) any liabilities that the other spouse incurred before marriage; or (2) any nontortious liabilities that the other spouse incurs during marriage.

Types of Properties

Separate Property

Separate property is not generally subject to the other spouse’s debt liability.

Sole Management of Property

If a spouse has sole management and control over their community property they would have owned except for being married, such as personal earnings.

This sole management community property may only be used to satisfy the debts of the spouse that manages the property or the joint debts.

What You Need to Know About Credit Card Debt and Divorce in Texas

Jointly Managed Property

Jointly managed property, such as jointly titled asset, may be used to satisfy either spouses’ community or separate liabilities.

Debt Before Marriage

Debt During Marriage

Separate Property of One Spouse

A debt incurred before the marriage is presumed to be separate property debt.

A debt incurred by a spouse during the marriage is presumed to be a community property debt.

If a debt is incurred during the marriage, but the creditor agreed to look solely to the separate property of the spouse for satisfaction of the debt, then the debt may be a separate property debt.

Second Step – Intent of the Parties

Borrowed funds requires an examination into the intent of the spouses in incurring the debt. If the money is borrowed to benefit a spouse’s separate property, and the intent is to repay the funds using separate property, then the borrowed funds will likely be treated as a separate obligation.

Credits cards usually involve an agreement and treated as a contractual obligation. This means it is normally easy to see who is contractually liable for the debt.

Debt Usually follows the Asset or who is Contractually Liable

In Texas, the general rule is that the person who receives an asset in a divorce also assumes any debt secured by that asset. As I often tell my clients, “the person who gets the toy gets the debt.”

When a divorce allocates a debt to a spouse who isn’t legally responsible for it, that spouse often lacks the incentive to pay, and the court system offers limited legal options to enforce payment.

Moreover, the credit of the spouse incurring the debt may suffer if they rely on the other spouse for payment. This risk often leads judges to assign credit card debt to the spouse legally obligated to pay it.

If feasible, a judge may attempt to balance the allocation by awarding more assets to the spouse shouldering a greater debt burden. However, this isn’t always achievable.

Navigating credit card debt in a Texas divorce can be challenging and stressful. To avoid complications and ensure a fair division of marital debt, working with a Texas divorce attorney experienced in handling debt issues is crucial.

Final Thoughts

What You Need to Know About Credit Card Debt and Divorce in Texas

In conclusion, determining the division of credit card debt in a Texas divorce hinges on classifying the debt as either community or separate property. The timing of the debt’s accrual and its purpose are key factors in this decision. It’s crucial for both parties to actively understand their legal rights and responsibilities and negotiate the debt’s fair division. Consulting legal counsel is advisable to effectively navigate Texas divorce law complexities and secure an equitable settlement of credit card debt.


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Categories: Family Law, Divorce

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