What’s mine, his and ours?
One of the hotbeds of contention in a divorce is often how the assets of the parties should be divided. One of you might believe that a particular item belongs to you and you alone while your spouse, (and their attorney), might claim that same thing belongs to the marital community. In such circumstances, if you and your spouse cannot agree what is yours, theirs or both of yours, the laws of the Republic of Texas provide a basis to make that determination. The characterization of property as either separate or community can also effect how it can be transferred at death.
Texas is one of nine community property states in America. The other ones are Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Washington and Wisconsin. The concept of community property original came from Spanish civil law and made its way into Texas via Mexico.
Most community property states are in the western United States with the strange exception of Wisconsin.
Although it is not a community property state, Alaska allows couples to opt into a community property arrangement. The territory of Puerto Rico allows property to be owned as community property as do several Native American jurisdictions. In the case of Puerto Rico, the island had been under community property law since its inception to the Spanish Crown upon its discovery in 1493.
Over the past several decades, even non-community property states known as common law states have adopted the concept of marital property which often contains similar characteristics and the equality of community property laws. In some of those states, the disposition and division of property disproportionately favored males over females. Ironically, many in modern day community property states, believe that system unjustly favors females. Suffice it to say that the ultimate goal is most states is to achieve a fair and equitable distribution of property regardless of the gender of the parties.
Despite a common thread, no two community property states are exactly alike. Each state, including Texas, has its own statutes and case law interpreting the same. As illogical as it may seem, there are actually completely opposite rules regarding identical issues in different states. You should never assume that something you know to be true regarding community property law in one state is the same in another. One such issue for example concerns whether income from separate property belongs to the owner of that property or to the community. Another is the ability of creditors to reach community property to satisfy the debts of one or both spouses. In Texas, income produced from the separate property of one spouse belongs to the community while in other states the opposite is true. The ability to use separate or community property to satisfy creditors in Texas depends on the origin of the obligation. Tort claims and contractual claims have different rules.
There are some general principals and concepts that are consistent among all of the community property states. For example, all property obtained or acquired during the course of a marriage is generally deemed or presumed to be community property unless it is specifically identified as the separate property of one spouse.
Texas defines separate property by statute as:
(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;
(3) the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
Determining whether something is the separate property of one spouse has to do more with when it was obtained as opposed to anything else. Texas law uses a before and during marriage distinction to define separate property. For example, if you owned a collection of vintage baseball cards that you acquired over the course of several years when you were still single, the value of that collection would be your separate property.
If you did not start collecting vintage baseball cards until after you were married, the value of the collection would be considered community property. But what if you started your collection before you were married but continued to add to it after your marriage? Is it still your separate property or has all or only a part its value now become community property? The answer to questions like this will depend upon other facts such as intent and the source of funds used to purchase the additions after marriage.
The second method of obtaining separate property is by “gift, devise or descent.” Thus, if someone gives you something while you are married, it is probably your separate property. The gift does not have to be associated with a special event like a birthday or holiday although such circumstances might provide additional proof regarding the true nature of its acquisition. Note however, if you provided anything in exchange for the transfer, it is probably not a gift. In that situation the item in question could be characterized as a form of compensation or pay which would likely be considered community property.
The words devise and descent essentially mean the same thing with only a slight distinction. A devise is simply a gift of real property by the last will and testament of the donor, (the person making the gift). If you receive something from the estate of someone who died with or without a will because you are related, (descent), to them in some manner, that is also your separate property even if you received it when you were married.
The third way of acquiring separate property during marriage concerns the recovery of money damages for personal injuries suffered by a spouse during marriage. For example, if you were injured in an automobile accident while you were married and you received a settlement to compensate you for your pain and suffering, that is your separate property. There is an exception however for any recovery for loss of earning capacity during marriage. This means that if your injuries interfered with or effected your ability to work, any compensation for that would belong to the community. Considering the fact that most personal injury claims are settled in a lump sum, it could be very important to specifically designate how much of it is for your pain and suffering versus loss of your earning capacity.
In addition to the statutory definitions, there are other circumstances of acquisition that could cause an asset to be characterized as separate property. If you purchased something with your own money even during the marriage, it is probably yours. Spouses can also agree in writing that something belongs to one of them alone.
HOW DOES MINE BECOME HIS OR HERS?
The characterization of property is often times not quite as simple as some of the examples given above. Sometimes, something that initially was your separate property may be transformed into community property. How could that be? One way for this to happen is co-mingling of separate and community property.
Consider the following example: Suppose you inherit a sum of money from your deceased parent, (separate property). You open an account in your name only and deposit the inheritance. Later in the year, you spouse receives a sizeable bonus check from his employer, (community property), and as the financial manager for the community, you decide it best to deposit it into the same account containing your inheritance money. A couple of months later you withdraw all but $5,000 to pay family medical bills. Before paying those bills, the account had a balance of $50,000 – $25,000 inheritance money and $25,000 work bonus. Say a couple of years later, you end up divorcing and that account was partially replenished with community earnings and now has a balance of $25,000. How much of it is your separate property and how much belongs to the community?
When the funds were commingled, it is presumed that community funds are withdrawn first before separate funds. Arguably, all of the community funds were withdrawn, so further withdrawals would constitute the expenditure of separate funds. Deposits made after the withdrawals to replenish the account do not restore the amount of separate funds. Rather, they inure solely to the benefit of the community. Thus, the amount of separate funds in the commingled account is determined based upon the lowest intermediate balance of the account which is $5,000 in the example. This may seem unfair to the interests of the spouse with the separate property but it illustrates the potential pitfall of commingling with community property.
Consider another example to illustrate that using community funds to satisfy the expenses of a separate asset does not give the marital community an interest in that asset in Texas. Suppose a separate property duplex you owned before your marriage is vandalized after you married your spouse. You decide it would be prudent to not submit an insurance claim in order to avoid the possibility of increased premiums so you hire a local company to repair the vandalism. After the work in completed, you pay the repair company with money from a jointly held checking account belonging to you and your spouse. The following month, property tax bill arrives. It too is paid using funds from the same account. Six months later, you learn that the units both need new dishwashers. Once again, you pay for them using money from that same account.
In Texas, community funds that are used to maintain, improve or pay the expenses of a spouses separate property does not give the community any ownership interest in that asset, Instead, the community is only entitled to be reimbursed for all of those payments.
By virtue of these examples you can now understand how one asset can have both separate and community ownership. In Texas, this is known as proportional ownership of property by the marital estate. The respective ownership is determined by the rule of inception of title. Under this rule, the character of the asset as separate or community property is determined at the time the asset is acquired. The manner in which title is held in Texas does not determine ownership.
Separate property can also be transformed into community property under much simpler circumstances. If you add your spouse’s name to the title of an asset after you marry them, it becomes community property. It does not even have to be that formal. Merely treating certain personal property could accomplish the same thing. If you both bring furniture and house wares into the marriage and use them interchangeable without distinction of ownership, those items have probably become community property.
What about engagement and wedding rings? Often times these items can have substantial value. Generally speaking, anything given to you by your spouse is your separate property even if it was purchased using community money. So, if you received a two carat diamond ring for your anniversary one year, it is yours to keep and should not factor into the assets that belong to the marital community. On the other hand, if your spouse “gives” you a Corvette for your 40th birthday but the title is held in both of your names, chances are it belongs to the community especially if community funds were used to buy it.
The nature of what is yours, your spouse’s or the community’s is not always cut and dried. The source of funds used to purchase the asset, the manner in which the legal title, if any, is held and the behavior and statements of each of you regarding it can all effect its characterization.
Texas defines community property as the property, other than separate property, acquired by either spouse during marriage. This definition is basically by exclusion – anything acquired by either of you while you are married belongs to the community. Note that both spouses do not have to acquire the item. The definition is also comprehensive – it says anything, not certain things. Thus for example even if you use a credit card that is in your name only to buy an iPad that only you use, it may still be community property.
If the marital community owns something, who owns the community? Each spouse has an undivided, one-half interest in the marital community. It is undivided because it is jointly owned by the two of you and neither of you can give away your half without the consent and participation of your spouse except under very limited circumstances such as by a will.
In addition to the inception of title rule, by statute, Texas has a rebuttable presumption that anything acquired by either spouse during your marriage at the time of divorce is community property. A presumption is something that is believed without actual evidence. This essentially means that the court has to believe, unless shown otherwise by clear and convincing evidence, that everything the two of you own belongs to the marital community.
If either of you intends to refute that belief, you have to provide pretty strong proof to the contrary. The standard of clear and convincing evidence is not as extreme as the standard used in criminal cases of beyond a reasonable doubt, but it is a stricter showing than a mere preponderance of evidence, (the greater weight and degree of credible evidence), that applies to all other issues of proof in a divorce.
WHAT’S THE TRUTH?
When you are involved in a divorce it is almost impossible to avoid some of the human emotional pitfalls that accompany it. You may feel threatened, insecure, afraid, vengeful or deeply hurt. That is normal human behavior. You must not, however, allow those emotional feelings to influence your behavior in your divorce. That is understandably easier said than done.
What are some of the ways your emotions could adversely affect your divorce? You may feel justified in claiming something, that in your heart of hearts you know belongs to your spouse, belongs to the community. Unless there is a reasonable legal and factual basis for making such a contention, don’t do it. You will spend unnecessary money on legal fees and delay the resolution of your case if you do.
Remember the presumption of community property covered above? In Texas, you need very convincing evidence to overcome that presumption and unless you have it, don’t waste your time, your lawyer’s time and most importantly, the time of the family court system. While it is perfectly acceptable to seek a settlement or judgment that provides you with a reasonable semblance of financial security, it should not be inequitable or unfair to either of you. The final disposition of the assets you owned together may not be exactly equal in value but should also take into consideration your respective earning capacities, ages and standard of living. It is rare for a family law judge to decide otherwise. In Texas, the court is not required to make an equal division of property. Rather, it must only be just and right.