A Nuts and Bolts Guide to Asset Division

During a Texas divorce, one major issue to deal with is the division of the spouses' assets and debts. There are several steps that must occur during such a division.

Steps in Division

First, the assets and debts must be identified. This is typically done by completing a sworn inventory and appraisal which lists all of the assets and debts owned.

Once the property is identified, the next step is to characterize the property as either community property or separate property. Once all of the assets have been identified and characterized, the court can make its division.

The effect of the division of the property is to give each spouse with the exclusive right of possession of the specific property awarded to them. In Texas, all community assets and liabilities are subject to a just and right division. The just and right division is based on the facts of each case and is not necessarily a 50/50 split. In fact, disproportionate divisions are relatively common. Whether a court's division of the community assets and liabilities is a just and right one is determined by the net value of assets each party receives – not the quantity of the assets.

A judge considers many factors in making the just and right division of the community assets and liabilities. Even though Texas does not require fault to get a divorce, courts consider fault in the breakup of the marriage when making the division. The other general factors that a court considers in making its division are:

• The parties' abilities to support themselves;
• The financial costs incurred by a party while the divorce is pending; and
• Length of the marriage.

When making the division the court does not necessarily have to split each asset. What this means is that if one party gets the house, the other could be awarded an interest of equal value in a retirement account.

Assets

Community property is defined in the negative and includes all property acquired during marriage except for property acquired by gift or inheritance. Separate property is property that is owned prior to marriage, or property that was acquired during the marriage by gift or inheritance. The distinction between community property and separate property is critical because the court divides the community property between the parties but cannot do so for separate property.

Debts

People often believe that a divorce will relieve each spouse from joint debts. Unfortunately, this is not true. In fact, liability on joint debts cannot be relieved simply by dividing the debts and assigning liability in the divorce. A divorce only apportions liability on debts between spouses and does not affect the ultimate liability to the creditor.

The most common example occurs with liability on a home mortgage. Often, spouses jointly incur mortgage debt; then, upon divorce, one spouse takes the house and agrees to pay the mortgage balance. However, the spouse that leaves the house and mortgage is not automatically relieved of that liability to the mortgage company.

Frequently credit card debts are held primarily in one spouse's name primarily, even where both spouses may have signatory authority. In these situations, the spouse who is the primary cardholder should take that debt in order to be in the best position to protect his or her credit. This is true even where the debt is out of proportion to the overall division of the marital estate.

As for joint debts, the only way to be sure that the credit of the spouse not taking the debt after the divorce is protected is to payoff the debt using assets available in the marriage or using debt solely in the name of the spouse assuming the debt.

There is no great solution to the problem of dividing jointly held debts in divorce. If you know that a divorce is on the horizon, work with your spouse as early as possible to address joint debts.