Within the context of a divorce in Texas, there are two portions to a case. If you are a parent of children who will be a subject of that divorce, you will be concerned with issues related to child custody and issues related to the division of your community estate. Depending upon what issues are relevant to you and your family, you should begin to prepare for learning and developing a strategy towards dividing up your property and your children’s time between you and your spouse. As the old saying goes, those who fail to prepare should prepare to fail. This is not trying to be too pessimistic, but you can rest assured that your spouse and their attorney will be prepared if you do not prepare in your case. As a result, you will want to make sure that you are knowledgeable of the issues you will face and have a game plan to attack your goals.
Texas is what is known as a Community property state. These are laws inherited from Spanish civil law when it came to how property should be divided upon divorce. Most states in our country follow common law principles of dividing marital property in a divorce. Texas and a handful of other states follow Community property principles, which can dramatically affect how property in your marriage is divided up once you get divorced. I want to spend some time discussing with you today what is Community property, what it means for your divorce, and most specifically, what it means regarding a potential division of your retirement benefits.
What sort of property is divided in a Texas divorce?
Only Community property may be divided into Texas divorce. In general, Community property in Texas is made up of property and debts acquired or in curd during your marriage. This is opposed to separate property that you or your spouse may own individually. Separate property cannot be divided in a divorce and is typically any property you purchased before your marriage or any debt in curd before your marriage. Often, the separate property does figure into the ultimate in how property is divided up, but it does not have to be.
There is a Community property presumption in place at the beginning of your divorce that all property is community-owned. This means that property, income, and debts are all presumed to be a community in nature. A few want to argue that you separately own particular debts or property, or your spouse’s evidence will need to be produced to corroborate these assertions. Community property technically encompasses any income or property earned during the divorce case itself. Separate property exceptions to this rule are property inherited during your marriage or divorce or gifted specifically either to you or your spouse individually.
Getting back to the title subject of today’s blog post, when we talk about benefits like disability payments, workers compensation, 401K accounts, and pensions that are acquired during your marriage, these are considered to be Community property at, as well. If you own a separate property investment or rental home in that property or investment generates income during your marriage, then that income is also considered community property.
How can you determine whether or not a particular asset or debt is a community or separate?
Sometimes it is undeniable whether or not a particular asset or debt is community-owned. For instance, your marital home will be pretty clearly Community property given that neither you nor your spouse owned the home before you got married. However, you may have investments, real property, or other assets that may be more difficult the classified. You see this a lot with bank accounts that were initially community bank accounts but had separate property income deposited in tandem during your marriage. In this case, tracing can be implemented to divide out the separate property and Community property portions of that bank account.
Can a spouse get money back for Community property invested into a separate property asset?
Let’s suppose that you owned a home before your marriage and at home was utilized throughout your marriage to generate rental income for your family. It was an older home that required a fair bit of maintenance and repair during your marriage period, the source of the funds that you used to pay for those costs associated with upkeep on the home or from your and your spouse’s incomes. It should be pretty easy to determine that the home in question is your separate property but that the money used to benefit the home is Community property.
In a situation like this, where community income is utilized to increase the value of an asset that is your separate property, then your spouse on behalf of your community estate may be able to get a reimbursement claim out of the divorce as a result of the money utilized to benefit your separate property. Well, this is a pretty straightforward lesson to learn in the context of a blog post; you should keep in mind that it is not easy to quantify and calculate specific amounts for reimbursement claims. As a result, you should make sure that your attorney works with an experienced accountant or financial professional to prepare documentation that explains the subject well enough to negotiate on it with your opposing spouse.
The process of dividing Community property in a Texas divorce
Now that we have established what Community property is, what Community property is not, and a little bit about how it may impact you and your spouse, we can get into the meat and potatoes of dividing up that Community property. As with anything else in conjunction with the divorce, the best possible route for you and your spouse to go is for you all to agree on a settlement regarding the division of this estate. If you cannot do so, a judge will step in and divide up the estate in a way that they feel is fair.
In your divorce, circumstances may lead a judge not to divide the community estate directly proportional between you and your spouse. What your attorney will ask you to do at the beginning of a divorce is to begin to inventory all property owned by you and your spouse, appraise it by determining its relative value and then create a division of those properties and debts so that you will have a jumping-off point to begin settlement negotiations.
I find it very helpful in a mediation or negotiation setting to create a spreadsheet that contains a list of properties, their values, and how the property can be divided equitably. While your initial plans at dividing this property may not be exactly what happens in real life, it can still be helpful to get the process started and begin acting intentionally regarding this important part of your divorce.
As I mentioned a moment ago, the property is not always divided proportionally between you and your spouse. If you leave the issue up to a judge, it is quite likely that they will consider other issues in your marriage and divide property and debts based on those circumstances. For instance, if one of you played a disproportionate role in the divorce being necessary through infidelity or abuse, then it is likely that the innocent spouse would be awarded more property and fewer debts.
We also need to consider your ability to earn an income in the future compared to your spouse. If you are a very high earner with a significantly greater education for both of your spouses, it is less likely that you will be ordered to receive as much property from the communist state as your spouse would. The reason for this is that it is seen that you can generate more income and therefore have a better chance at achieving success instability in your post-divorce finances when compared to a less-educated spouse who does not earn as much money and has less aptitude to do so.
You can eliminate the risk of a judge dividing up your community estate in a disproportionate manner by making sure that your behavior during the divorce case is sensible and appropriate. Judges typically have no patience for disrespectful behavior either to their spouse, children, or the court itself. If you can act like a grown-up and avoid having to put your foot in your mouth inside the courtroom, it is more than likely that you will have a fair settlement distribution that results in your being able to retain a good portion of your community estate.
My last piece of advice in this regard is to make sure that your inventory and appraisement that we discussed earlier are done with some detail. Both property and debts need to be listed along with the approximate value of each. It is quite likely that your inventory and appraisement will differ in some regards when compared to that of your spouse. That is OK and to be expected. A judge needs to be able to see where both you and your spouse are coming from as far as your ideas about the community in separate states. Each spouse in a divorce has an opportunity to present evidence to a judge to show the nature of this property and its value.
How are retirement benefits divided in a Texas divorce?
Benefits that you derive as a result of your employment can be divided into a divorce. Of course, the portions of any employee benefit or retirement account divided must be Community property in nature. As opposed to dividing up other types of retirement plans, pensions are relatively difficult to divide, and you almost certainly need the help of an attorney and financial professional to help you do so.
Whatever the value of your pension is at the time of your divorce will be what is in play for the division portion of your case. It will be assumed that your employment has ended at that time, and the benefit will be calculated as if he left the company or government entity as your employer. A Community property portion of that retirement account will be calculated based on how much of that value was contributed during your marriage. If you were married for a majority of the time, the money was contributed to that pension, then that same percentage of New York pension will be subject to division. Any amount awarded to your spouse out of your pension will not become available until vested in the account.
If you are vested in your pension, then the calculation process is a little bit more straightforward. In cases like this, you would calculate the account’s cash value on the date of your divorce and subtract the balance on the date that you got married. The resulting number would be what is divided up in a divorce. Most people who find themselves in the circumstances like this would roll their pension into an IRA to avoid paying taxes or penalties on the money.
How do you go about the actual division of a pension?
Unfortunately, there is an added step involved in dividing up a pension or any other retirement account. You cannot simply show your final decree of divorce to your company’s human resources person and expect them to be able to set into motion the division of your pension or another retirement fund. Rather, a formal, legal document must be prepared in presented to the person who administers your pension or another retirement account.
This document is known as a qualified domestic relations order. A judge will sign this order after your divorce. The order will instruct the pension plan administrator to divide up your pension in the way outlined in your final decree of divorce, the order of the relations itself. To avoid any problems with this process, you and your attorney should check with your pension plan administrator before it’s drafting to make sure that it follows all the requirements of your specific pension.
What does this mean for you and your spouse in a divorce?
The bottom line for your case is that you need to have a plan in place at the beginning as far as handling issues regarding the division of your community estate and specific issues regarding the division of your retirement benefits. This is not a subject that you should proceed with with no plan in mind. There is oftentimes a large amount of money at stake in this part of your divorce, and to do so would be to cost yourself potentially hundreds of thousands of dollars, if not more.
You can work with your attorney to not only calculate what a pension’s value is but also to think about how that retirement asset functions regarding the rest of your divorce. Much of the time spent going over how to divide up a retirement account could be better spent determining how to divide up your community state in a way that does not require division of retirement accounts that can be difficult and time-consuming. Especially if you need an immediate cash infusion for the period after your divorce, you may want to avoid negotiating intensely over a pension and focus on more liquid assets instead.
Either way, investing your time in interviewing family law attorneys who have experience in these areas of the law is crucial to your success in a divorce. When you hear about people representing themselves in a divorce, it is cases like this where a pension could be in playwear. I doubled down on my belief that most everyone involved in a divorce needs an attorney. Making the right choice to hire an attorney who works well within your circumstances is a short-term investment that can have potentially significant long-term gains.
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Other Articles you may be interested in:
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- 6 things You Need to Know Before You File for Divorce in Texas
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- Dividing a Pension in your divorce
- 6 Mistakes that can Destroy Your Texas Divorce Case
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- Do I have to share my pension when I divorce?