The law in Texas provides that a married couple can agree in writing that either of your separate property can be characterized as community property. This is not the same thing as being co-tenants in separate property. In that sort of relationship both you and your spouse have a fifty percent interest in whatever piece of separate property is being discussed.
How will different sorts of property be managed?
The management of property depends largely on whether or not the asset is considered joint management or solely managed community property. Wages, salary or income from separate property is under the sole management of the spouse that earns the income.
When you and your spouse comingle sole management community property that belongs to one of you and jointly managed community property the solely managed community property then becomes jointly managed. Likewise, property that is one your name or your spouse’s name is presumed to be solely managed community property, absent evidence to the contrary.
What responsibility do you and your spouse have to creditors?
If a creditor wins a judgment against your spouse what are the potential effects on you? The answer depends upon the nature of the judgment. If the judgment is based merely on a failure to pay as agreed in a contract between your spouse and a creditor, the creditor can only go after your spouse’s separate property and the community property that he or she manages on their own.
On the other hand, if it is a tort claim (as for example if your spouse induced a creditor to extend him or her a loan due to fraud) then a creditor would be able to reach out to your own solely managed community property- only to the extent that damages occurred during the course of your marriage. The bottom line is that if your spouse committed an offense like negligence or fraud towards a creditor and that creditor wins a money judgment in court all community property owned by you and your spouse (with some exceptions) are fair game to be subject to the creditor’s judgment.
What property is available to a judgment creditor?
To sum it all up: if the claim that the creditor won a judgment on is based in a tort (like negligence) then your spouse’s separate property, solely managed community property, jointly managed community property and your solely managed community property are exposed to that judgment and can potentially be collected in order to pay that judgment.
In a claim that is based on the contract signed between the creditor and your spouse, your spouse’s separate property, solely managed community property and jointly managed community property is fair game to be collected upon.
What property is not available to a judgment creditor?
There is some property out there that is not subject to being hauled away and sold to pay towards a judgment against your debtor-spouse. In a claim based on negligence or something similar where your spouse owed a duty of care to the creditor your separate property is not subject to being exposed to that judgment. Likewise, your separate property is not in danger of being exposed to creditors in a contract based claim, nor is your solely managed community property.
Takeaways from this area of the law on creditors and community property
Either way, your assets in the form of community property may be subject to being used to pay a judgment owed to a creditor that you did not even know about. Liability isn’t just relevant in the area of insurance. It can have major application to your life and your marriage.
Tip towards planning in regard to community property and creditors
A premarital property agreement can allocate the responsibility to pay debts and shoulder responsibility to pay a certain debt just as easily as it can divide property. If you have some exposure to creditors that you do not want to make your spouse potentially liable under you should consider having a premarital property agreement completed.
Likewise, if you are concerned about being held accountable for the actions of your spouse then you should talk to your fiancé about this possibility. Not knowing is the worst position to be in so at least ask about this subject prior to marriage. It can save you both heartache and frustration once you are married.
As a family law attorney, I see partition and exchange agreements used often to protect assets in situations where one spouse is potentially at risk of being exposed to the bad acts of the other spouse. We illustrated examples of this situation in the sections above where your spouse may end up owing money in a judgment towards a creditor or other plaintiff in a civil lawsuit.
In Texas the law is that your home is not subject to being gobbled up by a judgment creditor or plaintiff. What many couples will do is to put the home in your name (as the innocent spouse) and to transfer other non-exempt community assets to your spouse’s name. Let’s walk through this concept with an example story.
Recently our office assisted a couple where the wife was a physician. While she and the hospital where she worked did have extensive insurance in place to protect her and her employer, the couple thought it smart to attempt to protect their assets from medical malpractice claims. We agreed and helped to negotiate a partition and exchange agreement for the spouses.
The home of this couple was transferred completely to the physician-wife due to the fact that the home was not subject to being taken away from them in a potential lawsuit. To make up for the fact that her husband lost out on any of the community property benefits of owning a home, the wife transferred her community property interest in an equal amount of property (and some separate property as well to even it out) to the husband.
Each spouse walked away with an equal amount of separate property and did so in a way that would allow both parties to be protected in the event of a potential lawsuit. Any lawsuit that resulted in a victory against the wife would not leave their sizeable asset list subject to being taken by a judgment creditor.
Dividing up assets upon a divorce in Texas
Whether or not a piece of property or asset is a part of the community estate or is the separate property of either you or your spouse does not really mean much until you all get divorced. Once the divorce is finalized whatever property is counted as separate in nature goes to whichever of you that separate property belongs to.
Community property is subject to a “just and right” division by a court. An even, 50/50 division can occur but it does not have to and the judge will consider all factors, evidence and circumstances when making this sort of decision. Fault in the breakup of the marriage, separate property owned by each spouse as well as the future income earning capacity of each spouse will factor into their decision. Whatever “position” you find yourself in at the outset of a divorce it is critical that you have an experienced advocate in your corner to represent you and your rights in your divorce.
Questions on divorce, community property and the relationship between the two? Contact the Law Office of Bryan Fagan, PLLC
Thank you for your interest in the subject matter we’ve shared with you over the past few days. We hope that you’ve learned something that is applicable to your life. If you have questions about anything you’ve read or just want clarification on something please contact the Law Office of Bryan Fagan, PLLC. A consultation with one of our licensed family law attorneys is free of charge and can be scheduled six days a week.