1-281-DIVORCE (348-6723)


1-281-DIVORCE (348-6723)

Texas Rules for Characterizing Marital Property upon Divorce

divorce in houstonGeneral rules which can be applied to property upon dissolution of a marriage or for purposes of a partition in exchange agreement, or for a probate matter.

The rules as I present to you are based on Texas case law and the Texas family code.

Marital property in Texas

Property owned by a spouse is marital property. Marital property is either: Separate property or community property or a mixture of the two.

Property not owned by a spouse is not marital property it is neither separate nor community property.

Inception of title– The character of marital property is separate or community or mixed is determined at the time of “inception title”.

Inception of title occurs when a party first has a right of claim to the property by virtue of which title is finally vested.

Property that is acquired before the marriage

Property acquired during the marriage is community property with the following exceptions- property that is acquired by gift, by devise or descent by partition or exchange as income from separate property made separate by a spouse spousal separate income agreement.

By survivorship in exchange for other separate property as recovery for personal injury sustained by the spouse during marriage except in recovery for a loss of earning capacity during marriage.

This last rule would apply to the extent that you had an accident and as part of that accident you received a bifurcated claim both for lost wages and for pain and suffering, the pain and suffering would be separate, the lost wages would be community.

Property acquired after this dissolution of marriage

Property acquired after this dissolution of marriage property which has the inception of title after the marriage is dissolved is not community property.

There is a presumption of community property; and that property possessed by either spouse during or on dissolution of marriage is presumed to be community property, and the separate property character must be proved by clear and convincing evidence.

Co-mingling is when separate and community property have become so commingled as to defy re-segregation and identification, the burden of persuasion to overcome the presumption of community is not discharged and assets in question are treated as community property.

Tracing involves the tracing to the inception of title the character of separate property is not changed by the scale exchange or change in the form of separate property.

A separate property can be definitely traced and identified it remains separate property regardless of the fact that the separate property undergoes mutations or changes in form.

Tracing involves establishing a separate property, origin of the property through evidence showing the time and means by which the spouse originally obtained possession of the property.

The best example I can give you as to mutations of separate property would be in a 401k in which you’re trading etfs or stocks, if you take the balance on the date of the marriage and treat that as separate and then the balance on the date of divorce and the divorce is relatively quick with the marriage maybe two years later and you have a stock market that has had large increases but your characterization as far as the underlying assets were not traded and they just increased in value, technically you would have all separate property whether it’s stock or etfs.

Divestiture of separate property and divorce

Divestiture of separate property and divorce in a divorce, a court cannot divest a spouse or either her or him of their separate property.

Increase/ decreases the natural increase or decrease in the value of a separate asset does not affect its characterization.

Credit obtained during marriage credit obtained by a spouse during marriage is community credit unless the lender agrees to look solely to a borrower’s spouse’s separate estate for repayment. Property acquired with community credit is community property and property acquired with separate credit is separate property.

Credit during marriage is presumptively community, and the burden is on the proponent to prove separate credit. Even property acquired with community credit can become separate property by interspousal gift, and partition.

Presumption arising from deed recitals when a deed recites that separate property was paid for the property or that property is taken as a receiving spouse a separate estate a rebuttable presumption of separate property arises.

Where the other spouse is grantor or otherwise chargeable with causing or acquiescing in the recital, the presumption becomes irrebuttable, absent fraud.

Presumption arising from interspousal conveyance where one spouse conveys property to the other spouse, there is a rebuttable presumption of gift, even absent a recital in the instrument of conveyance.

Presumption from including their spouse’s name and title where one spouse furnishes separate property consideration and title is taken in the name of the other spouse, a rebuttable presumption of gift arises.

Where one spouse uses separate property to acquire property during marriage and takes title to that property in the names of both spouses, a rebuttable presumption arises that the purchasing spouse intended to make a gift of one-half of separate property interest to the other spouse.

Presumptions regarding income from interspousal gifts where one spouse makes a gift of property to the other spouse, that gift is presumed to include all the income of property which might arise from the property given.

Presumption regarding withdrawal or of commingled funds where an account contains both community and separate monies there is a presumption that community monies are withdrawn first.

Putting separate property money in a joint account the act of placing separate property funds into an account under the control both spouses does not make the funds community property.

Fixtures under the law of fixtures whatever is affixed to the land becomes part of the land improvements to reality take the character of the land regardless of the character the funds or credit used to make the improvements.

Corporate assets a shareholder owns shares in the corporation and not assets of the corporation, corporate assets are neither separate nor community property unless the court pierces the corporate veil. The increase during marriage and value of separate property corporation belongs to the separate estate.

Partnership rights of a spouse under the Texas uniform partnership act, there are three property rights of a partner. Two of these cannot be community property, one can be community property, the partner’s interest in the partnership.

Partnership assets and partnership distributions Texas has adopted the entity theory of partnerships.

Partnership properties owned by the partnership and not the partners, and in the absence of fraud, is not the separate or community property of the individual partners, if a partner receives a share of the profits during the marriage, they are community even if the partner’s interest in the partnership is his separate property.

Trust holdings and distributions property held by a trustee for the benefit of a spouse is not owned by a spouse it cannot be marital property. At the same time where the spouse/beneficiary has an unconditional right to have the property free of trust, then the property is treated as if it is owned by the spouse, even though still in the hands of the trustee. Where the spouse is both settler and the beneficiary of the trust, the income of the trust property is likely community income where the trust is established by gift or a will, case law is conflicting as to whether the trust distributions are separate or community.

Preemption of Texas marital property law federal law

Sometimes preempts Texas marital property law and those circumstances the federal law must be consulted to determine the rights of spouses and their property in question this is frequently comes up with social security, social security is characterized as separate property and not partitionable.

Many times in a divorce one will look to social security as an asset and attempt to set up that income stream as a future asset and they’ll try to argue it usually that’s shot down very quickly.

There are certain employee benefits as to retirements and the characterization of those retirements which are broken down into defined benefit plans defined contribution plans.

Stock options and stock option plans.

A participant’s spouse will have a separate property interest and defined benefit retirement plan equal to the monthly accurate benefit the spouse had a right to receive at normal retirement age as of the date of the marriage regardless of whether the benefit is vested or not.

The community property interest will be determined as if the spouse participant began his/her participation on the day of the marriage, regardless of whether the benefit was vested.

A defined contributions plans, the separate property interest of a defined contribution plan may be traced using characterization principles used regarding to non-retirement assets.

Stock option plans are determined using a formula set forth in a statute.

So the formula again involves the tracing and to say that on the date of a marriage  that is your separate property when during the marriage the underlying assets only increase in value, that is going to require you to hire a forensic certified public accountant and for the most part if you do that, and you maintain the same asset but the asset grows in value, many times you can still prove that as your separate property and it’s not subject to partition.

Insurance proceeds, insurance proceeds take on the character of an asset that suffered the casualty.

Disability payments and worker’s compensation payments are community property to the extent there are payments to replace earnings during the marriage.

If they are payments to the participant that are made while the participant is not married than they are a separate property.

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Michael Busby is a Houston divorce lawyer who has been in practice for over 20 years and appears daily in the Family Law Courts of Harris County and Fort Bend County Texas

Busby & Associates , have two Houston Offices, one in Chinatown, Houston Texas and another in Independent Heights, Houston, Texas. Michael Busby is Board Certified in Family law by the Texas Board of Legal Specialization.