Property owned together by you and your spouse is known in Texas as community property. This is an important lesson to learn as you approach a divorce. It is presumed when your divorce begins that all property owned by you and your spouse is community property and therefore divisible between the two of you in the divorce. The date on which property and debt were acquired will play a major role in determining what property is counted as community property and how it is divided.
Under the Texas Family Code, all property, and earnings that you and your spouse have at the time of your divorce are community property if the acquisition of the property occurred during your marriage. You may sometimes see community property also referred to as marital property if you are doing some research on this subject online. It does not matter whose income was utilized to purchase the property, whose name appears on the title to a piece of land or real estate, or whose name is on the receipt for the consumer item. If the property was purchased/acquired during your marriage then it is community property. The most common exceptions to this rule are if the property was acquired during the marriage by gift, inheritance, or personal injury settlement.
Examples of community property in Texas
When we talk about community property in theory it tends to get murky. Here are some examples of community property. First, let’s consider income from places like your employer- wages, tips, salaries, and overtime. Most of us reading this blog draw our primary income from sources like this. Suffice it to say that if you are married then the income that you earn is community property. It doesn’t matter if you and your spouse do not share a bank account. Income that is directly deposited into a separate bank account still counts as community property.
Next, we can consider real estate. Your house is the prototypical example of real estate in a Texas divorce. If you own a home that was purchased during your marriage, then the home will be community property likely. That means you and your spouse will have the decision to make in the divorce as far as what happens to it. The house could be sold with the proceeds from the sale split between the two of you. Or, either one of you could remain in the house after the divorce comes to an end. There are a lot of factors to consider in this regard but what we need to know for now is that your family house is community property if it was purchased during your marriage.
The same rule applies to a vehicle. If a vehicle was purchased during your marriage, then it will be considered community property. Once again, it does not matter whose income was utilized to make the purchase. It also does not matter whose name appears on the title of the vehicle or its loan. What you need to know is that your vehicle could be divided up in the divorce if it is community property. Whether this likely depends upon the specific circumstances of your case. How much debt is left to be paid on the loan will also have an impact on this situation.
Retirement plans may be the last thing on your mind as you enter a divorce. Retirement is something for “old” people to worry about- why should you concern yourself with something that is not going to be relevant for you for at least a few decades? I’ll tell you why. Your retirement savings may seem small now. Your retirement years may seem a way away, now. However, over time (and with good investments) those mustard seeds you see in front of you will grow into a tree if you give it some time and have patience. Therefore, how you divided up your retirement plan matters a great deal. The contributions that you made to your retirement savings accounts are divisible so long as they occurred during your marriage.
Finally, I will again mention that the balances in your checking or savings accounts are community property so long as the money in those accounts was acquired during your marriage. It does not matter whose name is on the account. All that matters is that the money contributed to these accounts came into being during your marriage. It is also important to note that what used to be separate property money deposited into one of these bank accounts could become community property and lose its separate property designation if you are not careful.
Separate property examples
We already know that community property Is most any property acquired during your marriage. However, you can also assert that another property belongs to you separate from your spouse. This type of property is known as separate property. Not only would you need to assert that a particular piece of property is yours (or that a particular debt is your spouse’s separate debt) but you would need evidence to be able to prove your position. Remember that there is a presumption that all property at the time of your divorce is community property, so the burden is on you to prove that the property you’re alleging is separate.
We mentioned at the outset of this article that property acquired during your marriage either by gift, inheritance, or as part of a personal injury settlement count as separate property. You and your spouse can agree that a certain item is a separate property. Honestly, this happens most of the time. You likely will not need to bring the title or receipt for every item that you purchased before your marriage to mediation. Your spouse will likely acknowledge that particular items or assets of yours are separate property, and you will likely do the same.
Here are some examples of separate property for you to consider. If you purchased a home before your marriage, then that home is considered separate property. Now, if community income was utilized to make improvements to the house or even to take out a second mortgage then the community estate may be in line for a reimbursement of those funds. However, the general principle holds that the home itself is a separate property of yours due to it having been purchased before your marriage began.
If you were gifted a vehicle during your marriage, then that vehicle is separate property belonging to you. Imagine a situation where you and your spouse are young newlyweds. With the economy, inflation, and job loss being a possibility for young people these days, it is not out of the realm of possibility that your parents may gift you a vehicle if you needed transportation. Your parents could make it very clear that the vehicle was gifted to you and then the law would treat that vehicle as your separate property.
Gifts from you to your spouse are treated as separate property for your spouse. For example, if you gifted your wife diamond earrings for an anniversary then those diamond earrings are her separate property. They would not be tossed into the mix of property that could be divided between the two of you in the divorce.
Just as retirement contributions made during your marriage are community property the opposite is true of contributions that you made before your marriage. Those contributions are separate property. You will need to perform some research to determine how much of your retirement savings is community property and how much is separate property. The longer your marriage and your contributions to the account coincided, the greater the percentage of the account will be community property.
Another example of separate property would be property acquired during your marriage by inheritance. If you were listed as a beneficiary under a loved one’s will and received $10,000 from that person’s estate, you could count this money as your separate property. Hopefully, you have a way to track the money and where it came from. As we mentioned earlier in today’s blog post if you deposit the separate property into a bank account with community funds then you are in danger of commingling the money and having all of it be counted as community property.
Your personal injury settlement from a car crash that you were in will be counted as separate property. Hopefully, this is not relevant to your situation, we do not want to consider a situation where you are hurt, but if you were injured in an auto accident then your settlement from the other driver’s insurance company would count as separate property belonging to you.
A word on reimbursement
We discussed the topic of reimbursement briefly in an earlier section of today’s article in connection with a separate property home that you hypothetically owned before your marriage. That home would be counted as separate property because it was purchased by you before your wedding to your current spouse. However, your spouse on behalf of the community estate may have a claim for reimbursement depending upon the specific circumstances that you all find yourselves in. Let’s walk through some more information on this subject to better illustrate this point.
If you purchase a house or a car before the time that you were married, then we know that this property would be classified as your separate property. However, an interesting situation arises if you use community property income to benefit the home in some way. Maybe you made payments on the mortgage out of your work paycheck. Maybe you used your combined income with your spouse to qualify for a mortgage. What if the house needed a new roof and you used the income from work to pay a roofer? These are all situations that would probably call for a reimbursement claim.
In this type of situation your spouse, who does not own the home itself, could make a claim for reimbursement in a divorce situation. In this situation, your spouse would be asking for whatever community property funds were utilized to pay for the improvements or mortgage payments to go back into the community estate for division in the divorce. Hopefully, you kept track of how the money was spent so there are accurate records for this purpose.
Speaking of record keeping, it is a good idea to always keep paperwork for loans, payments, big purchases, and other significant expenditures of money handy. Do not throw things away. Take the paperwork associated with these activities and keep them handy. You never know when they are going to be needed in the future.
How does a family court divide community property?
There is no requirement for a court to divide property exactly down the middle. Some people come into our office for a free-of-charge consultation and will assume that the divorce court will always divide property equally. This is not the case. While a court certainly can divide property in this fashion it is not the law of the land that they do so. Rather, a family court must only divide marital property in a just and right manner.
Just and right is more akin to “fair” than “equal.” Fairness is subjective, after all. A judge would examine your circumstances and that of your spouse before deciding how to divide the property. The needs of your kids, you, your spouse, your educational level, and that of your spouse as well as which of you has custody of the kids to divide up the marital property. A spouse who earns much more money has more separate property and a better career track and will ordinarily be at a disadvantage when it comes to dividing up property.
By the same token, these different factors will also be considered when dividing up community debts in a divorce. We tend to think only about Community property division when it comes to a divorce, but it is very likely that you and your spouse also have debts that will need to be accounted for. If you are awarded a piece of property that has debt attached to it, then typically that debt will also go to you. For example, if you are awarded a specific vehicle and there is a car loan on the vehicle you will be able to keep possession of the vehicle but will also become responsible for paying on the loan.
Car loans, mortgages, credit cards, business loans, and student loans are examples of debt that are frequently divided in a divorce. Just as we saw with Community property division, a divorce court does not need to divide up debt in an equal fashion. Rather, the judge will take into consideration your circumstances and make a just and right division based on those factors and circumstances. As you may have imagined, both you and your spouse are responsible for the debts of your marriage period it does not matter which of you took the debt out or whose name is on the loan instrument. All that matters is if the debt was taken out during your marriage period if it was, then the debt is a community debt and is subject to division in the divorce.
keep in mind that a Texas family court does not have the authority to remove your name or your spouse’s name from a loan poor note of any kind. Some people assume that in a divorce your spouse’s name can be removed automatically from a mortgage if you are awarded the house. That is not possible. By the same token, your spouse would not be able to send in a copy of your final decree of divorce to the mortgage company to have them absolve him of any future liability under the loan. Rather, the two of you would need to take the steps necessary to have your spouse’s name removed formally.
One step that I feel is a good follow-up measure when it comes to the deaths of the marriage would be for you to request a review of your credit report to determine if your spouse has taken out any debt in your name that you were unaware of. Every so often you run into a situation where a spouse fraudulently opens her credit card or a home equity line of credit in the name of their spouse without permission. You should check and make sure that this is not going on in your situation so that the case does not end before you can have these that are taken care of.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
if you have any questions about the material contained in 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 in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as about how your family’s circumstances may be impacted by the filing of a divorce or child custody case.
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Other Articles you may be interested in:
- What Every Entrepreneur Needs to Know About Community Property Division
- Community Property in Texas: What you need to know before you get divorced
- Community property issues in Texas divorces: Wasting of assets by spouses
- How does a judge divide up community property in a Texas divorce?
- What happens if you and your spouse mix community and separate property?
- Characterizing your assets as community or separate property through tracing
- Community Property Essentials for Texas divorces
- Community Property and Credit in Texas Divorces
- Community Property Law in Texas
- Family Law Cases in Texas: Marital Property and the community presumption
- Reimbursement of the Community Estate: Continuing the Discussion on Divorce
- Texas Divorce Overview: Dividing Community Property and Debts
- Dividing community property in mediation: What can be done to settle your divorce in Texas
- The community estate in a Texas Divorce: Where is all of our stuff going?
- Distinguishing between Community and Separate Property in Texas divorces