Texas is a community property state. Arizona, California, Louisiana, Nevada, New Mexico, Washington, and Wisconsin are community property states as well.
It is still possible for spouses to own their separate property, even in community property states. Additionally, the law in Texas ensures that each spouse gets to keep their separate property upon the dissolution of the marriage.
When a person gets a divorce, the way in which a court categorizes their property is important.
Of course, the spouses can always agree on how to divide their property, their debt, and other liabilities. If they are not able to agree, then the court decides how the property should be characterized and divided.
States that are not community property states divide property equitably. In states with community property laws, the court assumes that all property the spouses acquired while married belongs equally to both of them. It is “community property.” In some community property states, such as California, the property must be divided on a straight 50/50 basis.
In Texas, a court may divide community property in a way that it considers “just and right.”
What Does Community Property Mean Legally?
Under Texas law, when a couple divorces, all of their property is characterized as either separate property or community property. Community property is everything the couple has acquired during their marriage together. As a general rule, both spouses have an equal share of their assets. Property owned by the parties is assumed to be community property. The party wishing to claim separate property must prove it is not community property.
Separate property is property owned solely by one spouse; this includes property acquired before the marriage, as a gift, as inheritance, or through recovery for injury to the spouse whose property it is.
If a spouse wants to maintain separate property as separate, they must be able to prove how it was acquired. The court may consider the separate property community property if it is mingled with the community property, e.g., if the spouse who is not the owner funds property improvements to it. So, if a spouse wants to maintain the separate character of separate property, they need to pay attention to its use during the marriage.
Can Community Property Become Separate Property?
The spouses may enter into an agreement to divide their community property between them, or they may decide to enter into an exchange, either before or during their marriage. In this case, community property may become separate property.
Can Separate Property Become Community Property?
Separate property can be converted into community property. The spouses might agree that separate property should become community property. Legally, they may certainly do that. If they agree to change the character of their property, it would be best if they put their agreement in writing.
Additionally, as mentioned above, if the separate property is commingled with the community property or if both spouses are in control of the separate property, the court may decide that the separate property has become community property.
For example, one spouse might own a residence that is their separate property. But both spouses may live in the residence during the marriage, with both contributing to the payment of the mortgage, maintenance, and upkeep. These actions might convert the residence to community property.
How Is Community Property Divided at Divorce?
In Texas, the law requires that a judge divide the property between a divorcing couple in a way that is “just and right,”-meaning that the division of property must be equitable under all of the circumstances. This usually means that the property acquired during the marriage is divided on a 50/50 basis, but not necessarily. What is “just and right” may not be 50/50 in some circumstances.
Courts can consider many factors in determining what is “just and right,” including:
- The reason for the breakup of the marriage, i.e., whether one party is at fault;
- Earning power disparity between spouses;
- The health of each spouse;
- Custody of the child(ren) between the spouses;
- Both spouses’ education; and
- The spouses’ respective prospects for future employment.
What Assets Are Protected in a Divorce?
If a person wants to protect the separate character of certain assets that they own before they get married, a prenuptial agreement may be the best way to manage this. Part of a prenuptial agreement would be specifying the assets each spouse is entitled to keep as their separate property if the marriage should end. A prenuptial agreement might also address the issue of spousal support.
Other measures include a post-nuptial agreement. Or spouses might enter into limited post-nuptial agreements regarding specific items of property. It might be useful to make an inventory of assets that are separate or community property. This would include bank accounts, retirement accounts, and investment accounts.
A person may think it is wise to withdraw money from joint bank accounts if they are worried about their spouse draining these accounts. It would be better to consult with a family law attorney first. Withdrawing funds from joint accounts, selling assets, or trying to change title to assets may create issues during the divorce proceedings. Such actions may even be prohibited by divorce laws in the state in which the spouse lives. The same goes for trying to hide assets.
As discussed below, retirement assets may be divided as part of the final divorce decree if they are considered community property.
A person may wish to change the beneficiaries on retirement accounts that a spouse maintains after their divorce is final. However, this may not be feasible without a spouse’s consent as long as the spouses are still married. A spouse’s consent may also be required if they want to get a loan on a 401k account before the divorce becomes final.
If a person has a pension, the spouses may agree on a sharing arrangement for it. One spouse may “buy out” the other spouse’s share of the pension in exchange for payment of a lump sum based on the pension’s present value. The same would apply to a retirement annuity.
How Much of My Spouse’s Pension and Employment Benefits Can I Get?
Suppose a married person accumulates an interest in a pension, retirement savings account, profit-sharing, or other employee benefit plan during their marriage. In that case, it is community property and is subject to division in the event of divorce.
A court may award a portion of one spouse’s retirement benefits to the other spouse through a Qualified Domestic Relations Order (QDRO). This is sent to the employer, who is ordered to distribute benefits to each spouse according to the court’s order.
In the case of a cash account, like a 401(k), the employer usually disburses funds within 30 to 90 days. Suppose the employer will be paying retirement benefits, such as a pension, to their employee. In that case, the court order gives the employer a calculation of the percentage to be applied when payments begin. The order directs the employer to send the appropriate amounts to the employee’s spouse.
The court does not have to divide retirement and pension accounts equally between the spouses as with other community property assets. Suppose each spouse has a separate retirement account or pension from employment, for example. In that case, the court might simply award each spouse their own account, particularly if the amounts in each are relatively similar or other community property makes up the difference.
What Will the Court Do About Our Debts?
Marital debt is a debt or liability incurred during the marriage. A balance of a car loan, a mortgage, credit card debt, personal loans, student loans, medical debt, and other obligations may be included in community debt. Debt is not required to be split equally upon divorce. There is only a requirement to make a “just and right division” based on the parties’ circumstances.
No matter whose name appears on the title or the note, both spouses are responsible for the debts and liabilities of the marriage. A car purchased on credit during the marriage is community property.
It is possible for a divorce court to award the car and the balance owed on the car loan to one spouse but not to remove the other spouse’s name from the contract that created the debt. The creditor can still seek payment from the other spouse.
Credit card agreements, mortgage contracts, and other debts are no different. It may be considered fraud or identity theft if a spouse opens an account using the other spouse’s information without their knowledge or consent.
How Do Courts Divide Closely-Held Businesses and Professional Practices?
As with any asset, judges must consider a business or professional practice in valuing and dividing community property. During a marriage, if one spouse develops a business or professional practice, the court must deal with any interest that is community property.
One of the most challenging aspects of valuing a business or professional practice is determining the value of “goodwill,” which is the intangible value built up over time-based on the name and reputation of the business. Even a business or practice that does not sell on the open market has a goodwill value, which the court must determine when a couple divorces.
When divorcing couples determine the value of a business or practice, they often hire certified public accountants and business appraisers. An accountant or appraiser will review the books and records of the business or practice and prepare a written valuation report.
Do I Need a Texas Lawyer?
If you are thinking of getting divorced and you have significant assets, community or separate, or debts, you should consult a local Texas family attorney. When you are going through a divorce proceeding in Texas, a knowledgeable attorney can help you prove the classification of your property.
They can also represent you in negotiations with your spouse or at court hearings if that becomes necessary. You want to avoid costly mistakes by speaking with an experienced attorney in your area if you are going through a divorce in Texas.
