In a divorce case, property division plays a vital role. You may be aware of the two major components to a divorce being property division and child custody. When it comes to child custody-related matters, there are several resources available to you through our website to learn more about this subject. If you are a parent, almost assuredly, your main concerns lie with wanting to make sure that your children are well taken care of and that you can retain your rights to them as much as possible. However, in today's blog post, we are going to focus on issues surrounding property division.
No discussion on property division in Texas divorces can proceed without first getting into the subject of community property. Every state in the country has different laws concerning how property is divided up when spouses divorce. Texas is no different in this regard. However, by utilizing community property principles in our laws, Texas differs from most states in the country. Before we get into how these laws impact the dual classification of property, let's first discuss community property laws and how they can affect you in a potential divorce scenario.
Community property in Texas
Community property refers to the legal theory on which Texas marital property laws are based. Community property laws in Texas are derived from Spanish civil law leftover from when Mexico controlled the territory that we now know as Texas. It should come as no surprise that many of the states that utilized community property principles are located in the western and southwestern parts of the United States. Community property principles can differ significantly from common law principles that most United States utilize when discussing dividing up marital property.
The essential part of community property laws is that you and your spouse stand to receive a relatively equal division of your property, all things being similar. This means that, for example, there is no distinction between "your" property and "my" property as long as the property was purchased during the marriage. In that case, the property that you have acquired while you are married is very likely to be classified as community property. Community property is subject to division in a Texas divorce.
One of the more significant aspects of this discussion is that it does not matter whose income was utilized to purchase or acquire the property any questions so long as it was purchased or acquired during your marriage. For example, let's consider a hypothetical situation involving you and your spouse. Imagine a scenario where you are a stay-at-home mother and your husband is a medical doctor. You have not worked in some time, and your spouse has earned all the income that your family has relied upon for many years. With that income, you have purchased a home, vehicles, personal items, investments, and all the typical things that come along with a marriage.
At this point, I think many people would assume that your husband would wind up with most of the property in a divorce scenario. The reason for this is that since your husband earned the income used to purchase the property, he would be entitled to keep the property if divided in a divorce. However, this is not the case. Texas approaches income earned during your marriage as a community in nature. Thus, any payment in a checking or savings account in addition to the property purchased with that community income would be classified as community property. For you or any person in your position, this probably comes as a great relief. Specifically, just because you were not the person who earned the income utilized to purchase property does not mean that you shouldn't receive any benefit from that property.
As you can see, community property principles are based more on equity than on determining property division based on who earned the income used to purchase specific pieces of property. The theory behind doing this or how this works out to certain people's benefit or detriment is a topic for another blog. However, for today's blog post, we need to know how to determine how the community property in your life will be divided In your particular circumstances.
What about the separate property?
Simply put, any property that you owned before your marriage will be classified as separate property. This means that there will be three broad categories of property at play in your divorce: the community estate, your different estate, and your spouse's separate estate. Property is classified as being separately owned or owned jointly by you and your spouse, depending upon when the property was purchased.
Sometimes there is a question as to When a piece of property that you own was purchased or the funds used to purchase the property being community or separate. In this case, accurate and detailed record keeping is crucial to show that property was either community or individual, depending on your perspective. Particular property cannot be divided by a family court judge. This is why many expenses are often paid towards convincing a family court judge that a specific piece of property is or is not part of one of your separate estates. An expert witness like a forensic accountant can be brought into your case to provide evidence that a particular asset or piece of property is, in fact, a community or separate property.
How do prenuptial agreements factor into this discussion?
Most everyone reading this blog post is probably aware of what a prenuptial agreement is. Our culture seems to have a fixation on prenuptial agreements or prenups as they are known. A lot of the time, we view these prenups as being Bad or underhanded in some way. However, the reality is that a prenuptial agreement can be an excellent tool for you to utilize when it comes to sorting out issues with your property before starting a divorce. Anyone who engages in a divorce will tell you that a divorce case does not necessarily promote clear thinking. This is a problem when your divorce will force you to grips with how to divide up property when you may be as stressed out as you have ever been in your entire life.
A prenuptial agreement seeks to allow you and your spouse to decide how to divide up property when you are on much better terms. These documents are also known as premarital property agreements or marital property agreements if they are negotiated during your marriage. You can look at a premarital or marital property agreement as a method of marital planning and financial planning all in one. There is no need for you to worry about dividing property in a divorce when you can see that the groundwork for these decisions is laid before you even get married.
You can even hire an experienced family law attorney to help draft a premarital agreement. Another point regarding premarital or marital property agreements is choosing how much property or what to include in the contract. For instance, if you only want to touch on how debts are treated in a potential divorce, you can certainly do that. Many people who have business loans or other types of debts would like to avoid a circumstance where their spouse may end up being responsible for them in a divorce. Therefore, you could work to ensure that the debt associated with your business would be classified as your separate property in a divorce scenario.
Premarital property agreements, or marital property agreements for that matter, cannot touch on any issues related to child support. However, topics like spousal maintenance can be covered in a premarital or marital property agreement. To discover the benefits of a premarital or marital property agreement, it is a good idea to meet with an experienced family law attorney with the Law Office of Bryan Fagan. We can offer you a free-of-charge consultation with one of our attorneys, where you can ask questions and learn about the benefits that a premarital or marital property agreement can provide to you and your spouse. This way, you can avoid many of the issues we may cover in today's blog post.
How can an asset be partly Community property and partially separate property?
A moment ago, I mentioned how there are three classifications for property in a divorce. However, this is a general rule, and specific circumstances may lead to property taking on a more hybrid characterization as belonging both in the community estate and in either your or your spouse's separate estate. In the last few sections of today's blog post, we need to discuss how this property may come to be and its potential impacts for property division in your Texas divorce.
The most straightforward example that I can provide you with when it comes to property taking on a dual classification as both separately owned and community-owned would be a home you owned before your marriage. Let's think about a scenario where you owned a single-family home as your primary residence before the wedding. The house was purchased with income that you earned from your place of employment before ever getting married. Based on our introductory information on Community property, it would follow that this home is classified adequately as your separate property.
Now we can fast forward a few years. You have continued to live in the home, but you got engaged and married in the past year. You and your husband purchased a home together after you got married and moved in as newlyweds. The question that you had to answer is what to do with your old house. You could sell the home and utilize the sale proceeds or any other use that you would like. However, you decided that it would be good to keep the house and rent it out. This way, you could have the tax benefits of owning a home, the appreciation in value, and the rental income that comes with owning real estate.
Making this decision did not change the separate property characterization of the home. No matter what you decide to do at the house during your marriage, that does not change that it is correctly classified as separate property. Remember: it was purchased before your wedding and was classified as particular property as soon as you and your spouse tied the knot. Nothing you could do to the property after your marriage could change that classification.
However, there are components to the home that may result in the property shifting into a gray area as far as whether it is community property or separate property. For example, let's consider a scenario where there was a mortgage on the home throughout your marriage. When you made payments on that mortgage with your income, you were taking community assets and using those community assets to benefit a separate property asset of yours. While this is nothing illegal or immoral, it can change the conversation in the context of a divorce. Specifically, your spouse would likely be due reimbursement into your community estate out of your separate estate. Additionally, you would need to consider well there were not any income you earned out of the particular property home would be classified as Community property due to it being acquired during your marriage.
These are just a few questions that you and your attorney would need to ask yourselves. You all need to consider these questions early and often in your divorce. The last thing you would want to do is to leave these questions unasked in and unanswered until the very end of your case. This leaves you with very little time to plan how to address this subject with your spouse and even less time negotiating with them. Many times, people assume that they can leave these questions unanswered until you arrive at mediation. I would warn you that mediation is a great place to finalize tentative settlement agreements discussed previously. Mediation is not a great place to create brand new settlement offers and to see whether your spouse is responsive to one or the other.
Therefore, whether it is mortgage payments on a separate property home or simple upkeep and maintenance on a particular property home, you need to identify the property in your divorce that could take on an individual property as well as a community property aspect to them. From there, you need to rely upon whatever degree of record-keeping in due diligence before he performed to ensure that you are acknowledging any Community property contributions to your separate property. Failing to do so can end up costing you time and money since you are more likely to need to go through with a contested trial on this subject matter to allow a family court judge to help sort out the mess for you.
However, if you take the time to consider these topics rather than leave them to a family court judge, you could do yourself a favor. Problems that you can sort out with your spouse directly rather than resorting to family court appearances not only save you money but can probably help you and your spouse arrive at conclusions that are more equitable and certainly more palatable to each of you. Do not assume that just because there is disagreement on a subject with your spouse that you all will not be able to work out an agreement. It does take time and effort, but you certainly can problem solve your way through various issues.
Another principle to keep in mind is that you can give yourself options by thinking outside the box when dividing property. Rather than waiting to sort out this type of situation in a divorce case, why not take the initiative to address a separate property home before you even get married? It's not as if the house comes as a surprise to you during the marriage period; instead, if you know you want to keep the home before your marriage, then you can address how the house is to be treated in the event of a divorce in a premarital property agreement.
Questions about the material contained in today's blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in 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 consultations six days a week in person, over the phone, and via video. These consultations are an excellent way for you to learn more about the world of Texas family law and how your family circumstances may be impacted by the filing of a divorce or child custody case.