If you embark upon divorce, you probably understand that it is not an easy process. One of the problematic aspects of a divorce is properly characterizing the property that you and your spouse own. Meaning: is an asset part of one of your separate estates, or is it part of the community estate and thus subject to being divided up in the divorce.
The law in Texas has a presumption in place which places all assets within the community estate. It is up to you or your spouse to prove with clear and convincing evidence that the investment in question is part of one of your separate estates. The key to determining where the asset should wind up is by looking at when (in terms of time) the property was purchased or acquired.
Let's look at the burden of proof that either you or your spouse have to bear to prove that an asset is not community property.
What is clear and convincing evidence?
In the previous section of this blog post, I utilized the phrase "clear and convincing" evidence to describe the level of proof needed to rebut the presumption that all property owned by you and your spouse is a community in nature. Clear and convincing is not just a tidy phrase that I wanted to sound smart. It is the legal standard by which a judge will apply the facts and evidence available to them to determine whether or not the community property presumption has been rebutted.
Clear and convincing evidence means that the judge must hold a firm belief or conviction as to the truth of the matter that is being asserted. It's not so strong that there must be no doubt in the judge's mind, but it must present a reasonable amount of certainty in the judge's mind that the asset is, in fact, separate property of you or your spouse. It would make sense for you to go back in time and show a judge that the asset was acquired before you and your spouse married one another.
Tracing the title of an asset
If you are the spouse who asserts that an asset is your separate property, you must be able to establish when the title in the support came to be in your name. For a piece of real estate or other property in which title is found, the date on which you purchased the home or raw land is the relevant date for marker tracking purposes.
Your asset will remain separate property as long as you can overcome the presumption that the support is community property- no matter how the investment has changed from the first date you owned it until the current date. If you blend your separate property with the community property owned by you and your spouse, the individual property can lose its designation as such. Be careful that if you own particular property, never mix it with any property part of the community estate.
What is the goal of tracing in the context of community/separate property?
In utilizing tracing, you seek to show a judge the clear and convincing evidence that she will need to see before determining which column to place that particular asset into.
Keep in mind that if you fail to prove through tracing that a particular asset is part of your separate estate, it will become part of the community estate.
An examination of the most commonly utilized method of tracing in Texas divorces
Now that we have introduced the topic of tracing let's get into one of the ways you can prove to a judge that an asset is a part of your separate estate.
The most utilized method for tracing money from commingled bank accounts back to where the asset originated in the community out the first theory of tracing. This method centers around the concept that when spending occurs, the community resources are spent first before separate funds are ever touched.
This theory has been developed in Texas over many years. Let's discuss a few hypothetical situations that illustrate what this theory entails.
Hypothetical example No. 1
Suppose that you and your wife own a shared bank account containing $1,500 in community estate funds. Your wife comes into an inheritance that totals $3,000 and is considered her separate income as inheritances are an accepted form of individual income under the family laws in Texas. As a result, in your one bank account, there are community funds and your wife's separate funds that have been deposited.
Throughout several years, you all have made more deposits and have made withdrawals as well. The balance in the account never went below $3,000 (the total amount of money deposited into the account from your wife's inheritance). One day in the future, money from this account is utilized to put a down payment down on a tract of land. The report is left with less than $3,000 in it. So, is the tract of land part of the community estate or part of the separate estate?
A court would likely presume that the community funds would be withdrawn first before your wife's funds were tapped to make the down payment. Since the funds in the account never got below the $3,000 in separate income (at least until the time the down payment was made), the balance in the report should be determined to be the respective property of your wife.
Hypothetical example No. 2
Suppose that your husband owned a business that generated $10,000 and was deposited into a bank account. You all then withdrew money from that account that totaled $11,000. As the income generated by the business never equaled or exceeded the withdrawals that were made during your marriage, the evidence would seem to support the idea that no community income would have been utilized to pay for inventory or upkeep of the business- only your spouse's separate property funds would have been used.
Look to the real estate the business was located on, the tools utilized in performing the services the company provides, as well as the assets of the company. If your spouse owned those before your marriage and used them in the business's day-to-day operations, they are characterized as separate property of your ex-spouse through the end of your wedding. This includes money used in the account you and your spouse shared to buy a new inventory of items.
Hypothetical example No. 3
Probably the most straightforward tracing example that I can conceive of involves you and your spouse owning one joint checking account in which the balance was never more than $3,000. Shortly after your marriage began, your spouse inherited a large sum of money from a deceased relative.
A check representing the entirety of that inheritance was deposited into your checking account. Immediately after that, your spouse purchased a rental home using funds from your joint checking account.
In this situation, even though the money in your checking account would have been "commingled," it is pretty easy to segregate the community income from the separate property. If you and your spouse were to get a divorce, it would take too much effort for your spouse to trace his depositing an extensive check into the checking account.
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Other Articles you may be interested in:
- What Every Entrepreneur Needs to Know About Community Property Division
- What is community property in Texas?
- Community property issues in Texas divorces: Wasting of assets by spouses
- How does a judge divide up community property in a Texas divorce?
- What happens if you and your spouse mix community and separate property?
- Community Property in Texas: What you need to know before you get divorced
- Community Property Essentials for Texas divorces
- Community Property and Credit in Texas Divorces
- Community Property Law in Texas
- Family Law Cases in Texas: Marital Property and the community presumption
- Reimbursement of the Community Estate: Continuing the Discussion on Divorce
- Texas Divorce Overview: Dividing Community Property and Debts
- Dividing community property in mediation: What can be done to settle your divorce in Texas
- The community estate in a Texas Divorce: Where is all of our stuff going?