Understanding the basics of marital property law is a must when deciding how to divide your assets and liabilities upon divorce. Different states follow different property models when it comes to marriage and divorce.
Texas is what is known as a community property state, where all property acquired by either spouse during the marriage is community unless that property can otherwise be legally characterized as separate property. It does not matter if the property is titled in only one spouse’s name. If the spouse acquires the property after the date of marriage, it is presumed to belong to both spouses as community property. For example, a bank account titled in only one spouse’s name is still presumed to be community property even though the other spouse’s name was not on the account.
In contrast, separate property in Texas is property that (a) was owned by a spouse before the marriage; (b) was acquired during the marriage by gift or inheritance; or (c) was a legal recovery for personal injuries sustained during the marriage unless the money was for loss of earning capacity. Increases in the value of separate property during the marriage remain separate property; however, any income generated by the separated property and received by a spouse is community property income. One example is rental property. If one spouse owned a rental property before marriage, any increases in the value of the property remain separate; but, the rental income generated from it is community property. Likewise with stocks: any splits resulting in increased holdings remain separate property, but dividends resulting from those investments are community property.
It is a common occurrence for couples to mix or “commingle” their community and separate property assets. If assets are commingled, then by law, all of the assets are considered to be community property unless and until proven otherwise. Proof must be made by clear and convincing evidence that the property in question is separate property. This is not an easy burden to meet and should be kept in mind once assets are commingled. One of the more common scenarios of commingling occurs with retirement accounts – a spouse may have worked for years to build up a base in his or her retirement account prior to getting married, but of course, continued to work and make contributions after the date of marriage into that same account. By law, it is unfortunately not as simple as looking at the amount of funds in the retirement account just prior to the date of marriage to determine the value of the separate property interest. To determine an accurate number, it is necessary to employ a process known as “tracing,” whereby a financial expert is hired to perform a very detailed and costly analysis – tracing investment fluctuations, distributions, mutations, and contributions of the account.
A right of reimbursement can exist if one of the marital estates makes a payment for the benefit of another. These “marital estates” are (a) the community estate; (b) the wife’s separate estate; and (c) the husband’s separate estate. The Texas Family Code sets out a lengthy list of claims which may be asserted for reimbursement, but some of the more common claims include: (a) payment of unsecured liabilities, such as credit card debt; (b) reduction of principal on a home mortgage or home equity loan; (c) improvements to a separate property home using community property funds (or improvements to a community property home using separate property funds). The party making the claim for reimbursement bears the burden of proving the claim. It is also important to note that a court may not reimburse an estate for the following: (a) payment of child support, alimony, or spousal maintenance; (b) living expenses; (c) purchases of property or payment of liability of nominal value; and (d) student loan payments.
Division of Estate Upon Divorce
Contrary to popular belief, a “community estate” does not automatically equate to a 50/50 division upon divorce. In fact, the Texas statute pertaining to asset division upon divorce states that a court “shall order a division of the estate…in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.” The law allows judges wide discretion to determine what that percentage division should be. So, while 50/50 is one possible percentage division, it is not the only. And it is not even the presumption; although many couples assume that 50/50 is the starting point for discussions. Some factors that the court can consider when determining a just and right division include:
- The ability of a spouse to support him- or herself in the future
- Which parent will have primary responsibility for the children and related circumstances such as age of the children or whether a child is disabled
- Disparity in age
- Education and/or employability of the spouses
- Health and physical condition of the spouses
- Fault in the break-up of the marriage
- Fraud on the community
- Tax consequences of property division/nature of the property divided
The bottom line is that there is no set formula for determining how and in what percentage to divide the community estate. The answer is very fact-specific, determined on a case-by-case basis in accordance with the specific circumstances of each family. Every family is different – so resist the temptation to find out how other couples divided their estates. Their situation is likely very different from your own.
Rhonda Cleaves is a Collaborative Divorce Attorney in Plano, Texas. She represents family law clients in Collin, Dallas and Denton counties.