The Breakdown on Marital Property

Marital Property Estate

The “marital property estate” consists of two primary types of property: separate property and community property.

Community property is any property that was acquired during the marriage that is not separate property. Separate property is any property that was acquired:

• Before marriage;
• As a gift;
• Through inheritance; or
• As a personal injury settlement (excluding awards for lost wages and medical expenses)

Community property is subject to division between the parties by a court, but separate property is not. In fact, courts are prohibited from divesting anyone of their separate property in a divorce proceeding. Under Texas law, all property acquired during your marriage is presumed to be community property and the spouse claiming a separate property interest must overcome this presumption through clear and convincing evidence.

For example, if you purchased your house before your marriage, you should have little difficulty proving it is your separate property, so long as you can provide closing documents showing the date of purchase was prior to marriage. Similarly, if you inherit money or property during your marriage, it should be simple to prove the separate character if you can produce a copy of the will or other probate document devising the
property to you. Where things become more difficult is if separate assets become co-mingled with community assets, or if you create a “mixed asset” by purchasing property during your marriage with funds that originated from a separate property asset.

Co-Mingling of Property

Co-mingling typically occurs if you deposit separate property funds into a bank account that already contained community property funds. If the separate property funds are too difficult to identify in co-mingled account, you may have to hire a financial expert to analyze the account to effectively trace out the separate property interest. This is a common occurrence with retirement accounts when parties who had retirement accounts prior to marriage but continue contributing to the same accounts after marriage. Even though your retirement account started as a separate property asset, all post-marriage contributions to the account would be considered community property.

An example of creating a mixed asset would be if you bought a house during your marriage, but you used money you inherited as a down payment. In this case, you would be required to “trace” (i.e. provide evidence) of the separate property origin of the down payment funds. Tracing can be relatively simple if you kept your separate property funds from being co-mingled, but could be come quite complex if you have co-mingled those funds. In this example, the spouse who made the down payment would have a separate property interest in the equity value of the house roughly equal to the percentage of the down payment made, and the remaining equity value of the house would be community property.

It is very important to remember that, since there is no legally recognized separation in Texas, property you acquire from the time you file for divorce until your decree is finalize will be community property.

Community and separate property principals can appear deceptively simple, but there are many factors that can create confusion or uncertainty about proper characterization. Therefore, it is essential that you work with an attorney who understands the complexities of property characterization in a divorce case.