Divorce entails both physical and financial separation from one's spouse. And, as the U.S. slowly emerges from a severe recession, many people contemplating divorce are concerned about the effect of divorce on their finances. However, understanding how property division works in divorce and its impact on one's finances can help allay some anxiety over the process.
Because Texas is a community property state, almost all assets - whether physical or financial - either spouse acquires during a marriage is classified as martial property. When a couple gets divorced in Texas, their marital property is divided in an equitable manner according to what a judge determines is "just and right."
Although people commonly picture physical items such as homes or cars when thinking of marital property division in divorce, the process also includes division and allocation of financial assets. Moreover, many people do not realize that a couple's debts are also divided and allocated in divorce.
Marital Debt Division
There are three basic possibilities for dividing a couple's marital debt in divorce proceedings. First, the couple may sell some of their joint property, such as a house, and use the proceeds to pay off debt like a mortgage. Second, one former spouse may agree to repay a larger portion of the debt in exchange for receiving a larger share of the marital property. Third, a couple may agree to divide both their property and their debt equally. There are pros and cons to each of these arrangements, and the amount of debt a former spouse may owe after divorce depends on the option selected.
Retirement Account Division
Another lesser-known part of marital property division is the division of retirement account assets. Any contribution a spouse makes to a 401(k) or other retirement account during a marriage is considered marital property in Texas. Therefore, if the couple divorces, the contributions made during the marriage are divided and allocated between the spouses using a Qualified Domestic Relations Order. Any contributions made before the marriage remain the separate property of the individual and are not distributed in divorce.
These are just some of the ways divorce can affect one's finances, and a lawyer with experience in divorce cases can help people better understand marital property division and the financial implications of divorce. If you are considering divorce, contact a knowledgeable family law attorney to explore how divorce could affect your finances and to protect your financial future.