Generally speaking, if you are getting a divorce there are two subjects that should be at the top of your list of important ones to consider before beginning your case. The first is children. If you are a divorcing parent then your kids and your rights to make decisions on their behalf, your ability to spend time with him or her as well as how you are able to support him or her should be paramount. Every other issue, from my experience representing folks in divorce cases, will take a back seat to your kids.
The other critical subject that you should be aware of as you head into a divorce case is property. Property can be subdivided into two columns: community property and separate property. Community property is property that you and your spouse acquired during the course of your marriage. This is income from your jobs, property that you purchased or improvements made on that property. There is a presumption in Texas that all property owned by you and your spouse during a divorce is community property.
In order to buck the community property presumption and prove that a piece of property or income is separate you must be able to show that the property/income was owned by you prior to your marriage. However, if the property was acquired during the course of your marriage and you can prove that it was gifted to you as an individual or inherited by you as an individual then these circumstances will overcome the community property presumption as well.
In the midst of this discussion we have not brought up the dreaded word “debt” as of yet. If you are anything like most families in the United States you have, not only some debt, but a great deal of debt. These types of debt can range from credit cards to mortgages and all sorts of accounts and lines of credit in between. Much of the day that you may have accumulated has been in place since before your marriage, but some of it came about as a result of joint decisions made by you and your spouse.
In today’s blog post from the Law Office of Bryan Fagan, PLLC, I would like to share some thoughts with you on this topic. Since debt is a reality for most of you reading this blog it needs to be discussed much more than it is right now. Property may be more fun to talk about, but from my experience a lot of people have more debt than property as you enter into a divorce. This is especially true if you are a younger individual going through the divorce process. If you have every wondered what will happen to your debt when you file for divorce you need not wonder anymore.
Does community property mean that there is a thing called community debt?
We spent a great deal of time in the opening section of today’s blog discussing the basics of community property law. It would make sense on many levels for there to be community debt as well, right?
When we are discussing debt in the context of a Texas divorce, the best way to think about it is that the debt that you or your spouse has incurred will continue on after the divorce with the person who is in possession of the property the debt is attached to. For instance, if a loan was taken out on your vehicle last year that debt would go to you after your divorce is finalized. Let’s discuss just how this happens.
If you went to a car dealership and purchased a vehicle on credit then you signed a great deal of paperwork that obligated you to pay the creditor for your car loan a certain amount of money per month in the form of a car payment. In the eventthat you went down to the dealership, purchased the car and financed the car through the dealership without your spouse’s signature appearing on the loan then that debt is yours. You are responsible for it during your marriage and it will be yours after the marriage as well.
When do you become responsible for the actions of your spouse if he or she takes out a loan?
The previous example that we discussed with the car purchased on credit is pretty straightforward I think. Now we will venture into murkier waters. In the event that your spouse takes out a loan in their name but does so to pay for items related to raising of your children or the upkeep of your home and/or your spouse was acting on your behalf in taking out the loan then you could be responsible for the loan even if your name does not appear anywhere in the loan’s paperwork.
Who is managing the property that the debt is associated with?
To figure out who is ultimately going to be responsible for a certain debt in your life, you will need to first determine which person, you or your spouse, is actually in control of the property associated with that debt. The State of Texas treats your separate property as well as community property that would have counted for separate property had you never gotten married as property that you have exclusive control of. Think about your income or money you win in a lawsuit as examples of this sort of property.
Any other community property other than the kind we just listed in the paragraph above is jointly controlled by you and your spouse under Texas law. The best way to counteract this presumption under the law is to agree to a post-martial agreement where you and your spouse can move property into different columns as you see fit.
The type of creditor matters when determining who is responsible for a debt
Now that we have covered the type of property that you could be on the hook for paying a debt on, let’s go over the type of creditors that are out there in the world. Not all creditors are created equally, as we shall see in a moment.
If you have a credit card with a balance on it, have taken out a loan from a bank or have a mortgage then you have a relationship with a contract creditor. Basically, to get the money that you want to purchase items on credit you had to sign a contract with the creditor wherein you agree to the terms of the debtor/creditor relationship. The interest rate you are to pay, the length of time you have to pay the financed sum back to the creditor and other legalities are covered in a contract of this sort.
The other and less frequently encountered type of creditor is a tort creditor. Unless you owe someone or something money due to their successfully having sued you and won a money judgment against you these type of creditors are probably not going to be a part of your divorce.
Tying it all together
The type of creditor and which spouse controls the debt will determine who is responsible for that debt after the divorce has been decided. If you as the husband owe a contract creditor a debt on your separate property prepare to keep that debt as yours 100% after the divorce. Same can be said for those “Special” type of community property debts that we discussed briefly above. If you have a community property debt but that property is controlled solely by you, that is going to be yours as well. The only type of property that your wife would be subject to having to pay on would be jointly controlled community property. Any of her separate property or solely managed community property would not be involved in discussing debts taken out in your name.
What does this all mean? For starters, if you took out a loan in your name on a car and that car was awarded to your spouse in the divorce, you are still responsible for that car note. So if the creditor repossesses the car for not having received payment on the note your spouse may be out of a vehicle but your credit score will take a dip for this having occurred. This is an important concept to understand as you begin a divorce. Consider how you will negotiate and how the effects of that negotiation can impact you directly and indirectly.
Questions on debt and divorce? Contact the Law Office of Bryan Fagan, PLLC
The attorneys with the Law Office of Bryan Fagan, PLLC take a great deal of pride in representing the people in our community. For a free of charge consultation with one of our licensed family law attorneys please do not hesitate to contact our office today.