If you’re contemplating divorce, you’ve probably thought a lot about dividing your marital assets. But what about your debts? Will they be divided fairly as well? And what is “fairly,” if one party accumulated more debt than the other?
First, take a look at the kind of debt you have, as individuals and as a couple. Do you have a mortgage and, if so, is it in one or both of your names? How about credit cards — are they individual or joint accounts? Did one of you take out a car loan, or is one spouse still paying off a student loan? Make a detailed list of all account numbers, amounts owed, and whose name is on the debt. A credit report (available free once per year from credit agencies) can help you remember them all.
Since Texas is a community property state, it is also a joint debt state — both parties can be held accountable for debt, even if one was not aware of the loan and didn’t sign an agreement with the creditor. Depending on the facts of your case, the court may or may not hold you liable for your spouse’s debt. The court considers whether one or both parties authorized the debt, knew about the debt, and acted on behalf of the other party.
In general, however, the company that extended the loan looks to the original applicant to pay. If you applied for a credit card individually, for example, you are responsible for paying it off — even if your spouse used it. And if the court makes your ex responsible for a debt, you still may not want to count on her to make payments over time. If your name is on the loan, missed or late payments will affect your credit regardless of what the court has ruled.
One way to avoid such a situation is to transfer the balance of the debt to a card in the name of the person whom the court deemed responsible for paying. If your name is on the original loan agreement, keep in mind that removing your name from the account doesn’t remove your accountability for paying the debt. It must be refinanced in your spouse’s name alone.
During the tension of a divorce, you may be tempted to make hasty decisions about taking on debt, but remember that once the judge approves a settlement, changing it is not easy. Have a family law attorney/mediator help you sort through the finances for a more equitable, less stressful outcome.