Whether you were born in the great state of Texas or got here as soon as you could, if you die or divorce here, Texas state laws apply. Many people are flocking to Texas for our low taxes, affordable cost of living, and job market, but are not aware of our laws regarding community property. Below, Texas Community Property is (mostly) explained in 7 Principles.
- There are 2 Types of Property: Community Property and Separate Property
a. Separate Property is:
i. Property owned before marriage; or
ii. All inherited property.
b. Community Property
i. Everything that is not separate property
ii. Spouses each have a 50% interest in all community property at the time of divorce
- There is a Strong Community Presumption
a. Any and all property accumulated during the marriage is automatically presumed to be community property.
i. This includes both assets and debts!
ii. Just because an account, title, or credit card has (or doesn’t) have your name on it does not mean you are not responsible for it!
b. If there is separate property, the spouse claiming it is separate property has the burden to prove it.
- Burden of Proof for Separate Property is High
a. The legal burden of proof to show property is separate is “clear and convincing evidence.”
i. Meaning, this is not a low or easy burden to meet.
b. Once a spouse shows by clear and convincing evidence that the property is separate, the Court must award the separate property to that spouse.
i. Texas Courts cannot take away or award to the other spouse a person’s separate property.
- Characterization of Property
a. In Texas, property is determined as separate or community at its “inception of title.”
b. What the heck is “inception of title?”
i. Inception of title is the moment you obtain a right to the property that is superior to all others—like when you sign a contract to buy a house—not when you move in or start making payments.
ii. So, if you signed a contract to purchase a home before marriage, its inception of title occurred before marriage, and thus makes it separate property—even if you are married at the time you move into it.
- Appreciation of Separate Property
a. Appreciation of separate property is separate property, but income from separate property is community property.
b. Ok this can be tricky but let’s break it down.
i. Let’s say you have a rent house that you inherited while you are married. First, this makes it separate property because inherited the property—regardless of your marital status. Suppose this rent house appreciates in value during your marriage and at the same time you are collecting rent from the tenants in the property. Then your spouse files for divorce. Here’s how the property is classified:
1. The rent house is still your separate property.
2. The appreciation of value of the property is separate property.
a. So, if the house is worth more now than it was when you acquired it, that is your separate property—your spouse has no right to that appreciation in value, nor can they force you to sell it.
3. However, the income from the rental home (the rent received from the tenants) is community property.
ii. In summary, you get to keep your house, but owe your spouse half of all the income received from the tenants paying rent.
- Separate Property Can be “Traced”
a. Meaning, if you can follow the money trail and prove it is separate property, then it is not community property. Let’s look at the below example to explain.
i. You have a car before you get married. After you are married, you trade this car in for a new one. When you divorce, the new car is your separate property because you used your old car (separate property) to buy the new one, so the new car’s purchase can be “traced” back to old car. So, even though you bought the new car during your marriage, it’s still your separate property because you bought it with separate property funds (your old car).
- Reimbursement Claims
a. A reimbursement claim is a claim for money from one estate to the other.
i. When a couple divorces, there is a “community estate” which is all the property owned by the spouses at the time of divorce.
b. The community estate has a right of reimbursement if it helped pay for a spouse’s separate property.
i. Bringing back the car trade-in scenario, if you don’t have a pre-nuptial agreement, all payments made on the car during the marriage are considered community property because income received during the marriage is community property. While the car remains separate property, the community estate would be entitled to a reimbursement claim for all the payments made on the car during the marriage.
c. WARNING: you will NOT get community reimbursement for:
i. Paying off your spouse’s student loans(!)
ii. You or your spouse’s living expenses
1. In other words, if you pay for either one of the above items, you will not get your money back.
As you can tell, living in a community property state can be a game changer. Just because a piece of property has your name on it or just because you paid for it, does not mean it is yours—unless you have a valid pre-nup. Classification of property as separate or community affects numerous areas of law including bankruptcy, divorce, and probate to name a few. If you have any questions about Texas Community Property Law give us a call at 214-494-9916.