Business loans can create confusion during a divorce, especially when business and personal finances are closely connected. These issues often affect how debts are assigned and how each spouse is protected. Understanding how the law looks at these situations can help avoid surprises later.
In the video, Atty. Tyler Monahan of Turner-Monahan PLLC explains how business loans are treated in divorce, including debts in one spouse’s name, creditor rights, and when courts may step in. All case evaluations are based on Texas Family Law. This content is for educational purposes only.
When a Judge May Get Involved
In some situations, a judge would step in as well. Let us say a business loan was taken out. That business loan may have been taken out with the intention of being able to pay for everyday needs like the house, groceries, or the mortgage. Even though the loan is a business loan, it may still be connected to the marriage if the money was used for community expenses.
Business Loans in One Spouse’s Name
If there are loans that were taken in only one spouse’s name, the creditors are generally only able to go after that particular spouse. The spouse who signed the loan is the one responsible to the creditor. The spouse who did not sign the contract is usually not directly responsible for that debt.
When a Business Is Used to Take on Debt
If there is a business involved and the spouse used that business to acquire debt or take out a loan, it can depend on how the business and the debt were used. A creditor could step in if both spouses claim they are not liable for the debt. In that situation, the creditor may try to do what is called piercing the corporate veil.
This means the creditor may say that the spouse was living through the business. If the funds from the business were taken and used to pay community debts, such as household expenses or other shared costs, the creditor may argue that the business was not truly separate from personal use.
What Creditors Can and Cannot Do
In these cases, creditors can come after the individual who signed the contract. However, they generally cannot go after the spouse who never signed the contract. The responsibility usually stays with the spouse whose name is on the loan documents.
Court Orders and Divorce Decrees
If a judge steps in or if there is an agreement that results in a decree that is signed and entered with the court, the situation can change. If that decree establishes a separate way that debts are supposed to be paid, then either spouse may be able to take action against the other spouse later.
If one spouse ends up paying more than what they were ordered to pay, whether in full or in part, that spouse may be able to sue the other spouse for not following the court order regarding the debt. This applies if the agreement clearly set out how the debt was supposed to be handled and one spouse did not follow it.
Why Records and Paper Trails Matter
Clear records can make a major difference in these cases. Bank statements, loan documents, and proof of how money was spent can help show whether a debt truly stayed within the business or crossed into family use. Without good records, courts often rely on reasonable inferences, which may not favor the spouse who controlled the finances.
What Does the Texas Family Code Say About Debt Responsibility
The Texas Family Code provides guidance on how debts are treated during divorce. Section 3.201 explains that a spouse is personally liable for debts they incur, but community property may still be used to satisfy certain obligations. Section 3.202 discusses which property is subject to liability, including how community property can be reached depending on who incurred the debt.
Section 7.001 gives courts the authority to divide the marital estate in a manner that is just and right. This allows judges to consider business debts and how they affected the marriage. Section 3.402 addresses reimbursement claims and explains when one part of the marital estate may be owed compensation by another. Section 7.009 covers fraud on the community, which may apply if one spouse used business debt or funds in a way that unfairly harmed the other spouse.
Hire An Experienced Fort Worth, Texas, Divorce Attorney
Business loans can affect a divorce in ways that are not always obvious at first. The details matter, especially how the loan was used and documented. Because these situations can be complex and fact specific, it is important to consult with a family law attorney to understand how Texas law applies to your case.
Schedule a free, no-obligation consultation with Attorney Tyler Monahan to discuss the details.
Check our website for more information about our services. Plus, don’t forget to go through our blog to find out more about your case. There is tons of information on divorce and answers to unique questions like “How to Handle Holidays After a Divorce: Visitation Tips”
FAQs Regarding Divorce
Divorce cases are unique, so you will have many questions. To save you time and hassle, here are some topics that revolve around the area. For more information, contact our firm, Turner-Monahan, PLLC.
Disclaimer
The commentary and opinions are for informational and educational purposes only and are not intended to provide legal advice. You should contact an attorney in your state for legal advice concerning any particular issue or problem. You can become a client and enter the attorney-client privilege only after hiring Turner-Monahan, PLLC, by signing a written retainer agreement.
