Just like with property, debt must be characterized as either separate or community debt. Any debt incurred by one of the spouses before the marriage is separate, and that spouse will be responsible for paying that debt.  Any debt entered into by either spouse during the marriage is presumed to be community debt.   A party can overcome the presumption by establishing that the creditor considered only the separate estate of one spouse  for satisfaction of the debt.

Once debt is characterized, the division of debt will be a factor in a “just and right division” of the community estate.  The court can consider several factors when determining which spouse to award a debt:  (1) the spouse’s ability to pay; (2) which party was awarded the property securing the debt; (3) the spouse’s relationship to the creditor; and (4) which party was responsible for the debt.   Based on these factors, one party may end up taking on significantly more debt than the other.  This is especially true if one spouse keeps the marital residence and then takes on the mortgage.

Most divorces settle, and any settlement would include division of debts.  When the case does not settle, the court can deal with debts in a few different ways.  One, the court can order the parties to sell certain assets to pay off the liabilities.  This often occurs when neither side can afford the mortgage on the marital residence on his or her own.  Two, the court can order one side to pay for a particular debt.  Finally, the court can order that the parties are jointly liable for a debt.  This is usually the least desirable outcome, as one spouse’s credit can be negatively impacted by the other spouse’s failure to pay.

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In Texas, the general rule is that property accumulated during the marriage is considered community property and subject to division in a divorce.  However, certain property is considered separate and cannot be touched by the opposing spouse.

First, any property brought into the marriage by either side is considered separate property.  This can include only a portion of property.  For example, if one spouse has $10,000 in a retirement account before the marriage and adds an additional $30,000 to the account during the marriage, the first $10,000 (plus any interest) is considered separate property.

Next, a gift can be considered separate property.  For example, if one spouse’s parents gift that spouse with real estate, cash, etc., it is often considered separate property.  The parties may dispute whether or not the parents intended it to be a gift for only their child or for both spouses.  This would be a fact question for the judge or jury.

Inheritance is also separate property, regardless of when the spouse inherited the property.

Property that has been mutated (sold or exchanged) since its inception must be traced through each mutation or it will be considered community property.    For example, if separate property was used to purchase a home during the marriage, and then that home was sold and the equity was used to buy another home, the spouse who owned that separate property must be able to trace the separate property back to its origin.  Separate property must also be traced when it has been comingled with community property.  For example, if one spouse used separate property as down payment on a home during the marriage but community property was used to make the mortgage payments, the spouse claiming separate property must be able to trace the down payment funds.  Simply testifying that separate property was used in either case is not enough.

In order to rebut the presumption of community property, a party must present “clear and convincing evidence” that something is separate.  In order to meet that standard, the party trying to establish separate property generally needs more than just testimony.  He or she will need some type of documentation to prove separate property.

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