Texas is one of nine community property states in the United States. The other community property states include California, Nevada, Louisiana, New Mexico, Wisconsin, Arizona, Idaho, and Washington. This blog will explore community property and separate property in the state of Texas.
In Texas, married couples can have two types of property, separate property and community property. Separate property is any property the spouse owned prior to marriage or any property the spouse acquired during the marriage by gift, inheritance or personal injury settlement. Community property, on the other hand, is all other property acquired by the spouses during marriage regardless of which spouse’s income paid for the property or whose name is connected to the property.
During a divorce proceeding, parties take inventory of all their assets and determine whether the asset is separate or community property. Unless the parties come to an agreement, a court will divide all the community property assets between the spouses in a just and right manner. A “just and right manner” does not necessarily mean that the court will divide the property 50/50 between the spouses. Rather, a court will look at the specific facts of the case and then will divide the community estate in a fair and equitable way. For example, a court might take into consideration the parties’ age, health, educational attainment, employment, and fault in the breakup of the marriage when deciding how to divide the property amongst the spouses. However, spouses are also permitted to come to an agreement amongst themselves, usually in mediation, regarding how the property should be divided upon divorce.
Under Texas law, property is presumed to be community property unless either the spouses agree the property is one spouse’s separate property or the spouse can provide sufficient evidence to the court that the asset in dispute is their separate property.
Examples of Community Property
Income
Parties need to understand what constitutes community property when they decide to move forward with a divorce. In Texas, the law defines income a spouse earns during marriage as community property. Income includes not only a spouse’s salary or wage, but also the tips and overtime pay the spouse earns and the income the spouse receives from their separate property, such as rental income. If a spouse loses their job, any unemployment compensation the spouse receives is community property. Courts can also divide a spouse’s lost wages they receive following an injury as part of a community estate.
Financial Accounts
Courts consider money in a couple’s savings and checking accounts as community property even if only one spouse’s name is listed on the account unless a spouse can prove the funds are their separate property. Similarly, the funds in a spouse’s retirement accounts, including a pension or a 401k, since the date of marriage are treated as community property irrespective of the name on the account.
Vehicles
If a spouse buys a vehicle during marriage, courts will treat that vehicle as community property even if the title only has one spouse’s name on it.
Real Property
Any real property, such as a home, rental property, or land, purchased during a marriage is also considered community property.
A couple can own other community property assets than the ones listed here, but these represent some of the more common forms of community property present in divorce cases.
Examples of Separate Property
- Inheritance
Some examples of separate property include money a spouse inherits after their parent passes away even if the spouse receives this inheritance during marriage.
Assets Acquired Prior to Marriage
Any property purchased prior to marriage, including a home, car, land or boat is separate property.
Gifts
Texas law also considers any gifts before or during marriage to one spouse, including jewelry or vehicles, as the spouse’s separate property.
Personal Injury Settlement
If a spouse receives money following a personal injury settlement, Texas courts will treat the settlement as that spouse’s separate property even if the spouse suffered their injury during marriage.
It is important to remember that unless the spouses agree or a spouse can prove that an asset is separate property, then courts will treat the property as community property and, therefore, can divide the property between the spouses upon divorce.
Inception of Title
Texas is an inception at title state, which means that whether an asset is community property or separate property is determined at the time the party acquired the asset. A common example is when a spouse buys a home prior to marriage. Since the home was purchased prior to marriage, the home would be the spouse’s separate property. Although the home is the spouse’s separate property, the married couple oftentimes use the income they earn during the marriage, otherwise known as community property funds, to pay the home’s mortgage. If the parties divorce, the non-owning spouse can request what is called a reimbursement claim. A reimbursement claim requests that the owning spouse’s estate reimburse either the community estate, if community funds were used to pay the mortgage, or the non-owning spouse’s estate, if the non-owning spouse used their separate property funds to pay for the mortgage.
Changing the Character of Title
A prenuptial or postnuptial agreement can change the character of a spouse’s asset from community property to separate property or from separate property to community property. For example, let’s use the previous hypothetical where one spouse buys a home prior to marriage. The spouses can sign a prenuptial agreement prior to marriage that changes the home from the spouse’s separate property to the couple’s community property. Once the home becomes community property, the previously non-owning spouse would no longer need to request a reimbursement claim upon divorce because the spouse now owns the home in equal shares.
Co-Mingling
Oftentimes during marriage, a person will “commingle” their separate property with community property. For example, a person might have contributed to a 401k prior to marriage and continued contributing to the same 401k after marriage. The funds contributed to the 401k prior to marriage would be the person’s separate property while the funds contributed during marriage would be community property. This person “commingled” their separate property with their community property because now a court cannot easily identify which part of the 401k is separate property and which part is community property. During a divorce, the spouse will need to prove their asset’s separate property character through a technique called tracing. Tracing involves showing the court the asset’s separate property character, in this case by providing statements showing the balance of the account prior to marriage. By providing the account statement, the spouse can show the court the amount of funds in the 401k account prior to marriage. However, if a person cannot prove a portion of the commingled property is their separate property, the entire commingled property is treated as community property. This means that if the person could not prove they had a portion of the 401k prior to marriage, the entire 401k would be deemed community property.
A family law attorney will work with their clients to identify their client’s community property, separate property, and possible issues, such as commingling or reimbursement claims, that may arise during the divorce proceeding. Prior to an initial consult with an attorney, try to have a general understanding of any property owned by either spouse or the community in order to receive the legal advice needed to proceed with the family law matter.