In Texas, when you and your spouse got married, Community property law would come to dictate how the property you own is classified and characterized. Property that would be owned solely by you or your spouse would be characterized as separate property. Community property would be all other property owned in common in equal shares by you and your spouse.
A general statement that is fair to make is that all property you and your spouse acquired during her marriage is presumptively Community property. The other side of the coin is that all property you assert to be your separate property must be made with evidence showing that this assertion is based on fact. Most of the states in the United States that are Community property law are found in the southern and western portions of the country. Civil law systems, such as those in Spain, Mexico, and France, generally are characterized by Community property law.
Any money you earn from your job and any money your spouse earns from their job during her marriage is part of your community estate. Community property could become separate property if you were to gift that property to your spouse, or word 2 sell a Community property asset is separate property. The origins of whether or not a piece of property is separate or community in nature are determined through a process called tracing.
A word on the separate property before we begin to discuss marital property
As we have already discussed, separate properties are any property that you or your spouse solely owns. For the most part, this would count as any property owned by you or your spouse individually before you were married. However, if either of you receives property or assets during their marriage due to a gift or inheritance, then the property would also be classified as being separately owned. Any income earned from the separate property would be classified as Community property.
You and your spouse have complete authority and autonomy over disposing of your separately owned property. This means that so long as you and your spouse agree on what is classified as separate property in your divorce, you can do what you want with your separate property in the divorce case itself. However, you should always speak to your attorney before disposing of any property during your divorce, even if you believe that it is separate property and that you are operating under the impression that your spouse agrees with you.
How does the issue of community property impact your divorce?
When it comes to a divorce in Texas, there are two parts: apart from having to do with your children, it is part of your marital property. In today's blog post, we will discuss how marital property is characterized; it will provide some details about how it is divided into a typical Texas divorce case. Keep in mind that in the vast majority of divorces, you and your spouse will take on the primary responsibility of characterizing your property as well as dividing it. Relatively few divorces make it to the stage where your property will be divided by a judge. This allows you to take ownership of the elements of your case and map out a trajectory for you and your post-divorce life.
One thing that I will make a note of is that a marital or pre-marital property agreement would render a discussion on the characterization of property in your divorce moot. A discussion about these topics will be moot because the marital or premarital property agreements would set in stone how your property is divided upon a future divorce. Therefore, all you would do is include the marital or pre-marital property agreement as an exhibit in tear divorce. All that would be left to determine in your actual divorce are issues regarding your children, if you have any.
Absent a marital or pre-marital property agreement, property in Texas is characterized as either part of the community estate, or part of your or your spouse is separate Estates. A court would look to when a party gained title to the property if there were to be a dispute in your divorce regarding separate versus Community property. If you came into ownership over a plot of land, wages proceeds from a lawsuit, or home before your marriage, then the property would remain your separate property despite any future changes in the marriage itself. Even if you became the owner of something before the marriage but did not physically come into ownership of the property until you were married, it is most likely that the property would be classified as your separate property.
All property at the time of your divorce is presumed to be community-owned
Let's begin with the basics. If you were to file for divorce from your spouse, then all of your property possessed by you and your spouse when your divorce begins is presumed by the state of Texas to be Community property. This includes your salaries and wages from work, retirement earned during your marriage, separate property income such as rental income from a separate property home, as well as property purchased with lines of credit or other financing taken out during your marriage. Another aspect of this discussion is that debt taken out during your marriage will be presumed to be Community property unless there is proof showing that the lender was only going to look towards repayment from one spouse or the other.
Separate property is defined as property owned or claimed by you or your spouse before your marriage, property acquired by you or your spouse during your marriage by gift, devise, or descent, as well as any recovery from personal injuries sustained by you or your spouse during the marriage except for the loss of earning capacity. Note that if you purchase property with separate property income or funds, the purchased property will also be classified as separate property. Importantly, separate property cannot be divided up in a divorce by a trial judge.
In some instances, it may prove not easy to show that certain property is separately owned. The state of Texas utilizes a clear and convincing evidence standard to do so. This is a fairly high bar that must be shown in a hearing in a trial. documents, testimony from an expert witness or other evidence would need to go along with any assertion that particular pieces of property are separately owned. While much of the time you and your spouse may be able to agree on the characterization of most property, every once in a while, there is a valuable property that will be argued over.
Is it possible for property to be classified as separate and community in nature?
There is a possibility for a single piece of property to be characterized as separate in community. Let's consider a situation where you and your spouse purchase a home during your marriage for $250,000. Of the $250,000 purchase price, do you put $50,000 down that was part of your separate estate. In this situation, 20% of your home would be your separate property, while the remaining 80% will be part of the Community property.
If a home is classified as your separate property due to it having been purchased before the beginning of your marriage, but it is paid off during your marriage with community funds, then your spouse may have a reimbursement claim to recoup their portion of any community funds that went towards the paying off the mortgage. Characterization of the property does not change; in other words, it only Leeds your spouse to be able to make a reimbursement claim under this scenario.
How to avoid going to court to settle issues regarding Community property
The best way to avoid issues in a divorce regarding community and separate property would be to enter into either a premarital or marital property agreement. These agreements not only allow spouses to avoid problems in negotiation during a divorce over the property but allow you and your spouse to sidestep the laws on Community property altogether. What I mean by this is that you all can create your circumstances and outcomes when dividing up property, even if it does not always go in line with Community property law in Texas.
For example, I have seen spouses negotiate their way through a marital property agreement. One spouse Shields the other from debts that would otherwise be classified as a community in nature. A marital property agreement can clarify that a particular debt should be classified as its own rather than being treated as community debt. You know their circumstances. Community property law can be put to the side if a more equitable agreement is being considered depending upon you and your spouse's circumstances.
How do you characterize property in a divorce trial?
So far in today's blog post, we have discussed the legal and theoretical side of property characterization in Texas divorce. Now I would like to spend some time walking you through the mechanics of how you and your family law attorney would be able to characterize particular assets as being part of the community or separate Estates in a divorce trial. For starters, you must have an experienced family law attorney by your side to help you walk through your case. Going into a trial without an attorney will be like trying to pull your teeth without a dentist or trying to break on yourself without a doctor. When it comes to short-term procedures that are very important, it is better to invest in your future rather than leave it to chance.
In short, before we even discuss the actual mechanic SUV presenting evidence in a trial, it is crucial to note that just because you have some degree of evidence to prove that property is either separate or community-owned does not mean that it will necessarily go before the judge. In the log, there is a subset of laws that deal just with what kind of evidence will be able to be admitted into your trial. You need to understand that just because you have an email, text message, or another piece of evidence does not mean that it will necessarily be able to be considered by a judge in your trial.
Having evidence is one thing; period having admissible evidence is another. It is a completely separate discussion when we talk about having evidence entered into the record and, therefore, can be considered by a judge in your divorce. To get from one end of the spectrum to the other, you need an attorney to take control of that process. There is no substitute for experience, and I would not recommend having an attorney who has never worked in the worst trial before.
An experienced family law attorney is very familiar with the idea of tracing. We discussed the concept of tracing a little while ago in this blog, but I want to take some time now to walk you through what it means to trace the origins of a particular asset or debt. Tracing involves going back through the history involving an asset or debt, including the necessary transactions for acquiring it. When an asset or debt was acquired and how it may have changed over time as far as being a community or separate property is what I am talking about.
Tracing is frequently used in Texas divorce cases to establish or prove claims about the separate nature of the property that may have been acquired during your marriage period; you may recall that there are certain instances in which property acquired during your marriage can be classified as separate property. If you contend that a particular asset or debt is separately owned, then you must overcome the presumption that the asset or debt acquired during your marriage is Community property. Tracing could help you do that.
Another issue that comes up in Texas divorce trials with some frequency is when an asset is commingled with other types of property that are not the same in terms of being separate or community. For example, if you deposited separate property income into a jointly held community bank account, this is referred to as Co-mingling in family law. Over time the separate property can begin to become difficult to differentiate between Community property in certain circumstances. You may need to trace the origins of separate property to prove its status as such.
Finally, I would begin to consider whether or not your divorce will be classified as a high net worth or complicated matter. Most of us reading these blog posts are not involved in financially complex marriages. We work, earn an income, and have basic investments for our retirement. However, some among us have a great deal of wealth or have a complex financial plan in place in their marriage period; for people like that, tracing can become very important as far as how property is classified in the divorce. Hiring an expert witness like a forensic accountant to trace the origins of property or assets may be crucial to your particular case.
What is the community fund's first rule?
This refers to a certain kind of tracing that involves the idea when community and separate property funds are commingled in a single bank account that community funds are spent before separate funds are utilized. This is a pretty simple concept but becomes a little wordy and convoluted in trying to explain it. Let's walk through a couple of examples to illustrate better the point that I'm trying to make.
Let's suppose that you own your own business in deposit proceeds of $5000 from that business into a jointly held bank account with your husband. Both you and your spouse have made withdrawals out of that bank account which totals $6000. Because the funds generated by your business were not equal to or more than the total amount of the money that was withdrawn, then the evidence could support the concept that the use of marital funds did not support your business. Rather, your business would be supported only by separate property.
Next, let's consider a situation where you might earn an inheritance and deposit that inheritance into your jointly held bank account. If money from that bank account were then used to purchase a home in that situation, tracing could allow you to show evidence of when your deposit of inheritance money was made and keep that money separate from the Community property funds that are also in that account.
Questions about the content of today's blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the content of 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 consultation 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 and the services provided to our clients by our attorneys and staff.