If you are divorcing, you are likely thinking about how you’ll divide your assets. But what about your debts?

There are a handful of things to consider when dividing debt during a divorce.

Community Debt vs. Separate Debt

Texas is a Community Property state.

So, the first question you’ll need to answer for each debt in your estate is whether it is Community or Separate. Just like with assets, debt can be Community – owed equally by both of you – or Separate – owed by only one of you.

In general, debts that pre-date the marriage will be deemed Separate and debts incurred during the marriage will be deemed Community.

A major exception to this rule in Texas is student loans. Student loans in the name of one spouse are typically characterized as Separate Debt no matter when the loans were taken out.

Only Community debt would be subject to division in your divorce.

Secured vs. Unsecured Debt

Another thing to consider when dividing up debt is whether the debt is secured or unsecured. Secured debt is backed by an asset like a house or car while unsecured debt is not tied to any asset.

In most cases, it makes sense to award secured debt to the party who is awarded the asset that secures it. For example, if you drive a 2024 Honda Civic with a loan for $20,00 against it, you would be awarded both the Civic and the loan used to finance its purchase.

Unsecured debt can, in theory, be awarded to either spouse.

Joint Debt vs. Individual Debt

A third factor to consider is how the debt is titled. It could be titled to just one of the parties or jointly titled. Generally, it makes sense to award debt in individual name to the person to whom the loan was originally made.

Jointly titled debts could be awarded to either party. However, the party who isn’t awarded this debt will likely want that debt to be refinanced.

Why?

Because no matter what your divorce decree says, if your name is on it, the lender can come after you to pay the loan if your ex stops making payments.

For example, say that you jointly own a home worth $500,000 and jointly hold a mortgage with a balance of $300,000. If your ex is awarded the home and the mortgage, you would not want your name to remain on that mortgage. If your ex ever stopped making payments, the mortgage company could come after you for those payments.

The only way to remove your name from the loan is to refinance it.

Dividing the House: Creative Home Equity Division Techniques in Divorce

Bottom line, if the debt is titled in someone else’s name or in joint name, it’s likely that debt will need to be refinanced to protect the other party.

Other things to consider

There are a handful of other questions you should ask as you divvy up your debt.

The biggest one is, if the debt needs to be refinanced, can it be?

Can the party who is awarded the debt quality to refinance it? This comes up a lot when awarding the family home and associated mortgage. Don’t wait until after your decree is signed and entered with the court to ask this question.

Can the party being awarded the debt afford to service it?

This is why having a budget for your post-divorce life is so important. It would be a shame to take on debt and have no way to pay it.

It is also useful to ask how the debt came to be? Did your soon-to-be-ex run up a credit card bill buying things for their mistress? Did they gamble away community money and turn to credit cards to pay bills? Did they take out a loan you knew nothing about?

If the debt arose from bad behavior or poor choices on the part of your soon-to-be-ex, talk to your attorney about your legal options.

Consider if your agreement around how debts are to be awarded could result in enforceability issues. Your attorney can help you determine if enforcement could become a problem or if your decree needs specific or special language to head of enforcement issues.

Finally, keep in mind that a couple must divide their estate (debts and assets) in a “fair and equitable” manner. How your debts are divided will impact how your assets are divided because you are dividing the entire estate.

Like many elements of divorce, having an expert by your side can make the process of diving up debt run more smoothly and may result in better outcomes.

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Fact checking for this article kindly provided by Candace B. Demary of The Law Office of Candace B. Demary, PLLC.

The Law Office of Candace B. Demary, PLLC and Baird are not affiliated.

Robert W. Baird & Co. Inc. does not offer tax or legal advice.