Sweeping the corners of your family law case: What about gifts and loans in Texas divorces?

If you have ever gone through a divorce or have known someone who has gone through a divorce, then you likely are aware of at least some of the issues relevant to that type of case. The children, the house, the cars, the property, retirement savings, and maybe child support. Those are the issues everyone knows about when it comes to a divorce. We family law attorneys focus on these issues for a good reason because they make up a majority of your divorce. You have to prepare for the problems that you know are going to arise. To not do so would like failing to study for those subjects you know for a fact will be on your next exam.

Today’s blog post from the Law Office of Bryan Fagan will take a different sort of approach to this subject. I want to sweep away the corners of your case and discuss some of the lesser considered yet still essential topics about Texas divorces. Some of these issues may be ones that you have never really put too much thought into yet are nonetheless crucial in their own right. When taken together, they represent issues that can have a meaningful impact on your case, and you need to have a game plan on how to attack them before your case begins.

What about the gifts you receive from family members?

If you are a regular reader of our blog, you are probably aware that gifts are separate property, no matter when you receive the gift. The main exception to this rule is that if it was clear from the gift method, the giver intended for the gift to be shared by you and your spouse. However, since the property is presumed to be a part of the community estate at the time of divorce, you must be able to submit evidence to the court showing that the property is separately owned should the need to do so arise.

Assuming that you can prove that a piece of property was given to you as a gift, the next step would be to provide the facility only to you and not your spouse. If you were not married when the gift was given to you, this would take care of any doubt as to whether or not the facility is your separate property. If a person gave you and your spouse the gift, and it was clear from the method of “gifting” that it was given to both of you, then it would be considered jointly owned separate property. The quintessential example of a jointly owned separate property would be wedding gifts. It is tough to argue that the dinette set that your Aunt Ada addressed to you and your spouse on your wedding night was you’ve solely managed the separate property.

What would you need to present as evidence to prove that a gift was made to you individually rather than to you and your spouse? I suppose that it would need to be a testimony. While it may not be possible to get Aunt Ada to come to your trial and testify as a witness that she did indeed gift that dinette set to you as an individual (given that it was a wedding present), you may be able to get your third cousin to testify that the bass boat he gifted you was for you alone since he didn’t know that you were married. Otherwise, I don’t know what evidence would exist to show the mindset of the gift giver- other than their testimony.

Would your testimony be enough to show that something was a gift and not a sale of goods?

Consider the following example while we attempt to answer the above question. Suppose that you and your spouse are getting a divorce. During your marriage, you have gifted two vehicles from your parents. To prove that the first vehicle was a gift, you get up on the witness stand and testify as such. However, regarding the second vehicle, you are truthful in telling the judge that it was given to you by your parents in exchange for some work you had done around their house years earlier.

I believe that the testimony regarding vehicle number one is sufficient to establish that the vehicle was given to you as a gift. This would be especially true if there were no contrary evidence presented. However, the second vehicle pretty clearly was not a gift. A gift can be thought of as a piece of property given to another without anything given back in return. Suppose you received a piece of property in exchange for money, for another good, or for a service you previously provided or will provide in the future. In that case, the property you received cannot be considered a gift. Therefore, that second vehicle would correctly be classified as a part of the community estate.

What to do about refinancing a loan on a separate property home?

What if you refinance a home that you owned before your marriage? That home’s deed now bears your name and your spouse’s name. Could your spouse make a credible argument that the property is now a part of the community estate? Does refinancing a home loan during the marriage cause the characterization of the home to change?

Just because your spouse’s name is on the deed to the house does not mean that the house is now a part of your community estate. Since Texas is a community property state, the mortgage company probably required your spouse’s name to be on the deed of trust. If their name were not included in the deed of trust, there would be an issue because they could not foreclose on a home unless both spouses’ names were on the deed.

A deed of trust does not transfer ownership like a special or general warranty deed would. Suppose this situation came up in your divorce case, and you were called to testify about it on the witness stand. In that case, all you would need to do is testify that the only reason your spouse’s name was added to the loan was that it was forced upon you either by the title company or the lender. You had no intent to gift your spouse anything, therefore. No intention to gift equals no gift, no matter what the other circumstances look like.

As with any area of the law, there may be exceptions, depending on what appellate court cases you and your attorney make known to the judge. When considering this issue, a good rule of thumb is that you can be pretty sure that a house is still your separate property after a refinance occurs unless you sign something more than just the deed of trust that evidence a desire for your spouse to have ownership in the property. A special warranty deed signed by you and your spouse would almost surely change the nature of the house. A refinance does not call for either of you to sign a document that transfers ownership.

Thanksgiving dinner will never taste the same- family loans.

In a way, we can all argue that we owe a debt of gratitude to our families- specifically to our parents. Our parents took care of us, fed us, clothed us, put a roof over our heads, all without recognition or pay. It costs money to raise a child. Nobody is paying you to do so. These are the sort of expectations that we have when parenting a child in this country.

On the other hand, suppose that you need a few bucks to pay your rent or buy a house after you’ve grown up. Your credit was shot, so all you could do was ask your parents for a loan. You promised them you would pay them back quickly. Your dad, a former CPA, took you at your word and memorialized your writing agreement. You, your mom, and your dad all signed the deal.

Now that you are getting a divorce, you have asked your attorney how this loan will be treated. Indeed, divorce cases frequently involve the spouses transferring money to one another and family members sharing money with people getting married. As long as you and your spouse are married, it doesn’t matter how the giving of money is classified. However, as soon as you decide to get divorced, the characterization of that transaction begins to come into focus.

You may want to argue that the giving of the $10,000 represents a loan from your parents. A debt would allow you to retain an equal amount of your community estate to compensate you for the negative that the loan represents. Your spouse may disagree and argue that the $10,000 was a gift made to you and her and is therefore subject to being divided in as a jointly held gift.

So the question is: how would you go about attempting to argue that the transfer of money to you is a loan and not a gift? As I noted in an earlier section of this blog post, you and your parents could testify about the circumstances surrounding the transfer of the money to you. We have already seen that absent other evidence, testimony alone can be sufficient to meet the burden of proof necessary to establish something as a gift or as a non-gift.

The other interesting piece of this puzzle is that you could take the analysis a step further and decide what the money purchased. While you may want to make an argument that the money was a loan and not a gift in one application, in another, you may be interested in stating that because the money was a gift, the new riding lawn mower you purchased is your separate property because of the money you used to buy it was gifted to you individually.

All of this is to say that if you present these sorts of facts to a Texas family court judge, it is likely that they would rule that the transfer of the property was a gift and not a loan. That is the presumption that courts start with. Suppose you are on the other side of the argument and want to establish that property is a community in nature. The money transferred by your spouse’s parents to your spouse was not a separate property funds transfer. In that case, you will need to put forth some evidence to do so. Evidence means something beyond mere testimony from you about the circumstances surrounding that transfer of property. For instance, if you have a string of emails between you, your spouse, and their parents that stand to show that a transfer was not a separate property gift to just your spouse, that would be something very interesting to a judge.

The bottom line is that you need to document all transactions between yourself and family members. Even if the circumstances are straightforward to you at the time of the transaction, you can’t predict the future and don’t know how something could be twisted against you moving forward. If your parent intended to loan you money, get some paperwork set up to evidence that intent so there is no question in the future. This will help you avoid a lot of headaches if you become involved in a divorce case.

Questions about divorce cases in Texas? Contact the Law Office of Bryan Fagan

If you have any questions about the content of today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week where we can answer your questions and address your concerns directly.

If you do not know where to begin with a divorce, we can show you the basics of filing a divorce lawsuit. On the other hand, if you have a specific question about a particular issue, then come to us with those as well. You can lean on our decades of collective legal experience to receive an answer to your pressing legal questions. Thank you for choosing to spend part of your day with us here on our blog.

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