Divorce Basics: Dividing Your Property and Debt

Marriage doesn't end when you divorce. It continues even after the final "I do." And sometimes, the division of property isn't easy. When spouses don't agree over what belongs to whom, the courts are called upon to make decisions.

Marital property includes everything acquired during the marriage. This includes real estate, cars, bank accounts, stocks, bonds, 401(k), pension plans, life insurance policies, annuities, collectibles, antiques, art, jewelry, furniture, clothing, appliances, tools, and equipment, computers, cell phones, etc. Anything you bought together is considered marital property. You cannot sell it without getting permission from your spouse.

The law says that anything you buy with money earned during the marriage belongs to both spouses equally. For example, if you earn $50,000 a year, your husband earns half of that ($25,000). You could spend that money however you want. But if you decide to invest that money, you must divide it 50/50. So each person owns one-half of whatever you invested.

If you inherited something from someone else, it is called separate property. Separate property includes things like inheritances, gifts, and cash received prior to the marriage. Your spouse cannot touch the money without your consent. However, he or she can keep the house and car.

Marital property is everything owned by either partner prior to the marriage. Anything acquired during the marriage is considered joint property. The joint property includes assets such as homes, cars, bank accounts, retirement plans, and mutual funds. Marital property is divided up equally upon divorce unless otherwise agreed to by both parties.

If one spouse owns property before marriage, it is separate. This type of property cannot become part of the marital estate.

A gift or inheritance received during the marriage is separate property. A gift is anything given freely without the expectation of return. Inheritance is what you inherit because of the death of someone else.

For example, a wife owns rental real estate before the marriage. She rents out half of the house to her husband. During the marriage, he works hard renovating the home. When the renovation is complete, the home is worth $100,000 more than it was before the marriage. After the marriage ends, the wife receives a check for $50,000. The $50,000 represents the difference in the value of the property. Because the money came from the husband's separate property, it is his separate property.

The same rule applies to the appreciation of separate property. If the rental home increases in value, it becomes more valuable. However, if the wife sells the home, the proceeds go into her pocketbook. They are not added to the total amount of the marital estate. Any increase in value due to inflation goes toward making up for lost income over the life of the mortgage.

If one spouse owns real estate prior to the marriage, that asset is considered separate property. If the owner puts money into the house during the marriage, it becomes part of the marital pot. This includes things like paying off mortgages, making repairs, etc.

The law says that the original owner gets half of the real estate's value, whether or not he/she put money into the property.

However, there are exceptions. Some states allow spouses to divide separate property without regard to how much each spouse puts into the property. In some cases, the court might decide that the family farm should go to both spouses equally because both helped make it what it is today.

In addition, even though the law says the original owner gets half, the spouse who contributes to the increase in value does not lose his/her interest in the property.

Marriage is one of life's most important commitments. As you make plans for your future together, think about how you'll handle paying off your debts after the wedding. If you're getting married soon, you might want to start thinking now about what you'll do if things don't go according to plan. What happens if you break up? Do you still owe money to creditors?

If you are having trouble making ends meet, consider taking out a loan. You might be able to borrow money to cover living expenses while you save enough to pay off your debts. Or, you could use credit cards to help you build up a cash cushion. But keep in mind that interest rates on credit card balances tend to be much higher than those on loans.

You may also try to negotiate with creditors to lower your payments. For example, if you have multiple credit card accounts, ask your creditors to consolidate them into just one account. And if you have student loans, talk to your lender about consolidating them into another type of loan.

Debts incurred prior to marriage are considered separate debts, even if the spouses use joint accounts to pay for them. This includes debts purchased with premarital funds, such as those used to buy a house or car. However, debts incurred during the marriage are generally considered marital debts.

The reason behind this distinction lies in the fact that it makes sense for married couples to pool resources together. For example, if you both work full-time jobs, there is no reason why you shouldn't combine your salaries to make payments on bills like rent, mortgage, insurance, etc. But if you each had a separate bank account, paying off the home loan could mean having to wait longer for the money. If you're making payments on student loans, combining finances might mean that you'd have to take out another loan to cover the difference.

In most cases, the person who paid for the item will end up being responsible for the debt. If you borrowed $10,000 from a friend and used his credit cards to pay off the bill, he'll probably be liable for the entire amount. And if you want to add insult to injury, you can sue him for breach of contract.

However, there are situations where the opposite holds true.

For instance, if you bought a car with a partner and took out a loan to finance the vehicle, you wouldn't necessarily be responsible for the debt. Instead, your partner would be liable for the whole thing. Similarly, if you used your husband's credit card to purchase groceries while you were living apart, you'd be responsible for the charges because you didn't live under the same roof.

The person who is awarded a property usually takes on the associated debt. This is because it is assumed that the person who receives the award will use the money wisely. If no one wants to take on the debt, the property goes unsold.

If there are multiple people who can afford to pay off the debt, the owner of the property makes sure that only one person pays the debt. When this happens, the person who gets the property becomes responsible for paying off the debt.

This is why you see people say things like, "the house doesn't sell, so I'll just keep it." In reality, the person who wins the property usually ends up taking on the debt.

Divorce is one of life's most stressful events. It takes a lot of emotional energy just to go through the process. And once you do, there's no guarantee that the outcome will be what you want.

If you and your spouse can agree on how much money each person gets and how much credit card debt each person must pay off, you can save yourself thousands of dollars. But if you don't know where to start, here are some tips to help you figure out how to split up your property and debt.

An experienced family law lawyer in Harris County, Galveston County, Fort Bend County, Montgomery County, Brazoria County, Houston, Sugar Land, Missouri City, and Stafford, Texas at Thornton Esquire Law Group, PLLC, can help you explain and navigate the entire divorce process. Contact us today at Thorntonesquirelawgroup for a free consultation.