If you are embarking upon a divorce then you probably understand that it is not an easy process to go through. One of the difficult aspects of a divorce is how to properly characterize the property that you and your spouse own. Meaning: is an asset part of one of your separate estates or is it part of the community estate and thus subject to being divided up in the divorce.
The law in Texas has a presumption in place which places all assets within the community estate. It is up to you or your spouse to prove with clear and convincing evidence that the asset in question is actually part of one of your separate estates. The key to determining where the asset should wind up is by looking at when (in terms of time) the property was purchased or acquired.
Let’s look at the burden of proof that either you or your spouse have to bear in order to prove that an asset is not community property.
What is clear and convincing evidence?
In the previous section to this blog post I utilized the phrase “clear and convincing” evidence to describe the level of proof needed to rebut the presumption that all property owned by you and your spouse is community in nature. Clear and convincing is not just a tidy phrase that I wanted to use to sound smart. It is the legal standard by which a judge will apply the facts and evidence made available to him or her in order to determine whether or not the community property presumption has been rebutted.
Clear and convincing evidence means that the judge must hold a firm belief or conviction as to the truth of the matter that is being asserted. It’s not so firm that there must be no doubt in the judge’s mind, but it must present a reasonable amount of certainty in the judge’s mind that the asset is, in fact, separate property of you or your spouse. It would make sense for you to be able to go back in time and show a judge that the asset was acquired before you and your spouse married one another.
Tracing the title of an asset
If you are the spouse who is asserting that an asset is your separate property you must be able to establish when title in the asset came to be in your name. For a piece of real estate or other property in which title is established the date on which you purchased the home or raw land is the relevant date for title tracing purposes
Your asset will remain separate property as long as you can overcome the presumption that the asset is community property- no matter how the asset has changed from the first date that you owned it until the current date. If, however, you commingle your separate property with the community property owned by you and your spouse the separate property can lose its designation as such. Be careful that if you own separate property to never mix it with any property that is part of the community estate.
What is the goal of tracing in the context of community/separate property?
In utilizing tracing, you are seeking to show a judge the clear and convincing evidence that she will need to see before determining which column to place that particular asset into.
Keep in mind that if you fail to prove through tracing that a particular asset is part of your separate estate it will become part of the community estate.
An examination of the most commonly utilized method of tracing in Texas divorces
Now that we have introduced the topic of tracing let’s actually get into one of the ways that you can actually go about proving to a judge that an asset is a part of your separate estate.
The most utilized method for tracing money from commingled bank accounts back to where the asset originated from is called the community out first theory of tracing. This method centers around the concept that when spending occurs it is the community resources that are spent first before separate funds are ever touched.
This theory has been developed in Texas over the course of many years. Let’s discuss a few hypothetical situations that can illustrate just what this theory actually entails.
Hypothetical example No. 1
Suppose that you and your wife own a shared bank account which contains $1,500 in community estate funds. Your wife comes into an inheritance that totals $3,000 and is considered her separate income as inheritances are an accepted form of separate income under the family laws in Texas. As a result, in your one bank account, there are community funds and your wife’s separate funds that have been deposited.
Over the course of a number of years, you all have made more deposits and have made withdrawals as well. The balance in the account never went below $3,000 (the total amount of money deposited into the account from your wife’s inheritance). One day in the future money from this account is utilized in order to put a down payment down on a tract of land. The account is left with less than $3,000 in it. So, is the tract of land part of the community estate or part of the separate estate?
It is likely that a court would presume that the community funds would be withdrawn first before your wife’s funds were tapped in order to make the down payment. Since the funds in the account never got below the $3,000 in separate income (at least until the time the down payment was made), the balance in the account should be determined to be the separate property of your wife.
Hypothetical example No. 2
Suppose that your husband owned a business that generated $10,000 and was deposited into a bank account. You all then withdrew money from that account that totaled $11,000. As the income generated by the business never equaled or exceeded the withdrawals that were made during your marriage, the evidence would seem to support the idea that no community income would have been utilized to pay for inventory or upkeep of the business- only your spouse’s separate property funds would have been utilized.
Look to the real estate the business was located on, the tools utilized in performing the services the business provides as well as the assets of the business. If your spouse owned those prior to your marriage and simply utilized them in the day to day operations of the business there being characterized as separate property of your ex-spouse through the end of your marriage. This includes money utilized in the account shared by you and your spouse that was used to buy a new inventory of items
Hypothetical example No. 3
Probably the most straightforward tracing example that I can conceive of involves you and your spouse owning one joint checking account in which the balance was never more than $3,000. Shortly after your marriage began your spouse inherited a large sum of money from a deceased relative.
A check representing the entirety of that inheritance was deposited into your checking account. Immediately thereafter your spouse purchased a rental home using funds from your joint checking account.
In this situation, despite the fact that the money in your checking account would have been “commingled” it is fairly easy to segregate the community income from the separate property. If you and your spouse were to get a divorce it would take too much effort for your spouse to trace his depositing a large check into the checking account.
Questions about community property and tracing? Contact the Law Office of Bryan Fagan, PLLC
If you have questions about this subject or any other in family law please do not hesitate to contact the Law Office of Bryan Fagan, PLLC. We offer free of charge consultations to people like yourself who have questions about family law and their families. We represent clients across southeast Texas and would be honored to do the same for you and your family. Entering into a family law case with a good base of knowledge is crucial and we will do our best to help you in that regard.
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Other Articles you may be interested in:
- Community Property Law in Texas
- Family Law Cases in Texas: Marital Property and the community presumption
- Issues in Community Property Law in Texas
- 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
- Individual Retirement Accounts (IRAs) and your Divorce: Taxes and General Information
- Social Security division in a Divorce
- Will Social Security Benefits play a substantial role in my Texas Divorce?
- Is Social Security Considered Separate Property in a Texas Divorce
- Key Elements of a Divorce for persons over the age of 50
- 7 Tips for Divorcing After Age 50 in Texas
- Divorcing After Age 50 in Texas: What it Can Mean for You and Your Spouse
Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.
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