When I am talking to a client about subject matter that bothers them, irritates them or otherwise doesn’t give them warm and fuzzy feelings I always tell them one thing. That is: I’m not having this conversation with you because I want to, I’m talking to you about this because it’s my duty to do so. Not everything an attorney tells their client is pleasant. Sometimes you have to give a client the “broccoli and cauliflower” rather than a “cookies and ice cream” talk.
Debt is definitely a broccoli and cauliflower subject. It is important but it does not taste good. If you and your spouse don’t have any debts you can stop reading, close your laptop and go get some cookies and ice cream. However, if you’re like most of us and do have some debt to your name then you ought to read today’s blog post from the Law Office of Bryan Fagan. We are going to share with you some information about divorce and debt that will hopefully pay some dividends for you as you prepare for your divorce.
What you should not do during your divorce when debt is concerned
Do not go on a shopping spree to engage in a little “retail therapy.” You will end up in a bad place financially and will be no happier. In fact, you'll be less happy. Odds are good that you will sign a document entitled "Temporary Orders" that bars you from engaging in this type of behavior. If you do decide to go against those orders you will likely find yourself facing an enforcement case in the middle of your divorce case. Your spouse would have every right to attempt to enforce the provision that bars you from excessive/unnecessary spending. Two family law cases at the same time? I hope those pairs of shoes were worth it.
Paying for an attorney, or splitting the cost of a mediator or other person whose role is to help you and your spouse settle your case are fine charges to put on a credit card. These are acceptable under most any temporary orders that I have ever seen. At the same time, do not deplete any cash you have on hand by paying off debt during your divorce. Since you do not know what costs you will have coming up and you also do not know who will end up having to pay that debt at the conclusion of your divorce it does not make sense to put money towards it now. Pile money up in your savings and see where everything stands when the dust settles in your case.
What about the mortgage?
Likely your largest financial asset and liability is represented by your home. While any equity that you have in the home is certainly a blessing to your family, the fact that you likely have a mortgage on the home can be harmful to your long term financial success. Take a look at a mortgage calculator or amortization schedule for your mortgage. See all that interest that you need to pay in the next thirty years? Imagine if you could invest that money or save it up for your kids’ college.
So, the mortgage on your home is a potentially important aspect of your divorce because it offers you with reasons to think of it both a liability and an asset. If your mortgage has your name and your spouse’s name on it then you would be normal. Most houses have a mortgage with both spouses’ names on it from my experience. There are two ways to go about handling this type of situation in a divorce.
Once it is determined which spouse (if any) is staying in the house then the attorneys will need to go to work. The attorney for the spouse who is remaining in the home will need to draft a Deed of Trust to Secure Assumption. This document allows the spouse whose name appears on the mortgage to potentially retake the house (foreclose) if and when the remaining spouse fails to pay the mortgage on time or in full. Doing so puts the foreclosing spouse in a better position than he otherwise would be in the event that the mortgage is not paid.
The other option that should be utilized is to attempt to have the remaining spouse refinance the mortgage into their name only. This would allow the spouse who leaves to receive an equity payout as well as to lose any liability that had been present with having their name appear on the mortgage. Note that a refinance is not always possible, given a lack of work history, lack of creditworthiness or other situation where a new loan cannot be taken out in the remaining spouse’s name. In those situations, it is important to have the deed of trust signed.
Divorce decrees and creditors
You and your spouse are free to divide your debts according to whatever methods you choose to implement. There are no "rules" in meditation on this subject. You can do whatever you believe is right based on your particular circumstances.
Keep in mind, however, that your creditors will not honor a divorce decree when it comes to the repayment of debts that you owe. Allow me to explain. Suppose that you and your spouse have a credit card together that has a balance of $6,000. In your divorce decree, it is ordered that this debt is now the responsibility of your spouse after the divorce is over with. That makes you feel good inside! No more credit card debt, right?
However, keep in mind that if the lending agreement that you signed with the credit card lists you and your spouse as account holders you are still responsible under that agreement to pay credit card bill. The account will still show up on your credit report and you will still be contacted regarding the payment of the bill if your spouse fails to pay as agreed to in the divorce decree.
No creditor will give you “credit” for what your divorce decree states. Simply put, you will be asked to pay your loan according to the terms of your contract or agreement with the creditor. Your divorce decree’s division of debts will not trump the agreement you previously signed with the creditor.
The means by which you can hold your spouse accountable for the failure to pay a creditor as agreed in the final decree of divorce is by filing a petition for enforcement against him or her with the judge whose court your divorce was heard in. You would address the particular violations of the divorce decree (in this case it would be the specific times he failed to make payments on the credit card) and would bring that to the attention of the judge. You can receive a judgment that orders your ex-spouse to not only pay the bill but to also pay your attorney’s fees, and other court costs.
How to draft a divorce decree that takes into account differing levels of future earning potential
If you and your spouse stand to earn many different levels of income in future years then you may be wondering how to best negotiate a divorce decree that takes this factor into account. One method would be to allow the spouse with the greater income earning potential to shoulder more of the debt in favor of awarding him or her a greater than fifty percent share of the marital property. The nice thing about divorce mediation is that it allows both sides to present options to the other for mutual discussion. A trial, as you will find, is not so collaborative. The judge will rarely implement a plan that works equally well for both parties and often times works against the interests of both of you in some way.
Having debt does not have to be a lose-lose proposition. An honest look at your case should reveal that you and your spouse have options to both allocate the debt between each of you as well as divide up your marital property in a way that allows each of you to retain an even share of your assets. Working with seasoned and experienced family law attorneys is a good way to ensure that these results can be achieved in your particular divorce case.
What options may be recommended to you by your family law attorney
There is more than one way to achieve an equitable result in your divorce as far as debt division is concerned. Your attorney may help you do so by recommending any of the following methods for dividing debt.
For one, if you are a spouse who is concerned about being able to provide for your minimal, basic needs after the divorce you can negotiate for spousal maintenance. Spousal maintenance is payments made by one spouse to another that is intended to be able to help support that spouse. If you and your spouse were married for at least ten years and it is shown to a judge that you would not be able to support yourself absent the spousal maintenance payments then this is a possibility for you. In exchange for taking on a greater share of the debt, you could ask for a greater amount of spousal maintenance.
What about car loans and medical debt
Two of the more commonly held types of debt are auto loans and medical debt. I’d like to finish today’s blog post by going through how those loans are likely to be divided up in your divorce.
If you and your spouse’s names are on a car loan that can present a problem in a divorce case. You and your spouse can talk to the lien holder and ask them to refinance the vehicle into whichever one of you want to take on that loan and/or keep that vehicle. Much like we saw with the mortgage scenario at the beginning of today’s blog post, if both of your names are on the loan and the responsible party does not pay then both of your credit ratings will take a hit. There is no deed of trust to secure assumption equivalent for automobiles, either. An enforcement lawsuit would be your best option to address a problem in this area.
Practically speaking, if you nor your spouse anticipate having a great deal of extra cash laying around to make these payments it may be in your best interests to attempt to trade in the vehicle in favor of one that you can purchase with cash. Even taking out a small loan from a credit union in order to do so (if you owe more on your vehicle than you can sell it for) is not the worst idea in the world.
Since Texas is a community property state, you and your spouse are responsible for one another’s medical bills. This means that during the course of your marriage it is possible for a creditor to go after your community property which would include your income in a bank account. Divorce would sever that relationship, however, and you would be able to escape the debt of your ex-spouse.
If you want to know more about what you can do, CLICK the button below to get your FREE E-book: “16 Steps to Help You Plan & Prepare for Your Texas Divorce”
Other Articles you may be interested on regarding retirement accounts
- Can I Keep My Retirement in a Texas Divorce?
- Texas Divorce and Retirement & Employment Benefits by the Numbers
- Is Social Security Considered Separate Property in a Texas Divorce?
- Will My Spouse Get Part of My Retirement in Our Texas Divorce?
- Dividing Property in a Texas Divorce - The Just and Right Division
- Why is Separate Property Important and How to Keep it Separate in a Texas Divorce?
- What Wikipedia Can’t Tell you About Texas Divorce and Marital Property Division
- Texas Divorce Property Division Enforcement
- Separate Property in a Texas Divorce?
- Does it Matter Whose Name is on Title or Deed of Property in a Divorce in Texas?
Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.
Our divorce lawyers in Houston TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Houston, Texas, Cypress, Klein, Humble, Kingwood, Tomball, The Woodlands, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.