What role does the acquisition of property play in its classification?

A divorce can be an extremely complicated legal matter for the most part because it touches on so many parts of your life. Most civil cases relate only to one area or another but in a divorce, your children, your marriage, your finances, and almost everything else related to you will become a part of the case. On top of that, you are having to handle these matters while negotiating with a spouse who is not your biggest fan at the moment- and vice versa. All in all, a divorce can become challenging without it even being that complex. The more prepared you are for your case the better equipped you will be to meet those challenges head-on and not suffer because of lack of preparation.

Some people who go through a divorce have children’s issues to consider but everyone who goes through a divorce has financial issues to consider. When considering financial and property-related issues in Texas, the most efficient course that you can take in terms of learning the law and how it applies to your circumstances is to understand the basis of community property law. Community property is a legal theory that applies to the ownership of property in existence at the time of your divorce. In today’s blog post from the Law Office of Bryan Fagan, we are going to discuss the subject of community property and the role that acquisition of said property plays in how it is classified for your divorce.

How is community property defined in Texas?

There are two terms that you may see and hear from time to time in connection with how property is related to divorce cases marital property and community property. When we talk about either of these terms what we are discussing is property that was purchased or acquired during your marriage. Property that you or your spouse owned before the marriage will be classified as separate property and is not subject to division by the judge. The tricky part of this conversation comes when there is disagreement over whether the property belongs in the community estate or the separate estate of either you or your spouse. That is when divorce cases that otherwise could have been settled in mediation head toward the courtroom.

A word on postnuptial or prenuptial property agreements

At this point, I think it makes sense to mention that there is a way for you to potentially avoid the disagreements and unpleasantness associated with arguing over whether the property belongs to you, your spouse, or both of you. That would be by negotiating and completing the process of walking through a postnuptial or prenuptial property agreement. These are essentially property agreements that can be negotiated with your spouse during the marriage or with your fiancé before your marriage. You may have heard of the latter referred to as a “prenup” in movies, the news, or television shows. These are contracts that the two of you can come to an agreement on which will divide property in the event of a divorce sometime in the future.

If the two of you never get divorced, then the document does not do anything. It would sit on the computer of you or your lawyer for future reference. However, if you did get divorced then that agreement would take the place of weeks and months of settlement negotiations and bickering when it comes to your property. It would not impact the negotiations on anything having to do with your children. The nuptial agreements only relate to property. The downside of drafting a postnuptial agreement is that your circumstances may change over time rendering the document obsolete. On the other hand, if that does happen and you either become much wealthier, your circumstances change, or you lose a great deal of wealth then you should consider revising the document.

Overall, the most relevant selling point to a postnuptial property agreement is that it is better to negotiate with your spouse when you are on good terms rather than when you are on bad terms. Divorce is bad enough but when you consider that you are going to be negotiating with your co-parent on issues that are central to your lives while you cannot agree on much of anything else tells me the backdrop for negotiations is not that ideal. Certainly, it would be better to walk through these issues when the two of you are on good terms and there are no deadlines associated with negotiations.

The attorneys with the Law Office of Bryan Fagan are here to walk you through this process and to help you negotiate and draft either a prenuptial property agreement or a nuptial property agreement. You can reach out to our office today to schedule a free-of-charge consultation with one of our licensed family law attorneys. These consultations are pressure-free and can help you to identify whether you and your spouse stand to benefit from the drafting of a marital property agreement.

What are some examples of property that may be included in your community estate?

Your family home is most likely part of the community estate. Since you and your spouse likely purchased the home after you had married it would be counted as community property. What happens to the family home is likely to be a crucial aspect of the property division process. There are three options to choose from with the family home: 1) you keep the house and live in it after the divorce 2) your spouse keeps the house and lives in it after the divorce, and 3) you all sell the house and split the equity that results from the sale. Since the home is your largest financial asset (most likely) you need to consider your options and decide carefully if either of you will remain in the home after the divorce or if it is better just to sell the house. Factors like how much is owed on the mortgage, your salary, the salary of your spouse, and whether you have children will all factor into this discussion.

Investment properties may not be an issue for most of us, but for those of you who own investment real estate then it will be another important part of the divorce process. Real estate investments are frequently homes that are rented out. The key part of this issue for purposes of determining whether the property is part of the community estate is when you bought the home. Sometimes when two people get married one of you will already own a home. If that home became an investment property, then whoever owned the home before the marriage gets that property in their separate estate. Seems simple, right? Let’s walk through the subject a little more in detail to determine why it may not be as simple as you would think.

Let’s say, for example, that you owned a house before your marriage. When you and your wife got married you did not sell the home, but rather that you kept it and decided to use it as an investment property. The home would hopefully be able to supplement your income to an extent. However, there was still a mortgage on the home. Once you and your spouse got married you would pay down the mortgage and make improvements on the home using your income and that of your spouse. You all shared a bank account, and your income was deposited into the account. From there, the money would be used to make all sorts of improvements and repairs on the home in addition to paying down the mortgage. This is where the subject gets tricky.

After five years of going about paying for the house in this manner, your wife files for divorce. What will happen with the investment house? Well, first, we know that it is part of your separate estate. I don’t think you would find yourself in a position where your spouse would try to contest that the home is separate property belonging to you, given that you owned it before you even knew your spouse. Let’s side that issue to the side, then. The real issue that we need to confront is how those mortgage payments, improvements, and repairs that were paid out of your community estate will be treated.

Your spouse will likely ask to have the community estate reimbursed for those expenses and repairs that were paid out of your income and into the house. If throughout your marriage, $150,000 was paid into the investment property then your spouse will be responsible for calculating the total bill, proving how much was owed to the judge, and then getting that money sent back to the community estate. You may not have $150,000 in cash laying around (few of us do). In that case, you may need to waive your right to $150,000 in equity from the family home that will be sold in exchange for not having to reimburse your spouse for money spent on the real estate investment property.

Or, you may need to say that you will not ask for any of your spouse’s retirement funds that otherwise would be eligible for division. Whatever the case is you need to be sure about how you are going to proceed to negotiate on this issue so that you can be confident that what you are doing is best for you moving forward. With so many moving pieces in this regard, it is a good idea to have an experienced family law attorney in your corner to help you identify solutions to these problems that are creative, and fair and take into your present and future circumstances.

Bank accounts are interesting examples to talk about when it comes to the community versus separate property discussions. On the one hand, many people assume that if a bank account has their name on it then it would belong to them after the divorce. However, what matters more than whose name is on the account is whose income has been deposited into the account. For example, if you have a bank account and only deposit your income from your work into the account then the contents of the account would be community property. Why? Income from most sources that are earned during your marriage is considered to be community property. It doesn’t matter from whose job the income is earned or into which account the income is deposited. I have talked to countless people over the years who will tell me that because they have a bank account with only their name on it that the income in that account is safe from division. However, this is not the case.

Retirement plans are also subject to division in a divorce. For many of us, a portion of our retirement is part of the community estate while another portion is part of our separate estate. The real question here is whether that account is mostly community property, mostly separate property, and how you are going to show the court which is which. You may need to go back in time and pull an account statement from the time of your wedding to show what the account’s value was at the time you got married. Then you can subtract that amount from the value of the account currently to determine the value of the community estate portion.

Keep in mind that there are two different kinds of retirement accounts that you should be aware of. The first is called a defined benefit plan which includes pension funds that you may have through your governmental employer or union. A pension’s value is not calculated using pure dollars and cents but rather by looking at your case from the perspective of a monthly benefit that is paid out at retirement. For this reason, it is a little more complicated to figure out the total value of the account and what your spouse should receive in the divorce for the community estate portion of the account.

The other type of retirement account is known as a defined contribution plan. These types of retirement plans include 401(k)’s and IRAs. For these accounts, you invest money into each one up to a certain number each year. If your IRA was valued at $10,000 at your wedding and is worth $100,000 now, then $90,000 of the retirement account is subject to division in the divorce as community property. You can get creative with your spouse as far as how to divide up these accounts. That is also where having an experienced family law attorney can come in handy.

Bear in mind that you will not have a great amount of experience dividing up accounts like this even if you were married previously. Finding yourself in a situation where you need to divide relatively large assets like retirement accounts can be an overwhelming experience. Why not put yourself in a position where you can rely upon the sound advice of an experienced family law attorney to help you follow through with this process? with seemingly so many options available when it comes to dividing up Community property you want to be as sure as possible that the option you are choosing to take advantage of is truly the best for you and your family. An experienced family law attorney can help you reduce the likelihood that you are going to make a mistake with your money and instead do what is best for you both in the short and long term.

When it comes to dividing up retirement accounts this is especially important for those of you who are nearing or at retirement age. Do not take for granted how important it is to be able to divide up retirement or retain as much of your retirement as possible. If you are concerned about being able to live a reasonably comfortable retirement life, then having sufficient funds in your future is important. This may be the best opportunity that you have to secure retirement income for yourself. The best way to ensure that you can set yourself up well for your life in your retirement years is to have a stable income in the form of 401Ks, IRA, or a pension. This is in addition to any other income that you may be able to earn in your golden years.

While there are some aspects of this discussion that are straightforward other parts of this discussion are not quite as simple or easy to sort through. As a result, you will want to prepare as diligently as possible for this subject within a divorce so that you can Focus on all areas of your case and not just Issues regarding Community property.

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Other Articles you may be interested in:

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  3. Separate Property in a Texas Divorce?
  4. What to do when your divorce decree does not include a marital asset?
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  6. How Adultery May Affect Property Division and Texas Divorce Proceedings
  7. Property Settlement Guide: How Assets are Divided After Divorce
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  13. Matrimonial Asset Valuation & Property Division: How it Works
  14. How to Protect Your Separate Property in Divorce
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