Divorce and debt

Posted in Divorce.

As common sense and statistics tell us, the leading cause of marital discord is money. Therefore, it is not surprising that many times divorce inventories have more red numbers than black ones.

Media sources often portray Hollywood stars of “power couples” divorcing. Included with the typical hype may be which party will get the mansion, vacation home, or car collection, but rarely is there any coverage about how the parties will divide debt.

The hard truth is that debt, just like assets, are included in the community estate. No matter what your own moral compass may register regarding your and your spouse’s debt, Texas case law establishes rules that might surprise you. First, debt incurred during the marriage is presumed to be community debt. See Cockerham v. Cockerham, 527 S.W.2d 162, 171 (Tex. 1975). There must be a sufficient amount of evidence to rebut this presumption.

Despite well established case law, Texas divorce decrees contain sections entitled “Debt to Husband” and “Debt to Wife”, which seemingly assign responsibility for each debt. These sections of the decree will identify each creditor, the account number, and account balance. At the close of the divorce proceedings, the divorced couple has a lengthy document called a final decree of divorce. The husband, wife, their attorneys, and the judge sign the final decree. Often times the parties order a certified copy of their divorce decree, throw it in a drawer or the safe deposit box, and rarely look at it again unless there are children and custody issues involved.

It may be months or years later when the phone rings and one of the parties is greeted by the monotone utterances of a bill collector reading a script off the computer screen. The dialogue may go something like this:

Bob the Bill Collector: “This is Bob with XYZ Visa. I’m calling because your account is 60 days past due, and I need to know when you plan to remit the past due amount and begin making payments.”

You: “What are you talking about? That’s my ex’s account. Our divorce decree says so. I haven’t been married to him/her in over (whatever time frame)! Call that deadbeat for the money.”

Bob: “Well, Mr. or Ms. So and So, that doesn’t mean you don’t owe the debt if your ex defaults.”

You: “I have a certified court order signed by me, my ex, our attorneys, and the judge saying that I don’t owe you anything for that account. That account is the ex’s problem. When you find him/her, let me know because he/she owes me money, too!”

Bob: “Your divorce decree might say you aren’t responsible, but the law says you are. Why don’t you give me a check by phone and we can get you on a payment plan.”

You: “Are you dense?! Did you hear anything I just said?! I’m not responsible and I’m not paying you one red cent on any of that debt. Call the ex but stop hounding me!”

Bob: “Mr. or Ms. So and So, I did hear you, and you’re wrong. No matter what your divorce decree says, you owe XYZ Visa. If you don’t begin making payments, XYZ Visa will report this delinquent account to the credit reporting agencies, and take action up to and including litigation.”

I’ll let you fill in the closing dialogue for yourself. You are angry and hang up the phone. You may think that Bob, located at some call center hundreds of miles away, has no idea what he’s talking about.

As unsettling as it may be, Bob is right. Unless the XYZ Visa was a party to your divorce suit and agreed to the terms of the final decree, you owe the money. It is highly unusual for a husband and wife or their attorneys to implead creditors into divorce actions due to complex legal issues such as jurisdiction and venue on both the state and federal level.

To understand how you could possibly be responsible for debt assigned to your ex, you must rewind to the point in time when the credit account was opened. You will need to look at the original account agreement. Almost no one keeps those documents, so order a copy of your credit report from one of the big three credit reporting agencies (EquiFax, Experian, or TransUnion). If the account shows up on your report, then you were more than likely a party to the credit agreement. Despite how the divorce decree allocates the debts (both secured and unsecured), the Court has no authority to modify the contractual obligations between the spouses and the creditor.

To say it another way, the court cannot take away the creditor’s right to proceed against either spouse(s) for payment of a community d

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