The messiest part of a divorce is often splitting assets and debt. When a couple can amicably decide how to split their assets and debt, they submit a marital settlement agreement to the court, which outlines the provisions made. When a couple can’t work together to split their assets and debt, however, the court will step in and make the decisions for them.
It’s important to remember that courts have the discretion to distribute community property in any way believed to be fair, and often times, fair doesn’t necessarily mean equal. When determining if the presumption of equal division should be adjusted, the court will consider factors such as age, education levels, income, and health. Other considerations include:
If one spouse is the primary caregiver for the couple’s children
If one spouse is determined to be at fault for the divorce
Understanding The Difference Between Communal And Separate Property
For divorcing couples looking to divide their assets without court intervention, it’s important to understand what assets actually are. Texas is a communal property state, meaning all income earned and property acquired by either spouse throughout the marriage is community property and belongs to each spouse equally. The court presumes that all property held by either spouse throughout the marriage is community property. Assets that are to not be treated in such a manner are what’s known as separate property.
Separate property can include anything that belonged to one spouse prior to a marriage that was kept separate throughout the marriage. Common examples include an inheritance, and money received by one spouse as part of a settlement or lawsuit due to injury can be considered separate property. The only time this would not be considered separate property would be if the money was intended to compensate for earnings lost due to an injury.
The first step in dividing assets fairly is to make a list of all community property, along with the value of each asset. This list will likely include houses, cars, bank accounts, investments and retirement plans.
When dividing assets, both spouses should consider the fairest way for assets to be split. Sometimes, it may not be best to split everything 50/50. For example, if a couple’s assets were two bank accounts, one with $100,000 dollars and one with $80,000, and a car worth $20,000, options may include:
Splitting both bank accounts, selling the car and splitting the money from the sale
One spouse keeping the bank account with $100,000, and the other spouse keeping the other bank account with $80,000 and the car worth $20,000. This is still equally split, but simpler.
When couples file for divorce, they may find they have acquired a considerable amount of debt, including car loans, mortgages, credit cards. These debts factor into a couple’s net worth, which means both spouses are responsible for them.
In Texas, certain debt is considered community property. If a debt is incurred during the marriage, and the creditor agreed to look solely at one spouse’s separate property for satisfaction of the debt, the debt may be viewed as separate property. Debt incurred prior to the marriage is generally considered separate property.
When a divorcing couple is trying to figure out how to split their debts, the first step is to write down each debt, along with its dollar amount. The court will ultimately decide who is responsible for each bill when dividing assets and debt, but having a proposed plan in place is helpful and a good starting point.
Division of debt should always be fair. So, if one spouse receives more property, that spouse should also take on more of the debt. The net worth of all of the debt and assets in a marriage is what should be considered, and should be split evenly, but can vary of course, depending on the particular circumstances.
If you or a loved one is going through a divorce, and need assistance in deciding how to split assets and debts, talk to Lyttle Law Firm.