Knowing the ins and outs of how the property that you own- both individually and collectively with your spouse- will be divided in your divorce is incredibly important. The rules associated with dividing up property are a guideline that you will be subjected to should you be unable to reach an agreement on this subject with your spouse prior to a trial date. Keep in mind that you are also able to carve out agreements with your spouse both before you get married (known as a premarital agreement) and after your marriage has begun (known as a marital property agreement).
Basically, what you need to understand is that there is property in existence in your home, your office, your vehicle and any other location that is either owned by you and your spouse, solely by you (or you in combination with another person not your spouse) or solely by your spouse (or your spouse in combination with another person not your spouse). These are the confines that you will need to adapt your mind to as we begin to discuss this subject.
What is separate property?
If you owned a piece of property before you got married or acquired property during the course of your marriage by gift or inheritance that property is considered to be your separate property. If that property is actually income and it is used to purchase property of another sort then that property is also considered to be separate property. Via agreements like marital or premarital property agreements you and your spouse can designate certain pieces of property as being separate in nature when in reality they are community owned.
What is community property?
Broadly speaking (as the Texas Family Code does) community property is all property that is not separate property. There is a presumption that all property in existence at the time of your divorce is considered to be community in nature. You or your spouse must be able to rebut that presumption should you desire to assert that a particular piece of property is separately owned.
Commonly, community property includes salary and wages from jobs that you and your spouse have earned while married as well as income that is generated from community and separate property.
With these facts in mind, if you are a person with a substantial amount of wealth or property would be well advised to speak to your future spouse regarding a premarital agreement.
Questions on how property will be classified? Look to the title
If you and yours spouse have differing views on how a piece of property should be characterized- as in, whether or not it is community or separate property- there is method that is used in Texas called the inception of title rule to clear up any issues. The key point in time that will determine the outcome of the argument is when the property is first purchased or acquired. Anything that happens subsequently will not change the nature of the property.
An example to better make our point on community versus separate property
Let’s illustrate this point with an example. Say that you purchased a home before you were married and paid a mortgage in relation to that home. A couple years pass by and you get married and from that point forward the mortgage payments are paid out income that you and your spouse earned from your jobs. So, because community income was utilized to pay the mortgage would your wife have any claim to the property (i.e. your house) in the event that one of you file for divorce from the other?
Under the inception of title rule, no, she would not. The house is still your separate property because it was purchased prior to your marriage. The fact that community income was utilized in order to pay the mortgage during your marriage does not change this.
Now, your wife may have a reimbursement claim in order so that she can be paid back monies spent on the mortgage but the ownership rights to the home are yours and yours alone.
How the inception of title rule can affects recent Texas residents
Suppose that you and your wife moved to Texas from a state that is not a community property state- Minnesota, let’s say. In a state like Minnesota you and your spouse’s salaries are considered to be each of your separate property. This does not change if you move from state to state- even if your new home state is a community property state like Texas. This protects separate property rights that each of you have even if you were to move.
Another key concept to understand is that who is named on the title to a piece of property does not necessarily dictate who the owner of the property is. Regardless if you and your spouse’s name appear on the house that we used for our example a moment ago, if you purchased the house before you were married then the house is still your separate property. Subsequently changing the title and adding your spouse’s name to it does not change the character of the home.
Conversely, if you were to purchase a new boat during the course of your marriage and the boat is titled to only you, it cannot be argued that it is separate property. The fact that the purchase came during the marriage and title came to be during a time that you were married means that it is in fact community property.
How credit is treated in a divorce
Seemingly everybody and their mother has a credit card these days. In years past maybe every other person had one credit card but today most people have a charge card in their wallet- and probably more than just one. As such, it is important for you to understand how credit is treated in a Texas divorce.
If you buy an asset during your marriage with credit then it is treated as community property. The credit account is also community property- or in this case, community debt. An exception to this rule would be to show that a creditor looked only at your or your spouse’s credit history, income, etc. in assessing whether or not to loan money to you.
Blending separate and community property in bank accounts can lead to problems
If you and your spouse share a bank account and have blended together community and separate property funds within that account it can become difficult to determine what is what, as far as characterization is concerned.
The key rule to know is that as far as the Texas family code is concerned, it is a presumption that community funds are withdrawn before separate funds. If, for example, your spouse withdraws all of the community property share of a bank account and leaves only their separate funds any subsequent deposits made do not go to their separate property funds. The deposited money will go towards replenishing the community property portion of the bank account. Keep this in mind as money is deposited into and withdrawn from joint accounts. If you had a separate property interest in the accounts and that account is withdrawn below that initial number you will only get “credit” for whatever the lowest balance in the account was. If you initially deposit $30,000 into a bank account from money inherited from a deceased family member, and then withdraw money from that account to a point where the balance is below $30,000 your separate property interest would be whatever the lowest balance on the account ends up being.
More questions on property and divorce? Come back to our blog tomorrow to read more on this subject
If you have read through today’s blog post and have any questions or seek clarification please come back tomorrow to read more on this important topic. If you have a specific or general question we welcome you to contact the Law Office of Bryan Fagan, PLLC. Our licensed family law attorneys meet with people just like you six days a week in order to answer questions and address concerns on any number of family law topics.
