Embarking upon a divorce? Hopefully, you have a roadmap in your hands. If you don’t know how to arrive at the destination of a completed divorce, then you are almost sure to get lost. Getting lost in the context of a divorce means running into fees, expenses and time lost that otherwise could have been avoided. Fortunately for you, the Law Office of Bryan Fagan is here to help you gain perspective and knowledge of the divorce process so that you don’t get lost in the shuffle of your case. Developing goals is just as important in your divorce journey. Our experienced family law attorneys can help you in the area of Texas community property laws, as well.
Texas is a community property state as any attorney who has passed the Bar Exam can tell you. What those attorneys may not be able to tell you is anything relevant to your situation with your spouse. Community property laws in Texas are numerous and the finer points about these laws and how they interact with your family can make the situation even more complex. Hiring an attorney who has a fancy suit but can’t tell you the first thing about how to apply these community property laws in the courtroom or mediation won’t serve you well.
To understand community property we should understand separate property
Ironically, we think the best way to better understand the laws of community property is to understand the laws of separate property. The State of Texas defines separate property as any property owned or claimed before marriage as well as property acquired afterward by gift, devise, or descent. That’s a mouthful, so let’s break it down piece by piece. Starting with the simple stuff- personal property owned before you got married, inherited property, and birthday presents are all separate property. Simple, right? Well, not so fast. Just as soon as you think you have the issues of separate property covered you will quickly find out that there are finer points to this discussion which bear mentioning.
Navigating the Complexity of Gift Characterization in Divorce
First, how do you determine that a gift was made to you as an individual rather than to you and your spouse? That is a difficult question to answer. For instance, consider a situation where you receive a check in the mail from your grandmother as a birthday gift. That $50.00 check may be made out to you as an individual, but once you look at the card from grandma, she wishes you a happy birthday and implores you to go out and have a nice meal with your wife. What was her intent? I don’t think that you and your spouse are going to fight tooth and nail over a $50.00 check, but a $50,000 gift of property from your grandmother is something worth fighting over, to be sure.
A gift cannot be community property. The law in Texas is that if your spouse could prove that grandma’s check was intended to be a gift both to her and you, then the law would treat the check as one-half your separate property and one-half your spouse’s separate property. This is a trick distinction to draw but is one that is important. Property characterization and division are a central part of most any divorce. These seemingly small distinctions can matter a great deal in the aggregate as you get more involved in divorce negotiations.
Community property examined
Now that we have spent some time discussing what separate property is, we can get into what community property is. Community property is defined by excluding separate property and all that remains is community property. Keep in mind that Texas presumes that all property in existence at the time of your divorce is community property. Therefore, it is less important that the State have a better definition of what community property is. This may be unsatisfactory for some of you reading this blog post but that is the reality of our situation.
If you are attempting to argue that property owned by one of you is separately owned by one of you then you need to be prepared to come forward with clear and convincing evidence to prove that. This presumption in favor of property being characterized as community property also applies to debt. The debts of both you and your spouse are presumed to be community debt and therefore divisible between the two of you in the divorce. As a result, you need to be a good record keeper (or hope that your spouse is) if you are to get out from underneath the obligation to pay a debt that is rightfully a part of your spouse’s separate estate.
Understanding the Treatment of Income from Separate Property
Income earned from separate property is community property in Texas. This can take a second to sink in. Income doesn’t mean only income from that of your place of employment. Income for these purposes means interest on investments or even the profit on the sale of a piece of real estate. A simple example to illustrate this point is to assume that you have $100 in separate property income that you use to open a bank account. Over time, the account accrues $20 in interest. The initial $100 is your separate property but the $20 would count as community property.
How will a court determine whether property is separate or community property?
The most basic way that a court will attempt to determine ownership of property is to utilize the inception of the title rule. This rule considers ownership of property now that the property is purchased or acquired. The inception of the title rule considers ownership now the property is acquired and considers nothing after that moment in time. If you sign a contract to purchase a home the day before you get married, then that home will be your separate property. This is true even though you will not close on the home until after you get married.
Let’s take this example a bit further. Would the house still be considered your separate property if the mortgage payments on the home were made with community property income? Yes. Again, because the inception of title rule applies to the home and your status as being a single adult on the date that the home contract was signed it will still be considered as your separate property. However, bearing in mind that community property income was utilized to pay mortgage payments, your spouse may be entitled to a reimbursement in the divorce for her portion of the community property funds expended towards payment of the loan.
Unraveling Property Ownership: The Role of Tracing in Divorce Cases
Courts can also utilize a method called tracing, and you can too, determine whether property is separate or community. This is performed to overcome the presumption that a particular piece of property is community property. A key part of tracing is being able to keep very detailed records of how and when an asset was purchased or acquired. You may be right that you bought a particular asset with separate property funds. However, if your spouse disputes this in the divorce then you are faced with a situation where you are going to have some work to do as far as proving the separate property nature of the item.
Mixing property in a marriage
It is almost inevitable that some separate property owned by you, or your spouse will become mixed up with community property owned by the two of you. Very few of us married people will do a perfect job of keeping separate property separate or will even consider these sorts of distinctions in our daily lives. Even if we do try and be mindful of keeping these types of property separate, for whatever reason, the record-keeping required to prove the separate property of some item can hinder us.
When you and your spouse mix your property this is known as commingling. When you mix up the property to the extent that nobody can tell which is which then the presumption in favor of classifying all of it as community property comes into play. If you inherit $5,000 from an aunt who passed away, then this inheritance is classified as separate property. However, once you take that $5,000 and deposit it into your bank account you need to keep very clear records for it to maintain its separate property characterization. Getting a divorce ten years later and not doing any kind of record-keeping means that you have likely lost your opportunity to present a separate property argument for this $5,000.
Creditor rights and community property
All of this is good and well, but you may be wondering why all these rules are necessary. One of the reasons why the state of Texas has created these rules is to help you protect your property from creditor claims. Suppose that you and your spouse (Jack and Jill) have lived in Texas for the entirety of your marriage. Both of you are gainfully employed. Both of you have retirement investments- you have a 401K from your employer and your spouse has a traditional IRA to her name.
Now, let’s further suppose that your wife is sued after she rear-ends that other person with her vehicle coming home from work one day. Both of you own separate property and the two of you have a community property home, bank accounts, and other assets together. Creditor claims cannot touch your homestead (shared home) in Texas. That homestead could be separate or community property. Regardless, a creditor cannot come after your home here in Texas. The same is true of life insurance policies as well as retirement savings.
Where things get interesting when it comes to the claims of a creditor is regarding each of your separate property. Your wife’s separate property would potentially be vulnerable to a creditor’s judgment claims. However, your separate property would not often be made vulnerable to a creditor’s claims in this situation. The main exception to this is if the creditor provided you or your spouse with items that are necessary for survival such as food, clothing, shelter, and things of this nature.
A just and right division of community property
When you and your spouse get divorced, a family law court would divide your community property in a just and right manner. Many people who enter a divorce assume that just and right equals an even split of the community property. I have had people casually refer to a just and right division as meaning equal in all situations, almost shrugging their shoulders at the idea that a court must split the property evenly.
This is not the case. It can be true, make no mistake. Courts will consider the totality of the circumstances of you and your spouse before making an award of property to either of you. In a just and equitable division, if you’re a stay-at-home wife and mother while your husband is a brain surgeon, the implication is that in the event of a divorce, income would remain with the earner. Consequently, your husband would likely leave the divorce with a substantial sum, while you might depart with minimal financial resources.
That is an extreme example, but it would not exactly be just or right for you to end up destitute simply because you chose to stay home and support your family while your husband earned a significant income as a doctor.
Reimbursement and divorce
When community property funds are utilized to improve a separate property asset then the spouse who does not own the separate property is entitled to reimbursement at the time of your divorce. Let’s consider a situation where you own a separate property home by placing a down payment on the home before your marriage. We know that under an inception of title situation, you don’t need to have closed on the home before your marriage for the home to remain as properly classified separate property.
However, even though this home counts as your separate property that does not mean that your spouse has no claim against it in the divorce. During your marriage, you used community property income to make mortgage payments, which remains an unresolved issue. During the divorce, your spouse can claim reimbursement from the community estate for funds spent on paying the mortgage for your separate property home.
Final thoughts on community property in Texas divorces
Community property does not necessarily mean getting half of the property in your home and bank accounts in a divorce. Many people mistakenly come into a divorce with this assumption but quickly find out that this is not the case. Rather, a just and right division of their community estate will occur from a judge. This also means that the circumstances of your life, your marriage, and your property will be considered. Much of this assessment will be based on equity or fairness. Judges rely on their bench experiences, court precedents, and personal convictions to determine justice in your case.
When you get divorced there will surely be a range of factors and circumstances to consider. Your life is not as simple as you would think. I believe that after reading through this blog post you can see that there are nuances to the community property laws of Texas which make this a more complex topic than first meets the eye. The question that you have to answer is how you can prepare for a divorce that at first appears to be simple but upon further evaluation grows more and more complex. ,
Navigating Divorce with Confidence: Why Experienced Family Law Attorneys Matter
We at the Law Office of Bryan Fagan recommend considering the value of an experienced family law attorney in these situations. Not an attorney who practices generally but is more than happy to take your divorce. Rather, we believe that there is tangible value in hiring an attorney who focuses on family law and has a large practice devoted to helping people in our community navigate community property division and all aspects of getting divorced in Texas.
We invite you to consider your options and to sit down with us to discuss your case. Sometimes being able to sit with a person who has been through what you are embarking on can put your anxieties at ease. We know that divorces are challenging. We have served thousands of our neighbors here in Texas during their divorce journey. However, we also know that divorce is not an impossible situation. It requires planning and goal-oriented behavior- but it is not impossible. Talk to us today about your case and we believe that you will experience the peace of mind that comes with confidence about how to accomplish the goals you have for yourself and your family in a divorce setting.
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 a great way for you to learn more about the world of Texas family law, Texas community property, and how your family’s circumstances may be impacted by the filing of a divorce or child custody case.
Other Related Articles
- Dust Off Your Boots: A Texan’s Guide to Community Property Divorce
- What is community property in Texas?
- From I Do to I Divide: Deciphering Community Property Laws in Texas Divorce
Evan Hochschild was raised in Houston, TX and graduated from Cypress Creek High School. He went on to graduate from Southwestern University in Georgetown, TX with an undergraduate degree in Political Science. While in college, Evan was a four-year letterman on the Cross Country team.
Following in the footsteps of his grandfather and uncle before him, Evan attended law school after he completed in his undergraduate studies. He graduated from St. Mary’s University School of Law and has practiced in a variety of areas in the law- including family law.
Mr. Hochschild is guided by principles which place the interests of clients first. Additionally, Evan seeks to provide information and support for his clients with the heart of a teacher.
Evan and his wife have four small children together. He enjoys afternoons out and about with his family, teaching Sunday school at his church and exercising. A veteran attorney of fourteen years, Mr. Hochschild excels in communicating complex ideas in family law simply and directly.
