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Dealing with Debt in Divorce: Part Two

This article was written by [company] associate attorney Jonathan James.

In my last article on the topic of dealing with debt in a divorce, I talked about how Texas law views issues with debt during and after divorce, focusing on debt in one party’s name. Typically, divorce cases involving debt have a mix of community debt (in both parties’ names), and individual debt (which is, of course, in just one party’s name). While debt can be one of the most challenging topics of conversation a couple can have in negotiating a divorce settlement, there are a few items couples should be mindful of in minimizing the conflict and contention that can arise around this.

If you’re contemplating divorce and using credit cards or other lines of credit, it’s better to use one held jointly by both parties. Using credit in your name puts you in a position of incurring additional debt that you and you alone will responsible for, regardless of what you write into your decree about who owes what. Using credit in your spouse’s name will have obvious, negative repercussions on the divorce negotiations – particularly if you’re the one to file the petition or otherwise initiate the process. (Of course, it’s best to try not to increase debt prior to a divorce if you can at all avoid it.)

If you’re looking to pay down debt prior to a divorce, use community assets to do so. If you’re waiting until the divorce proceedings to figure out how to divide up debts, make sure you know what is jointly-held debt, what is individually-held debt, and what assets are available to pay them down.

If there are assets available or about to become available prior to the divorce (through, for example, the sale of a jointly-owned house), I recommend specifically writing into the decree how assets will be distributed to deal with each specific debt. That allows each party to see it in writing, to sign off on it, and to take care of it during the divorce proceedings. Doing it then and there helps to safeguard divorcing couples against future conflicts and future legal proceedings.

As I covered in my last column, there’s very little legal recourse for an individual to involve an ex-spouse in paying down individually-held debt, regardless of what a non-agreed divorce decree says. Though there might not be assets available to cover the entirety of the debt, I advise looking at the entire marital estate to see how to fairly compensate a party (with additional assets in the property division) who might have incurred household debt in his or her name.

Also, if the level of debt is so severe that bankruptcy might be a route that one or both parties need to investigate, make sure you’re aware of how different types of debt can or can’t be discharged in a bankruptcy. While credit card debt can typically be discharged in a Chapter 7 case, student loan and tax obligations typically can’t. If you feel that filing bankruptcy might be in your future, it’s a good idea to talk to a bankruptcy lawyer to understand what your options are – and your family lawyer is one of the best places to go for referrals.