Texas is a community property state when it comes to dividing up property in a divorce. There are folks out there who will tell you that it is incredibly complex and difficult to understand. I’ve had many clients who held this opinion going into their case, only to find out that once their case got going that it is not that difficult of a subject after all. Like anything else in the law, some rules will need to be learned but otherwise, the concepts are pretty simple.
If all else fails, you need to know that you and your spouse can always circumvent the community property laws as outlined in the Texas Family Code by agreeing with your spouse to a different method of community property division. However you decide to divide the property, you must put it in writing. If the agreement is completed before you get married it will be known as a premarital property agreement. If it is agreed to after you are married it would be known as a marital property agreement.
The basic concepts behind community property laws in Texas revolve around the idea that you and your spouse own a one half (1/2) interest in all of the property that can be classified as being a part of your community estate. All other property would be classified as being either your or your spouse’s separate property. How the property is classified (community or separate) will be the most important distinction that can be drawn in your divorce from a property perspective.
How will your property be classified: separate or community property?
When we are talking about separate property, we are referencing property that you or your spouse owned before the start of your marriage. Additionally, if the property is gifted to you or inherited by you during your marriage then that property will also be termed as separate property. It needs to be obvious by the nature of the gift or inheritance that the intent of the "giver" was that you own the property separately from your spouse.
Also, any property purchased during your marriage with separate property funds will be considered separate property. We have already discussed, briefly, the other method that separate property can be created by spouses- via a marital or premarital agreement.
Community property is defined as being any property that is not separate. This is a bit confusing and leaves people asking questions regarding what is and what is not community property. Once you get married you and your spouse's salary, wages, and other income generated from work is considered to be community property. That includes income from your job(s) that you work as well as income generated by your separate property. For example, if you own a home that is your separate property, but generates an income through your collecting rent then that rent is considered to be community property.
If I had to give you a quick breakdown for community versus separate property I would do it this way:
Separate property is any property owned by you or your spouse before your marriage, any property acquired during your marriage by gift, inheritance or by will, property purchased during your marriage via separate property funds or is community property that is divided into your separate estate by a marital or premarital agreement.
Community property is income (salary and wages) from your employer(s), income earned from any community or separate property. There are presumptions that any assets you acquire during our marriage (by outright purchase or on credit) and any assets in hand in general at the time of your divorce are presumed to be community property. This means that the burden is on you to prove that a piece of property is separate, rather than community property. Not all property will be contested, but some likely will.
The community property presumption in Texas
Like I noted a moment ago, there is a presumption in Texas that all assets in Texas on hand at the time of your divorce are community property. Additionally, all assets/property that you and your spouse acquire during your marriage is also presumed to be community property. What does this mean for you and your spouse, and what steps can be taken to side-step this presumption?
You and your spouse can consider whether or not you would be interested in signing a marital property agreement if this presumption would end up dividing the property up in a way that you do not approve of. Those of you reading this blog post who have a considerable amount of property to your name may especially be interested in having a marital property agreement drawn up.
What is the inception of title and how can it be relevant to your situation?
You and your spouse may find yourselves in a position where you need to classify the property that you all own as either community or separate property. Unless you agree on how to divide all pieces of the property then you will need to create a list of property, classify it and then divided it up. Sometimes, however, the nature of that property is in question because it was acquired a long time ago or the circumstances under which it was acquired can be in question.
In those cases, the inception of title rule would come to your assistance. Using this concept, whether an asset is considered to be community or separate property would be determined at the time that the asset was acquired. Anything that occurs after this time- paying off a mortgage is an example, would not affect the nature of the property.
For example, assume that you purchased a home as a single person many years ago. You took on a thirty-year mortgage as part of the purchase of that home, as well. After that time you got married and the mortgage payments on that home were made from your community income. No matter what happens, the home in question will always be considered to be your separate property. It doesn’t matter if hundreds of thousands of dollars of community income went towards the payment of that mortgage. Because the home was titled to you at the time it was purchased, it will remain your separate property. However, your spouses may have a claim for reimbursement for the community property funds that were expended towards the payment of the mortgage. Reimbursement is a separate claim and does not impact your separate property rights in the home, however.
What happens if you have moved to Texas from out-of-state?
If you have moved to Texas from another state, the odds are good that the marital property laws of that state are not all that similar to Texas. The vast majority (nearly 80%) of states are known as common law states in the area of marital property. This method of dividing marital property comes more from the legal traditions of Great Britain. Community property law comes from the Spanish/Latin American legal tradition. So how does the inception of title rules impact you if you have come from Texas from a common law state?
In common law states, you and your spouse’s salary would belong to each of you as your separate property. It is the name on the title to land, property or other assets that would determine who owns that particular item. If a piece of property was your separate property in another state, it would remain as such after you moved to Texas. The state does not want you to lose property rights or have those rights brought into question just because you moved to Texas.
Let's go over this again with an example. Let's imagine a scenario where you and your spouse have just moved to the Houston area from Nashville, TN. You and your spouse own several mutual funds but the accounts are titled to your spouse. Before you moved to Houston you sold those mutual funds and used the proceeds to buy a house here in Texas. Given that the mutual funds were in your spouse’s name, any money from the sale of those funds not used to purchase your Texas house would remain his separate property. Additionally, the money that went towards the sale of your new home would be partially your spouse's separate property even though it was purchased during your marriage and is in Texas.
The inception of title rule- it doesn't matter whose name is on the title in Texas
Going back to the inception of title rule, I can tell you that it does not matter in Texas whose name appears on the title to a vehicle, a home or a raw piece of land. How title is held in Texas does not determine the ownership of that property. The time and circumstances of how you and your spouse acquired title to the property will determine whether the property is community-owned or separately owned by one of you.
For example, if you buy a new car and put the car in your name that does not necessarily make that your separate property. The presumption is that because you purchased that vehicle with community property funds it is thus community property. It does not matter if you bought the car on your own, titled it in your name, have a loan on the vehicle in your name and your spouse has never even set foot inside of it. The vehicle is presumed to be community property and is subject to division in your divorce.
What about property purchased on credit?
Any assets that you and your spouse purchased on credit during your marriage are presumed to be done so on community credit. As a result, they are presumed to be community property. To overcome this presumption and prove that a piece of property is owned by one spouse or the other separately, you would need to show that a creditor chose to look only to one of your credit score rather than both of your scores.
What about bank accounts with separate and community property income held within?
When you and your spouse choose to comingle your community property and separate property inside of one account that can create issues when it comes time to determine which parts are community property and which parts are separate property.
If you have comingled funds in a bank account, the presumption that a court would apply is that the community funds are withdrawn first before separate funds. Separate funds are only presumed to be withdrawn after all of the community property within an account is first withdrawn. Subsequent deposits into the account do not build the amount of separate property back up but will restore community property that was previously withdrawn.
Consider if you were to have inherited $50,000 and you open a savings account to hold that money. Your spouse's salary is then also deposited into that account until the balance on the account reaches $75,000. You then withdraw $55,000 to reduce the balance of the account to $20,000. When you all file for divorce the balance is back up to $75,000. Even though the balance is back to its highest point, your separate property interest in the account would only be $20,000.
Stay tuned tomorrow to learn more about separate and community property in Texas
If you have any questions about the material that we covered today, 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 here in our office. These consultations are a great opportunity to learn more about our office and to receive direct feedback about your particular family law circumstances. Thank you for spending part of your day with us and we hope you will join us again tomorrow.