Division of property and debt in divorce

On Behalf of | Jun 1, 2022 | Divorce

Dividing property and debt during a divorce can have substantial consequences long after all the paperwork is signed. Texas law and preparation determine how this issue is resolved.

Final decree

At the end of the divorce case, a judge will divide property and debt by issuing a final decree. It may also address other divorce and family law issues.

The decree will cover property division issues by:

  • Listing the community property that each spouse will keep or order the sale of community property, such as a house, and the division of those sales assets.
  • Listing any separate property of each spouse.
  • Listing the debts each spouse must pay.
  • Setting forth whether community property retirement benefits for each spouse is awarded entirely to one spouse or divided.

The decree typically covers significant assets such as the home, vehicles, jewelry, businesses, jewelry, and financial accounts. Items like furniture and clothing are usually not included.

Community property and debt

Texas is a community property state where, with some exceptions, property that spouses acquire during the marriage is considered to be jointly owned. It does not include property that a spouse proves is separate or the parties agree is separate.

Community property usually includes:

  • Real estate including a house or land
  • Businesses
  • Vehicles
  • Money
  • Retirement accounts
  • Anything earned or purchased by either spouse during marriage

For community property, it does not matter which spouse’s assets were used to purchase the property. The name on the title does not determine which party owns the property.

Community debt is any debt either spouse acquired during the marriage.

Under Texas law, community property and debt must be divided in a just and right manner. This does not necessarily mean a mathematically equal division, however.

Separate property and debt

A spouse must prove that an asset is separate property by clear and convincing evidence. Unless the spouses reach another agreement, this property is classified as community property.

Separate property may not be divided. Judges must designate anything proven as separate property as separate property.

Separate property usually includes:

  • Property owned or claimed by one spouse before marriage
  • Property received as a gift or inheritance to a spouse during marriage
  • Money received by one spouse for a personal injury suffered during the marriage, except as compensation for lost wages or medical expenses
  • Stock dividends and capital gains on one spouse’s separate property investments

Separate debt is debt acquired by one spouse before marriage.

Retirement benefits

These benefits are usually community property. Retirement benefits include pensions, military retirement benefits, 401(k) and 402(b) accounts, stock ownership plans, profit-sharing plans, thrift plans, Keogh plans, stock option plans, individual retirement accounts, annuities, and certain life insurance policies.

The final divorce decree must have specific information about retirement benefits so these benefits may be divided. The judge must also execute a qualified domestic relations order, except for IRAs. A retirement plans administrator will not divide retirement benefits unless a certified QDRO is presented to them. A QDRO is not required if a spouse keeps their own benefits.

Real estate

Home and land may present special problems. First, mortgage companies do not recognize divorce decrees, so it is important for the spouse who was not awarded the house to take their name off the mortgage. Otherwise, that spouse may be liable for mortgage payments if their former spouse living in the house falls behind.

It is also important to obtain a lien to help assure that a spouse complies with any order paying the other spouse part of the equity in the real estate.

Finally, a special warranty deed should be executed by the other spouse and filed with the property records office. Otherwise, it may be difficult to sell the house later.

Attorneys can assist parties on determining the best course of action on property division. They can represent their interest in negotiations and legal proceedings.