If you’re planning to divorce in Texas, you’ll want to familiarize yourself with Texas community property state laws. That’s right, Texas is a community property state, which does affect how a marital estate will be divided in the event of divorce or an annulment. Texas separate property laws may also come into play if you owned property prior to marriage or if the property was gifted to you during the marriage. We provide insight into Texas community property, separate property and more in the article below.
What is community property in Texas?
Texas is among nine states with community property laws. This implies that, except for certain exceptions, any property gained by a couple during their marriage is jointly owned by both spouses. This can significantly impact property division in divorce proceedings.
In the event of divorce, Texas community property laws state that marital property will be divided between the two parties—but don’t assume that means a 50/50 split. The general rule of property division in Texas (Section 7.001 of the Texas Family Code), states that a couple’s Texas community property will be divided based on what the court believes is “just and right,” and the court will take into account the rights of the two parties and whether the couple has any children.
During a divorce, it’s also pertinent to know that there is a presumption in the state of Texas that the property either spouse possesses from the date of marriage up until the date of divorce is presumed to be community property.
Why is this presumption important? It’s important because if you want to claim that a piece of property is actually your own separate property—and not part of the marital estate—the burden would be on you to prove that assertion with clear and convincing evidence. And that isn’t always easy. We’ll explain why overcoming that burden can be challenging later in this article.
For the record, Texas isn’t the only state in the US with community property laws; it is one of nine states that do. What states in the US have community property laws? Along with Texas, other US community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Washington and Wisconsin. While community property laws may be similar from state to state, you’ll find distinct differences in laws from state to state as well.
What is separate property in Texas?
According to Texas Family Code Chapter 3.001, Texas separate property (the property one spouse solely owns) is generally defined as:
- The property owned or claimed by the spouse before marriage;
- The property acquired by the spouse during marriage by gift, devise or descent; and
- The recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage
As mentioned earlier, the state of Texas presumes the property a couple owns is community property, so if you want to establish certain property as being separate—whether it’s a cash inheritance, prized family heirloom or classic car—it’s best to do so sooner rather than later. One way to accomplish this is to designate each party’s separate property in a prenuptial agreement or post-marital agreement.
As for property acquired by way of “gift, devise or descent,” that can include gifts spouses give to each other. Texas community property laws clearly state that when one spouse gives the other spouse a gift, that gift generally remains the separate property of the recipient. However, it isn’t always that cut and dried.
For example, if a husband paid cash for a diamond necklace for his wife and gifts it to her for her birthday, that necklace would typically be considered hers to keep, free and clear. Now if the gift was a BMW, and community funds are being used to pay the loan on the car, and the gift giver’s name is on the title, walking away with the “gifted” car could get complicated. Check out our recent blog, “Who gets the car?”, to learn more.
When does separate property become community property in Texas?
In reality, it’s not really an issue of when does separate property become community property. It’s usually a matter of whether or not you can prove separate property is actually separate property. If you previously executed a formal agreement to clarify what items are separate property (like a prenup or postnup), you’re golden.
The state of Texas also operates under the inception of title rule (Texas Family Code 3.006). That means if the title to a piece of property you own shows you purchased it prior to marriage, that evidence could help you overcome the presumption of community property.
Keep in mind, if the asset is producing income during marriage, that income would generally be considered community property. Say you purchased an apartment building before marriage and collect rent during marriage. The income from that rent (minus expenses, insurance, taxes, etc.) would be considered community property, unless you and your spouse formally agreed to other arrangements.
The waters get especially muddy when comingling of separate property and community property occurs during marriage. Just think about how often people change bank accounts, sell houses, use proceeds from those sales for home improvements and otherwise move assets around during marriage.
For example, say you received a $100,000 inheritance from your Aunt Josephine and deposited that money in the bank. Then, during the course of marriage, you and your spouse deposit $50,000 in community funds into that same bank account, while making withdrawals to remodel your kitchen and fund other home improvement projects during the marriage.
Upon divorce, $25,000 remains in the bank account, so what portion of that money is separate property and what portion is community property? In this case, Texas’ community out first rule might apply. In simple terms, that might mean the remaining $25K would be separate property. However, if the bank account had been drained down to zero at some point, and it was gradually replenished with community funds back up to the $25K, the court would likely view the $25K as community property.
As you can see, commingling of separate and community funds probably isn’t the best idea if you want to keep an inheritance from a relative (the “descent” portion in the “gift, devise or descent” rule of separate property) or a gift of money or property from a non-relative (the “devise” portion of the same rule) separate, should you divorce.
Is it worth it to fight over separate property during divorce?
Sometimes but not always. As noted above, overcoming the presumption of community property can be challenging, not to mention expensive. First, you will need to precisely trace the history of the asset and where any associated monies came and went, then determine a valuation for the asset. Second, you may need to hire a tracing expert to follow the money trail, which could end up costing you more than what the separate property is actually worth.
For example, say you’re in a long-term marriage that started out with property gifted by family. That gift was initially a nominal amount that morphed into other investments over time. It could be very difficult to prove the enhanced value of that separate property, and it needs to be traceable in order for it to be reimbursable to one side. Meanwhile, you’re paying thousands of dollars to a tracing expert, who may or may not be able to produce the clear and convincing evidence you need.
That’s not to say it’s never worth it to go through the process to trace and determine the value of separate property. In many cases it is. You just need to determine if it’s worth the time, money and stress in your particular case. An experienced family law attorney can help you weigh your options.
Community property Texas laws are complex. We can help you make sense of things.
If you have questions about divorce and Texas community property division, and you live in the Dallas / Fort Worth area, the knowledgeable attorneys at the Sisemore Law Firm are here to help. In addition, if you’re planning to marry or have recently married, we also recommend consulting a family law attorney to learn how you can earmark separate property through a prenuptial or post-marital agreement or estate planning mechanisms.
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