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Property Division & Taxes: The Basics

When it comes to dividing property in Texas there are a few different subjects that are relevant that we think are important for anyone starting the divorce process to be aware of. Certainly, when it comes to divorce there are major concerns that you are going to face including financial decisions and the impacts of those decisions for years in the future. With that said, when it comes to dividing property in Texas what we are discussing is the subject of Community property.

Community property at first appears to be extremely simple but then can end up being one of the most complex parts of your case. As a result, the information that we share about property division in this blog post, cannot nor is it intended to be a full-fledged discussion of the subject matter. If you have questions about dividing property in your case after reading through today’s blog post, then there is nothing wrong with that. I would expect that this would be the case given the subject matter and how your specific circumstances will impact this subject.

With that said, if you have questions about anything you read in this blog post then I would recommend that you reach out to speak to one of the experienced family law attorneys with the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultation six days a week in person, over the phone, and via video. These consultations alright available six days a week at any of our three Houston area locations, over the phone and via video. Rather than wonder and worry about your case why not take the next step to gain a better understanding of what it is that you and your family will be focusing on in your upcoming divorce?

An overview of Community property law in Texas

One of the tricky parts about writing blog posts like this is that we need it to be entertaining enough for you to stick around and read through the content while at the same time preparing you with information that can teach you about the subject matter at hand. When it comes to Community property this area of the law is no exception. We want to be able to help you understand the complex nature of Community property while at the same time allowing you to gain a perspective that it is not something to fear or be intimidated over a period rather, Community property law is important but is not an impossible subject to learn about.

We can start by discussing the basics of Community property law in the sense that you and your spouse very likely owned property that will need to be divided in your divorce. As such, you and your spouse need to know at least the basics of Community property to proceed with the case. The attorneys with the Law Office of Bryan Fagan pride themselves on having the heart of a teacher when it comes to matters regarding Community property or any other subject. This means that we will take the time to walk with you through your case and help you understand the subject matter as a teacher would. We are not here to make decisions for you by any means.

Community property is specifically a legal theory that applies to how assets and debts are treated at the end of a person’s life or marriage. In a community property situation, The property owned by you and your spouse at the end of your marriage will be presumed to be a community in nature. What this means is that a judge would potentially have the right to divide all property owned by you and your spouse at the time of your divorce.

There are exceptions to this rule that property owned by you and your spouse would be divisible at the time of your divorce. First, one of the major exceptions to this rule is that property owned before your marriage is separate property and would not be divisible in the divorce case. Additionally, property acquired during your marriage either by gift or inheritance is also classified as separate property and would not be divisible by a judge. For the most part, you and your spouse will likely agree on what is a community and what is separate property. However, if you all do not agree with one another you would need to be able to provide evidence to a judge as to what property counts as separate property and what property counts as Community property. It may take some degree of research to be able to submit evidence showing that certain property is separate versus community in nature.

Many times, you and your spouse may each hire forensic accountants or other experts to be able to show that certain types of property are community and certain types are separate. This is especially true in situations where you all have a high asset divorce where there are issues with the property that can dramatically impact the outcome of your divorce. In a trial circumstance, your expert witness may go toe to toe with your spouse’s expert witness to try to show a judge that a particular piece of property or debt is either part of the community or a separate estate belonging to either of you.

Separate property cannot be divided by a family court judge in a divorce. However, how you classify your property in a divorce negotiation is pretty much up to you and your spouse. As long as your agreement on these subjects does not violate the norms of Texas public policy then a judge is likely to honor your agreement. In this way, you and your spouse are given a great deal of Tommy when it comes to figuring out how to classify property and ultimately divide property in your divorce case. The more negotiation the two of you can engage in and the more diligent in your planning can be the better the outcome of your case in all likelihood.

Debts are a part of a divorce

One of the parts of a divorce that are oftentimes overlooked but are nonetheless extremely important is that of debts. Many times, parties in your position will simply overlook deaths and focus more on the property aspect of a case. To a degree, this is understandable given how we prefer to think about property given that it is a positive attribute of a case versus debt which is a negative. However, deaths matter in a divorce, and the debt you have can be impactful to your case. Before we talk some about taxes and property division in a Texas divorce, I think we should also spend some time walking through the implications of debt in a divorce case.

As I mentioned a moment ago, debt can be an important part of your divorce. The types of debt that you and your spouse may own can vary significantly. Consumer debt is the most typical variety of debt that our attorneys find that relates to a standard divorce case. Examples of consumer debt are credit cards, vehicle loans, and credit offered through different retail outlets. Whether or not you pay the debt at the end of each month can impact not only your credit rating but also the degree to which depth becomes a major issue in your divorce case. Having worked with many families who have gone through a divorce I can tell you that debt has increasingly become an issue in many divorces in our area. Therefore, I would not recommend that you completely negate the impact of divorce or neglect to think about it.

Other types of debt include student loans, home equity lines of credit, and your mortgage. Again, I would recommend that you develop a plan and you begin to think critically about how you want to handle these subjects within your divorce case. In some cases, you and your spouse will be in complete agreement on how that should be handled in your divorce. In other cases, you all may need to work through some of your differences in opinion to conclude this matter. In almost any case I can tell you that you and your spouse are better off making a decision together on this than leaving it up to a family court judge who does not know you or your circumstances all that well.

Premarital or marital property agreements

One of the best ways to avoid finding yourself in a situation where you and your spouse are having trouble negotiating on the property and debt division is to not put yourself in that position in the first place. In a perfect world, you and your spouse would be able to avoid going through a divorce at all. Short of reconciling your marriage and avoiding a nurse you all may be able to negotiate your way through a premarital or marital property agreement before starting a divorce. Doing so would allow you to negotiate with your spouse before the time that you begin a divorce case.

pre-marital property agreements are contracts between you and your spells that were created before your marriage. A pre-marital property agreement will lay out how the two of you want your property to be handled in the event of a feature divorce. Note that you cannot negotiate for anything regarding children who may be born as a result of your marriage period only property matters, excluding spousal support, can be negotiated upon in a pre-marital property agreement.

Matters related to property can also be negotiated through a marital property agreement. And a marital property agreement the same subject matter as you see in a pre-marital property agreement can be negotiated during your marriage itself. The only difference between a marital property agreement in a pre-marital property agreement is that you and your spell draft the language & the agreement during your marriage rather than before it. This agreement could only have legal importance if the two of you get a divorce. Otherwise, the document would have no legal bearing so long as the two of you are married.

What a pre-marital property agreement or a marital property agreement do is help you to avoid being in a situation with your spouse where you must negotiate on property-related matters during a highly contentious divorce case. At the very least, I think we would all agree that it is better to negotiate with your spouse on any matter while you are on good terms versus on bad terms. Whatever you can do to avoid putting strain on yourself in a highly contentious circumstance is preferable.

Tax consequences of getting divorced in Texas

The most important thing to keep in mind when it comes to taxes in your divorce is that the better you can plan ahead in your case the more you will see positive results. Wandering into a tax situation after a divorce is a recipe for disaster. Not only can you be left with the normal concerns that a person has in a post-divorce life, but you can also find yourself worried about the long term tax consequences of your decisions.

It can sometimes be preferable for you and your spouse to file your taxes jointly that you’re following your divorce. You can take a higher standard deduction because of filing jointly and qualify for different exclusions in credits based upon your filing status. You may want to work with your tax preparer to fill out tax forms both ways. This way you can see which method would be more advantageous for the two of you and hopefully get on the same page about how you plan on filing taxes for that year.

The biggest difference in your taxes may end up being regarding who will have the ability to detect mortgage interest on the taxes. If you need to sell your house or if your expense keeps the house, you will not be able to deduct that mortgage interest on your taxes any longer. Your deduction may also decrease even if you can claim the mortgage interest on your taxes. You should check with your tax professional to verify this information but typically a single person or a married filing separate would not be able to claim as much as a married couple would be able to regard this deduction.

Another area of property division that may impact your taxes is various types of retirement accounts. You and your spouse must utilize a qualified domestic relations order when it comes to dividing up various types of accounts. The last thing you want to do is divide up a retirement account only to see that you are taxed to the point where any benefit to you becomes negligible. Rather, you can work with your spouse and your attorney to make sure that your taxes are handled correctly regarding the division of your retirement benefits in the divorce case.

Additionally, if you are under the age of 59 and a half there is a penalty for taking out money from your 401K. If this was something that you did to help pay for your divorce, then you should check with your tax professional to verify the penalties associated with doing so. While you may have felt justified in making this decision the IRS will penalize you for this early distribution. Again, to avoid increased penalties or taxes down the line you should be careful about utilizing certain retirement benefits before you reach the age of 59 and a half.

The bottom line for you is that heading into a divorce he should feel comfortable with how your taxes are going to be handled. For many people, this will mean learning more about taxes as well as your responsibilities regarding property division. While both subjects are important you should not necessarily be getting advice on property division in your divorce from a text person. It’s the same can be said of getting tax advice from your divorce lawyer. Rather, it is best to seek advice about taxes from a tax professional first and foremost.

However, what an attorney can do is guide you in the best possible ways regarding structuring property division in a way that will be most advantageous for you and your family down the line. Taxes figure into this discussion and that is why you should seek separate advice about tax-related issues. When you have all the information that you need regarding the property division part of the case as well as how taxes will impact your decision you will be best off in terms of making good choices no matter what stage in the case you are in.

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Other Articles you may be interested in:

  1. What Wikipedia Can’t Tell you About Texas Divorce and Marital Property Division
  2. Texas Divorce Property Division Enforcement
  3. Separate Property in a Texas Divorce?
  4. What to do when your divorce decree does not include a marital asset?
  5. High Net Worth Divorce / High Asset Divorce
  6. How Adultery May Affect Property Division and Texas Divorce Proceedings
  7. Property Settlement Guide: How Assets are Divided After Divorce
  8. Property and Child Support for the Texas Entrepreneur
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  10. Examining Inequality in Property Division in Texas
  11. What role does the acquisition of property play in its classification?
  12. Matrimonial Asset Valuation & Property Division: How it Works
  13. How to Protect Your Separate Property in Divorce
  14. Property law, marriage, and divorce in Texas

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