One of the most contentious and often difficult parts of the divorce process is the division of the spouses’ marital debts. The spouses may be able to agree on how the debts will be divided—but often they cannot, and the court must determine how the debts will be divided—and sometimes the court will order certain assets be sold to facilitate the payment of the debts.
If the spouses live in a community property state (as opposed to an equitable distribution state), and if a debt was acquired by one spouse before the marriage, it will generally remain that spouse’s separate debt and obligation. But if the debt was acquired during the marriage it is a community debt and both spouses are responsible for it—at least in the eyes of the divorce court. Community property states generally include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
In other states—so-called equitable distribution or common law property states—the court attempts to divide the spouses’ debts equitably (fairly) and may order one spouse to use separate property to pay the debts, or may order marital property sold to pay the debts, and award one spouse more of the remaining marital property.
In practice, the difference between the division of debts in community property states and in equitable distribution states is sometimes not as great as it may seem, as the court in a community property state may have the discretion to divide the spouses’ community property and community debts on a 60-40, 70-30, or other unequal basis.
When evaluating the division of debts, it is also important to consider any tax implications for the division of the debts—such as the mortgage interest deduction on the spouses’ home—and the impact on a spouse’s credit when the other spouse is given a debt obligation in the divorce, but fails to pay the debt. Unless the creditor in such a situation has agreed to look only to the spouse given the debt, the creditor may pursue the other spouse for payment of a defaulted debt.
In Texas, which is a community property state, the division of marital debts during a divorce follows the principle that debts incurred during the marriage are considered community debts and both spouses are typically held responsible for them. Debts acquired before the marriage usually remain the separate obligation of the spouse who incurred them. However, Texas courts have the discretion to divide community property and debts in a manner that may not always be equal, such as on a 60-40 or 70-30 basis, depending on the circumstances of the case. It is important to note that the division of debts can have tax implications, such as affecting mortgage interest deductions, and can impact credit scores. If one spouse is assigned a debt and fails to pay, the creditor may still pursue the other spouse for payment unless the creditor has agreed to release the other spouse from liability. Therefore, it is crucial for individuals going through a divorce to understand how debts will be divided and to consider the potential financial consequences.
