When it comes to property related issues for Texas spouses, the most important and basic fact that you need to be aware of is that Texas is a community property state. This is what we are going to discuss in today’s blog post. I’d like to begin by discussing what community property does NOT mean because in my years as a family law attorney I have come to find out that most people are aware of the term “community property” but don’t have a firm understanding of what it means.
We can start by asking the question: Does community property mean that in the event of a divorce that you and your spouse have split the contents of your estate 50/50? You would add up the value of everything you own and subtract from that what you owe in order to come up with your total net worth, divide that by two and then go your separate ways? While it is possible that your divorce could end up going this way it is not likely. In fact, there are so many subtleties in the area of divorce and property division that such a division is quite unlikely.
How does Texas law compare with other states when it comes to property division?
All fifty states can be grouped in one of two columns when it comes to how property is classified in conjunction with married persons. Forty-one states are known as “common law” states while Texas is among the other nine who employ community property law. Let’s go through how each works.
In a common law state, you and your spouse would separately own property that your property that had been in existence before your marriage as well as any property, including income from a job, that comes into being during the course of your marriage. Essentially, you take no property rights in the property of your spouse and vice versa. This is what I would call a "merit" based system of property ownership where you do not get "credit" for your spouse's property and vice versa.
On the other hand, a community property state (like Texas) is more egalitarian in terms of how property rights are divided between spouses. Here, you and your spouse own together as a joint entity all property that either of you acquired during the course of your marriage- including income from jobs that you work. All property that is owned by prior to your marriage belongs to the spouse who possessed it. Gifts and inheritances stand as exceptions to the general rule that all property that came into being during the course of your marriage is considered to be community property. A gift must clearly have been made to one spouse in particular in order to count as the separate property of that spouse.
Community property as it pertains to Texas
Within each community property state there exist certain particularities in the laws that distinguish one state from another. Texas looks different from California, which looks a bit different from Wisconsin, Louisiana and so on down the list of community property states.
When it comes to separate property you can think of anything that you owned prior to your marriage. Furniture, clothing, tools, and money that you had prior to your marriage will all count as separate property. This sounds nice and clear-cut, but when you actually start to apply the law to particular circumstances it becomes less cut and dry.
Gift giving causes complications
Let's consider a situation where you and your spouse have a generous aunt who is your aunt and is an aunt to your spouse by virtue of your marriage. The key to our discussion is what was your aunt's intent when and if she were to gift you all a sum of money? For example, suppose that your aunt gifted your spouse $1,000 on his birthday. This would be quite a windfall and at the moment would be great news for both of you. However, should you move toward a divorce your spouse could argue that your dear, old aunt intended to gift him the $1,000? After all, he may argue, it was his birthday and not yours. Your name didn't even appear on the card.
Your argument that she had made many gifts like this to you all over the years and had always voiced an intent to have these gifts be made to each of you as husband and wife would be what you would have to return to as an argument to assert your own rights to the money. Remember that there is a presumption that gifts made to a married person are separate rather than community property. It would be impossible for your aunt to gift you and your spouse that money under Texas' interpretation of community property law. That's not to say that you wouldn't have a separate property claim to one half of that $1,000- in fact, because it's your aunt who made the gift and not your spouse this would be an even easier argument to make. The bottom line is that gifts are typically considered to be separate property although each spouse would likely have an interest in that gift if made during the marriage.
What if your aunt were to gift you and your spouse her home? The deed could reflect this fact by noting that the title to the home refers to the transfer of the home from her to you all as a community property transfer. Would this void the discussion we had in the paragraph prior to this one? The answer would be no. Just because your aunt specified her intention to have the gift exist as one that is community property does not void State property law. Again, as we learned in the paragraph prior to this one, both you and your spouse would have one half separate property interests in the home should you and he divorce.
The definition of community property in Texas
Now that we have covered some of those particularities that I mentioned earlier when it comes to separate property in Texas, let’s dive into what community property means from the standpoint of state law.
Community property is all property that is owned by you and your spouse other than separate property. This definition seems to be lacking in any sort of specificity. If we go a little further into this discussion it should become more clear to you as to why this definition is so simple. The reason is that there is a presumption under Texas property law that all property owned by you and your spouse is community property. In order to prove that a piece of property is the separate property you would need to present clear and convincing evidence to a court.
Clear and convincing evidence is a tough burden to bear for you or your spouse if your intent is to prove to a family court judge that the house that you reside in is actually owned by you separate from your spouse. If your spouse contests your separate ownership of the house (and why wouldn’t he, after all) you will need to present sufficient evidence to prove your case. Otherwise, rightly or wrongly, the house will be considered as part of your community estate.
What about items that you purchase on credit?
If you and your spouse use a credit card, bank loan or other means to finance the purchase of property during the course of your marriage that debt is considered to be community owned debt. Most creditors will want to look at both of your assets as able to be seized in the event that the debt is not repaid according to the repayment plan. As a result, there are not many debts that are considered to be separately owned if the debt was taken out during the course of your marriage. This should make some of you nervous if you are not keeping close tabs on what your spouse is doing when it comes to money and finances.
How is income from separate property considered in a Texas divorce?
Income that is earned from property that is owned separately by either you or your spouse is considered to be community property. Let’s look at a real-world example that will illustrate this point for us.
Suppose that you opened up a bank account with $200 of money that is yours separate from your spouse. Over time that bank account accrued interest that totals $40. At that point, the $200 would still be your separate property income and the $40 would be community property. The same principle can be applied to stock ownership- the increase in the value of the shares of the stock that are owned by you would still be your separate property if those shares were purchased before you married your spouse. However, any dividends on those shares of stock would be considered community property under Texas law.
How would a court determine the nature of a particular piece of property in your divorce?
This all leads up to how would a divorce court classify a piece of property in your divorce trial? We know a little more clearly how community property and separate property is defined but we still need to get into how the law works when the rubber hits the road in a divorce case. Specifically, let’s talk about the various methods that can be employed when it comes to determining whether the property is either community or separately owned.
The character of the property in question the moment it is purchased is one way that a court could choose to view property. This is known as the inception of title rule. This is a snapshot in time assessment of how the property is going to be classified. Anything that occurs in relation to the property after it is purchased is not relevant and is therefore not going to be considered in the analysis.
If you, for instance, sign a contract for the purchase of a house before you are married then that house would be considered to be your separate property under this inception of title method of evaluating the character of the property. This is true even if the closing on the home occurred after your marriage had started and even if all mortgage payments came from income that was legally considered to be community property in nature. Any concerns about separate income that went towards the payment of upgrades or repairs on community property should be offset by the fact that the law in Texas allows for reimbursement of these funds.
Tracing as a method to determine whether property is community or separately owned
Looking not at the property itself or the time it was purchased in order to determine whether it is community or separate, but at the source of funds used to pay for it is called tracing. In order to overcome the presumption that a piece of property is owned separately from your spouse rather than as community property, you should be prepared to come up with accurate and reliable evidence. Organization is key in this endeavor. I cannot tell you how many clients have told me convincingly that they would be able to dig up an email, receipt, series of documents, etc. that would prove their assertion that a particular piece of property was their separate property, only to find out that person had not kept track of their paperwork as well as they had assured me that they did. If you have traded one item for another, for cash, for another item, etc. then you will need records to prove that through each permutation that the property is still yours separate from your spouse.
Mixed property and bad record keeping?
In a perfect world, you would keep all your separate property distinct from your spouse's. However, we don't live in a perfect world in case you hadn't noticed. In tomorrow's blog post from the Law Office of Bryan Fagan, we will discuss what happens with your separate property becomes mixed with community property. It is there that accurate and complete record keeping becomes incredibly important.
If you have any questions regarding today’s blog post please do not hesitate to contact the Law Office of Bryan Fagan we offer free of charge consultations six days a week where we can answer your questions and address your concerns.
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Other Articles you may be interested in:
- Why is Separate Property Important and How to Keep it Separate in a Texas Divorce?
- What Wikipedia Can’t Tell you About Texas Divorce and Marital Property Division
- Texas Divorce Property Division Enforcement
- Separate Property in a Texas Divorce?
- Does it Matter Whose Name is on Title or Deed of Property in a Divorce in Texas?
- Is Social Security Considered Separate Property in a Texas Divorce
- Business Owners and Business Assets in a Texas Divorce
- What to do when your divorce decree does not include a marital asset?
- High Net Worth Divorce / High Asset Divorce
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