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Managing debts in a Texas divorce is one of the most critical aspects of a case. The experienced family law attorneys with the Law Office of Bryan Fagan understand that you have a great deal of responsibility for your family. Being able to manage the divorce as effectively as possible will be crucial to the future success of your family. Unfortunately, there is no way to perfectly anticipate every issue that will come up in your divorce. However, we hope that today’s blog post will provide you with a helpful amount of information that can assist you in being able to prepare yourself and your family.
Today’s blog post from the Law Office will relate to best practices in handling debts during your divorce. One of the realities of modern life is that most of us are extremely familiar with debt. When it comes to approaching this subject, you need to be able to have goals and a plan to achieve those goals. Today’s blog post will provide you with an overview of debt and how it relates to your life and your family. If you have any questions about the material we have covered then please do not hesitate to contact the Law Office of Bryan Fagan.
Texas is a community property state
For starters, you must understand Texas is a community property state. This means that our state handles the subject of property division and debt differently than other states. At the beginning of a divorce, the presumption in Texas is that all property owned, and debts incurred by you and your spouse are subject to division. Rebut that presumption with sufficient evidence. However, it is crucial to note that at the beginning of a divorce, all property and debts are fair game for consideration.
Here is where some distinction can be drawn between marital property in separate property. Property subject to division in a divorce includes property acquired during the marriage, other than by gift or inheritance. Separate property his property acquired before the marriage as well as the gifts or inherited property during the marriage. The same rules apply for debt.
How will the home and your mortgage be handled in a divorce?
One of the most critical parts when it comes to debt in your divorce is to understand how your house will be handled. If you own your home free and clear of a mortgage, then there is not much to discuss when it comes to debt. Home mortgages need a plan in your divorce case. Keep in mind that you will not be able to formally change your home mortgage. The initial mortgage documents are in control through the date of your divorce.
With that said, there are ways to protect yourself from that if you do not become responsible for it after the divorce. Well written, clear and concise final decrees of divorce are important. The last thing you want to do is find out that some component of your final decree of divorce is unenforceable. This means that a court would not be able to help you enforce the terms if your spouse does not live up to their end of the bargain. Unfortunately, in a divorce with many moving pieces, this can happen quite easily.
When it comes to large assets like your house there is very often debt associated with that asset, as well. Managing this reality Is the key part of your divorce. Working with an experienced family law attorney at the Law Office of Bryan Fagan can be the difference between seamlessly integrating the divorce into your new life or finding yourself struggling with loose ends that were never quite tied up. The best place in time to secure your life is during the divorce. To avoid having to redo mistakes later, consider meeting with an experienced attorney at the Law Office of Bryan Fagan.
How can you handle the house in a Texas divorce?
When it comes to the family home there are a handful of options for you to consider. The best way to approach this subject is to consider which option works best for you and your family. Remember that the home is a major asset and liability. It is improper to look at the house as either one or the other. Rather, you need to be able to view the house through a lens that considers both realities.
The most straightforward option is to sell the house. Building a house accomplishes several things for your family. First, it would eliminate any debt owed to the House. You and your spouse can perform a basic analysis of the equity value of the home. Selling the house would put money in your pocket and eliminate debt. This is the cleanest option to consider and one that may be the most attractive if you would like to start fresh after the divorce. For example, many people move immediately after a divorce. Selling the house can help to facilitate this type of move.
The other options involve one spouse staying in the home. The spouse who remains in the home can attempt to refinance the home mortgage. That is to say, eliminating the prior loan and creating a brand-new loan only in that spouse’s name. Refinances in a divorce complicate matters. You or your spouse can apply for a refinance but you cannot guarantee it will happen. Otherwise, a spouse may remain in the home and pay their ex-spouse their share of the equity. Where the cash comes from to do this depends upon your case and specific circumstances.
What happens to the mortgage if your spouse remains in the home?
When your spouse remains in the home that means you need to be able to make sure that your final decree of divorce outlines a plan for your spouse to pay the mortgage. This is non-negotiable. There must be language in the final decree of divorce that spells out a method for your spouse to pay the mortgage. Unless language like this is included in your final decree of divorce you should not sign the document. Again, working with an experienced family law attorney is a great way for you to ensure that the proper language is included which protects you and your spouse moving forward.
Again, just because you all include language in a final decree of divorce about your spouse being responsible for the marriage does not mean that the mortgage company must abide by your court order. Specifically, the mortgage company likely will not care one bit about the final decree of divorce.
Sending in a copy of your final decree of divorce to the mortgage company will not change their position about who owns what. If your name is on the mortgage, then you are technically and legally responsible for that debt. It does not matter if your spouse has agreed to take on the debt in your divorce. The failure of your spouse to pay the debt on the house can result in your credit being destroyed after a divorce ends. Consider the requirement that your spouse attempt to refinance the loan by a certain date after the divorce ends.
What are some of the relevant real estate documents In a divorce?
A special warranty deed is a document that you must become familiar with in your divorce. A deed specifies ownership of a particular property. If you plan on leaving your family home, then you should sign over a special warranty deed to your spouse. A special warranty deed transfers ownership of the house to your spouse. This is the formal step that ends your ownership of the house.
Some spouses who do not complete this step find themselves in awkward positions after the divorce. For instance, the idea that you could walk through your former marital residence after the divorce may strike you as appropriate. However, some spouses feel like that is an option for them considering they never formally gave up their property interest in the home. This is not to say that you would ever do anything like this. However, by completing a special warranty deed you would make it so that this would not even be a possibility.
A deed of trust to secure the assumption
In some circumstances, you will find that you or your spouse will be unable to refinance your mortgage. For example, if one of you walks out of the divorce with bad credit a refinance may not be possible. In that case, the existing home loan would remain in place. The significance of this is that your name could end up remaining on a mortgage to a house that you no longer hold an interest in. This is not an ideal circumstance for you. Holding liability on an asset that you cannot benefit from is a losing proposition for you.
This is where a deed of trust to secure assumption can come in handy. Your spouse would sign the deed of trust and secure the assumption that he will remain in the home. What the date of trust to secure assumption does is it allows you to pay the mortgage and take back title to the house in the future. This could occur if your spouse is unable to pay the mortgage loan. Working with an experienced family law attorney is smart.
What other language may you want to include in your final decree of divorce?
Depending upon the other circumstances of your case you may want to include other language in your final decree of divorce. This will be under circumstances where your spouse may need to refinance the home loan. As we just finished discussing, this may not be a possibility in your case.
Sometimes your spouse may not have the financial wherewithal needed to refinance the loan. Or he or she may have insufficient credit to do so. However, it is an important part of the case that you be able to include language that requires your spouse to at least try to refinance the home loan if that is your wish. The language may not be able to force your spouse to refinance the loan, but it can’t force him to attempt to do so. That attempt can be the difference between financial success and struggling after the divorce ends.
Additional language that may be impactful for your family would be language related to paying you any equity owed to you. Let’s suppose that you and your spouse agree to have $100,000 paid to you as your share in the equity of the home. However, it would be foreseeable that your spouse does not have $100,000 in cash readily available. At that point, you may choose to include language in the decree which requires your spouse to pay a certain sum of money to you over time. The more specific you can be in this requirement the more likely you are to benefit from the equity sooner rather than later.
Proper record-keeping is critical
When it comes to the debts in your divorce you and your spouse must been good historians and record keepers. As we learned earlier in this blog post, debts incurred during your marriage tend to be divisible as community debts. Therefore, the main issue that relates to debt division has to do with when the specific debt was incurred. The easier you can prove when the debt was incurred the more likely you are to be able to negotiate on that point. One of the most frustrating parts of a divorce is if you and your spouse disagree on the fundamental inception date for the debt.
Another critical subject related to debt division has to do with business debt. That’s associated with your business maybe something that your spouse is legitimately unaware of. Many times, spouses operate their small business completely independent of the marriage. This is troublesome for several reasons. Number one, your spouse may be completely unaware of the debt that is owed. Secondly, most individuals must stand accountable and be responsible for a debt. Therefore, it is not your business that is responsible for paying a debt. Rather, it is you and your spouse that stand responsible.
Document well the types of debt you have. A $50,000 loan to help you make payroll during a particularly slow year for your business is different than a $50,000 loan associated with a new kitchen in your home. How that debt is negotiated will depend in large part on who benefited from the debt. Talk to your attorney about how to consider death division in the divorce. Likely, the party who benefited most from debt should be the one who incurs liability after the divorce comes to an end.
Consider the benefits of a marital property agreement
Depending upon when you are reading this blog post it may not be too late to change the trajectory of a future divorce. A marital property agreement can be the key to building a stronger marriage. This may seem like an oxymoron. However, marital property agreements oftentimes allow spouses to discuss in the open sensitive topics that they may have glossed over previously.
Additionally, her marital property agreement allows you and your spouse to negotiate a particular financial issue in advance of a divorce. This means that the two of you would be able to work on the settlement together without being on bad terms. One of the most difficult parts of a divorce settlement negotiation is that you and your spouse are not happy with one another. On the contrary, negotiating with their spouse on a marital property agreement can be a way to discuss difficult subjects when the two of you are still on good terms.
An experienced family law attorney can help you to draft a premarital or marital property agreement. However, if it is too late for this type of negotiation again a family law attorney with the Law Office of Bryan Fagan can help you to create a plan for the best method of dividing marital debt in your divorce.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
The attorneys with the Law Office of Bryan Fagan offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law. Before signing a document or negotiating on a subject you do not know well, contact our office. We look forward to the opportunity of serving you during an important part of your life. The Law Office of Bryan Fagan is on your side.
