What Happens to Separate Property in a Divorce?
Texas is a community property state. That means that community property–property that is part of the marital estate–is jointly owned by the parties and likely subject to a 50/50 split upon divorce. What happens with property that is not a marital asset? How do you determine which property is separate and which property is community? Can separate property ever be distributed in a divorce? Does it have any other effect on the proceedings? Continue reading for a discussion of separate and community property from our experienced Texas divorce and property division attorney.
What is Separate Property?
Texas family law distinguishes between separate property and community property. Community property is subject to division in divorce; separate property is not. “Property” is an extremely broad term encompassing assets, debts, real estate, cash, retirement accounts, personal items, investment accounts, business ownership interests, and many other items and financial interests.
Community property includes all property acquired during the marriage unless it is proven to fall into one of the limited categories of separate property. At the time of divorce, in fact, there’s a legal presumption that all property owned by the spouses is community property. Each party must prove which property qualifies as separate property and why.
The primary categories of separate property include the following:
- Property owned or claimed by one spouse prior to marriage
- Property acquired via inheritance or gift (explicitly given to one spouse) during the marriage
- Money received in compensation for a personal injury incident that occurred during the marriage, excluding money received for lost wages or medical bills
It does not matter whose name is on the property (for example, who holds title to the family home); it matters only whether the property falls into one of the limited categories of separate property. However, a change in “form” does not change the nature of the property. If separate property funds are used to purchase a car during the marriage, for example, the car will still be separate property. Depending upon the circumstances, however, the property can become a mixed-character asset in which part of the asset’s value is considered separate property and some of the value is community property.
The date of acquisition is extremely important in determining which property is separate vs. community. For example, if an unmarried couple signs a contract to buy a home before they marry, then the home may be treated as jointly owned but entirely separate property, or it may be treated as half separate and half community. If you are considering making any large financial transactions with a future spouse, it helps to consult with a family law attorney to ensure you understand your current and future rights. Working with a family lawyer is just as important early in the marriage as it is should things start to go south.
Moreover, certain categories of property have special rules. Oil and gas leases, for example, as well as other mineral interests, are treated differently under the law. It’s important to consult with your family law attorney to ensure you apply the law correctly and protect the property you intend to be separate, as well as maintain your rights in property that should be part of the marital estate.
Keeping Separate Property Separate and “Converting” Property
It’s important to clearly separate community property and separate property. Separate property can be converted into community property when “commingled” with marital property. For example, if the parties deposit community property funds into an account that previously housed separate property, that account could become community property. If marital funds–income earned during the marriage–are used to improve separate property, such as to renovate a house, the house could become community property, it could become a mixed-character asset, or the other spouse might be entitled to a reimbursement.
If there’s no way to parse out separate property from community property in a given asset, the asset will be treated as community property. The parties can also choose to convert property from separate to community or vice versa, as part of a post-nuptial or reconciliation agreement.
Maintaining good record-keeping practices throughout the marriage is essential to ensuring that separate and community property are appropriately labeled and kept apart. There’s not just divorce to worry about–clarifying separate and community property can become a time-consuming and costly matter upon the death of a spouse, especially if the person died without a will. Without clear records, the parties may need to hire expensive forensic accountants and other financial experts upon divorce or during probate. It’s much cheaper, and easier, to keep things organized throughout the marriage.
Separate Property is Not Subject to Court-Ordered Division in Divorce
All community property is subject to division upon divorce. In Texas, community property is jointly owned by the spouses and generally subject to a 50/50 split. If the parties cannot agree on how to divide the community property, the court will issue an order based on what the court deems “just and fair,” which is typically as close to a 50/50 split as possible.
Does Fully Separate Property Ever Matter for a Divorce?
Although it is not subject to court-ordered division, separate property may still affect a divorce. First of all, the parties can reach a settlement agreement laying out which property goes to which spouse. The court will generally approve of such agreements, so long as they are generally fair; the court does not care whether the property being split actually qualifies as community or separate property. Often, divorcing parties omit personal items such as clothing and furniture from their final divorce decree, regardless of whether the assets would technically qualify as separate or community property.
Additionally, separate property may factor into other parts of the divorce. Child support, alimony, and other matters take into consideration each party’s financial circumstances. A spouse’s financial profile takes into account all of their assets and liabilities, whether separate or marital. If they have significant separate assets, for example, they may be subject to a greater award of child support or spousal support.
Call a Knowledgeable Texas Divorce and Property Division Lawyer
If you are dealing with property division issues during or after divorce, you need assistance from a seasoned Texas property division attorney. Call an experienced divorce and equitable division attorney at the Law Office of Maria Lowry to discuss your Texas divorce and property division matter.