Yours, Mine, or Ours: Characterizing Property in a Texas Divorce

In Texas, a Community Property state, the law deems that any property acquired by either member of the couple during the marriage is jointly owned by both members of the couple?regardless of how the asset might be titled or whose labor earned the money.?

Understanding what each type of property is, how it is characterized, and who is entitled to each will be key to understanding your settlement agreement.

Separate Property

Separate Property is property that can be legally claimed solely by one party.

In general, to be considered separate, property must have been acquired before the date of marriage.?

If one spouse receives property as a gift, that property is assumed to be separate. The same goes for an inheritance.

In Texas, all property is presumed to be community until proven by clear and convincing evidence to be separate.

Community

Community Property is sometimes referred to as marital property and consists of any income, real property, or personal property acquired by either spouse during the marriage.

Separate Property may come to be characterized as Community Property in the event of commingling. Commingling occurs when community assets are added to separate assets through new account contributions.

Proving Claims

For the purposes of establishing a separate property claim, that usually means having a paper trail in the form of account statements, a schedule of pre-marital property, and/or a pre-nuptial agreement.

Implications

Let`s look at a short case study.

Dan and Martha have been married for 20 years. When Dan and Martha married, Dan already had a?Roth IRA?with $100,000 in it, 100 shares of Apple stock, and a home with $50,000 of equity.

Martha’s parents never taught her about saving; she came to the marriage with a bank account worth $20,000. During the marriage, Martha received a modest inheritance of $50,000 when her mother passed away shortly after the wedding.

This year Dan and Martha decided they no longer wanted to be married to each other.

Dan’s IRA

Over the years, Dan made wise investments and continued making regular contributions to his IRA account.

If Dan has the account statement from just before the marriage, he may be able to prove $100,000 of Separate Property. If not, the entire account is likely to be deemed community and subject to division.

Dan’s Apple stock

During the marriage, he has not sold any shares, nor has he purchased any additional shares.

All dividends have been reinvested over time. If Dan can show an account statement proving his ownership of 100 shares of Apple purchased before the date of marriage, he is likely to be able to claim all of them as separate.

The House

Once Dan and Martha were married, mortgage payments were made on Dan’s Separate Property home using community assets.

Martha’s Savings Account

During the marriage, Martha didn’t put any new money into her savings account except for the small inheritance from her mother. She received a very modest rate of interest.

If Martha can show an account statement from just before the marriage and an account statement showing the inheritance proceeds being deposited, she may be able to claim the account as her Separate Property.

Potential Outcomes

If Dan is unable to prove any of his Separate Property claims, Martha stands to be awarded up to $3,300,000 of assets between the IRA, Apple stock,?and the house. If Dan can prove all of those claims, she may not be awarded any portion of those assets.

Likewise, if Martha can prove her Separate Property claim, she could keep the $70,000 from her savings account. If not, the likely outcome is that Martha is awarded 50% of the community portion of each asset, and Dan will keep the other 50%.

It's common in divorce for clients to misunderstand the rules surrounding Separate Property and the rules around proving Separate Property claims.

If you are interested in learning more about Separate Property claims, keep reading the complete post here.