Texas Community Property

Texas is a Community Property state. There are nine states in all that follow community property distributions. These states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The remainder of other states not following community property rules is termed as “common law” states. Compared to common law state, community property states such as Texas treat marital income and property acquired during marriage differently. The general rule is that under community property or community income states such as Texas, income or property acquired during the marriage is deemed to be divided in a just and right manner of division. This does not necessary mean equal to the penny, but as close to half-and-half distribution. In most cases this is achieved through the division of community property to one-half to one spouse and the other half to the other spouse or a close equal fifty (50%) percent division for both spouses.

The rule applies to all income and property acquired or earned during the term of marriage. The exceptions to this community property rule are property or assets acquired before marriage, inherited property or separately gifted property or assets. Separate property remains identifiable to the spouse or individual even during or after marriage.

One common misconception by divorcing parties is that whoever earned the income is his or her property. That may be true for common law states but not for community property states like Texas and California.

 

The Texas Family Code provides that:

Sec. 3.001. SEPARATE PROPERTY. A spouse’s separate property consists of:

(1) the property owned or claimed by the spouse before marriage;

(2) the property acquired by the spouse during marriage by gift, devise, or descent; and

(3) the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.

 

Sec. 3.002. COMMUNITY PROPERTY.

Community property consists of the property, other than separate property, acquired by either spouse during marriage.

Presumption of Community Property.

There is a presumption in Texas that property is a community. To prove otherwise as separate property a spouse must show and prove by clear and convincing evidence that the property was his or her property apart from and separate from the community estate. One basic way of proving this would be to trace the origin of the property dating back before marriage. However, when it comes to liquid cash or money, this can sometimes be difficult to show if the cash has been deposited to a joint bank account that is a community. Moreover, even if the cash originally used was originally separate it could lose its separate identity when spent or utilized for community liability and expenses such as household expenses.

Claims for Reimbursement from the Community Estate.

A spouse can however claim reimbursement of separate property at the time of divorce, so long as the identifiable money spent was originally separate property and can be proven to have been utilized or spent on a community asset.

Example: When individuals get married, a community asset usually arises from the common union of both spouses. This happens when spouses purchase a home after marriage. If separate cash or money was utilized by one spouse for the down payment on the purchase of a home, that spouse can later request for reimbursement of said separate property utilized towards the community estate should the parties’ later divorce.

Other examples of separate property include:

  1. Property inherited by one spouse;
  2. Property belonging to a spouse before marriage;
  3. Gifts given to one spouse during marriage;
  4. Recoveries of personal injury damages except for loss of earnings or damages related to lost income or earning capacity during marriage;

 

Community Liabilities or Debt.

Frequently during a marriage, spouses incur debt or liability through a credit card, car note, home mortgage, home equity loan or other debt. This community debt remains the responsibility of both spouses even after a divorce. Although a final decree can spell out terms of assumed liability for both spouses, third-party creditors are not bound by these terms. This is because the final decree in a divorce or agreement incident to divorce is treated as a contract, and as with typical contracts, all parties must be named and agree to the contract and be a party to that contract to be enforceable against that party.

One common misconception between separate or divorcing parties is that if the debt was assumed by one spouse under an agreed divorce or decree, that, it absolves that non-assuming spouse from liability. Creditors are not legally bound by said contract and can and do frequently go after either spouse for the unpaid debt or liability. In cases of home mortgages, parties should cooperate to refinance the home so that the non-assuming spouse is completely absolved of liability from the home mortgage.

Community and Separate Credit.

Same goes for joint credit card debt. It’s best for parties to join closely or cooperate with the closing or payoff of joint credit card debt before finalizing a divorce or separation. Keep in mind that if the spouse who assumes the community debt or liability does not fulfill his or her end of the bargain, the remedy for the non-assuming party is to sue for breach of contract. In some cases, a former spouse’ credit score is ultimately affected if the debt goes into default. Again, the remedy for the other spouse is to file an action against the other party for breach.