When a married couple divorces in Texas, all property owned by either spouse must be categorized as either community property or separate property. Community property is subject to division by a court in the divorce process, but separate property is not. By law, all property is assumed to be community property; the spouse claiming that something is separate must prove that to a court’s satisfaction.
There is no specific definition of community property in Texas. Instead, community property is just defined as all property acquired by either spouse during the marriage that is not separate property. Separate property is defined as the following: (1) any property owned by a spouse before marriage; (2) property acquired during marriage by gift or inheritance; and (3) any personal injury damages recovered by a spouse for injuries sustained during the marriage, excluding loss of earning capacity.
Because only community property can be divided in a divorce, establishing whether something is separate or community property is very important. Generally, to figure out whether an asset is separate property or community property, courts apply the “inception of title” rule. This means that the character of the property is determined by looking at when the spouse in question first had a right to claim the property. Thus, if one spouse purchases a home prior to the date of marriage, that home will be their separate property.
Though the general rule is easy to state, applying it can quickly become complicated. As noted above, property acquired during the marriage is presumed to be community property. This also means that any property acquired during the marriage with cash is presumed to be purchased with community funds, and any property acquired with credit is presumed to be purchased with community credit. Though a spouse can overcome this presumption by producing evidence to the contrary, they must do so with clear and convincing evidence.
The gift and inheritance rules, though seemingly straightforward, also have many nuances. For example, a gift made to both spouses means both spouses own the gifted asset - a wedding present, for example - in equal, undivided, one-half separate property interests. Another example is when a parent conveys any property to their child; that conveyance is presumed to be a gift and, therefore, the separate property of the spouse receiving it. However, just like the community property presumption, this can be overcome with sufficient evidence.
Pre-marital and post-marital agreements can also affect the characterization of property. Typically, income (such as rent, revenue, profits, and interest) earned from one spouse’s separate property during a marriage is characterized as community property. However, utilizing these agreements, spouses can change the default rules, such as agreeing to recharacterize future earnings of income from a spouse’s separate property as that spouse’s separate property. A couple can also agree that property that would ordinarily be characterized as community property will be separate property; a post-marital agreement can also recharacterize any part of the couple’s community property as a spouse’s separate property. Spouses can agree that existing separate property will be characterized as community property, and so on.
There are other complications to the rules about property characterization. If a couple purchases property - say, a new house - with a combination of separate property funds from one spouse and community funds, that property has a “mixed character.” Some of it is separate property, and some of it is community. This rule can apply to real estate, bank accounts, life insurance, and even retirement benefits. Percentages of ownership between the separate property estate and the community property estate must be established and the community property share divided in a just and equitable manner.
As you can see, the proper characterization of property as community or separate is vital in a Texas divorce. However, that task can also quickly become complex and difficult. That’s why you need an experienced family law attorney like Robert Tsai on your side. If you’re contemplating a divorce or going through one, we’ll help you understand and preserve your property rights. Click here to schedule a consultation today, or call us at 832-278-1995.