Texas is a community property state. As a result, there are two categories of property that must be accounted for in a Texas divorce proceeding: separate property (which was owned by the spouse who owned it before the marriage or inherited or received as a gift during the marriage) and community property (which must be divided between the spouses).
Seperate Property vs. Community Property
Separate property is property owned prior to marriage, property received as a gift or inheritance during the marriage, property received as a gift, a personal injury recovery and property received in exchange for separate property.
Community property is property–other than separate property–acquired by either spouse during the marriage regardless of which spouse is listed as the owner of the property or has possession of the property. Community property is also referred to as marital property. Typical examples of community property are salaries and wages, stocks and bonds, businesses, retirement accounts, income from community property (such as rents, interest and dividends), antiques, collectibles, automobiles, trucks, boats, guns, real estate, livestock, deer camps, lake houses and the marital home and furnishings.
Even income–such as rent, interest and dividends–earned from separate property is community property. However, the increase in value of separate property continues to be separate property, although the other spouse may be entitled to reimbursement for the contributions made during the marriage to enhance the property’s value.
Texas law presumes that all property possessed by either spouse is community property. Thus, it is the burden of the party claiming separate property to prove its character by clear and convincing evidence. The most common way to prove that a particular asset is separate property is by tracing the asset from the date of acquisition to the date of divorce. As long as the property is maintained as separate property and not commingled with community property, it will continue to be separate property.
Dividing the Community Property
If the divorcing spouses cannot agree on a property division, the court will step in and divide the property. Ownership of one spouse’s separate property cannot be awarded to the other spouse. Community property, on the other hand, is divided on a “just and right” basis. This does not necessarily mean an equal split of the value of the community property, although that is a good starting point. The final community property division may be impacted by a number of considerations, including which spouse is granted principal custody of the children, fault in the breakup of the marriage, the disparity in the parties’ earning power, the age and health of the parties and the extent of either party’s separate property.
Liabilities incurred during the marriage will continue until the obligations are paid–regardless of the terms of the divorce decree. For example, the divorce decree may require one spouse to pay a certain community debt. However, the divorce decree is not binding on the creditor who, in turn, may sue the other spouse if the obligated spouse fails to pay the debt.
That said, not all debts incurred during the marriage are the responsibility of both spouses. The world of marital liabilities is a complex area of the law that does not give rise to general rules. Each situation is unique and must be evaluated on its own merits.
Before the court can divide the community property, a detailed inventory of the property must be prepared and the value of the property determined. In a typical divorce, this process is relatively straightforward, although depending on the situation, it can be time consuming and may require the retention of investigators, appraisers, forensic accountants or other valuation experts.
High Net Worth Divorces
In high net worth divorces involving executives, professionals or closely-held businesses, the process is substantially more involved. A considerable amount of time and resources may be spent working with investigators, accountants, actuaries and appraisers to locate and value complex assets such as (i) stocks, bonds and money in offshore accounts, (ii) stock options, (iii) pension plans, retirement plans, 401k plans and annuities, (iv) insurance policies, (v) real estate, (vi) trusts (vii) family–owned or closely–held businesses, including farms, ranches, law and medical practices and insurance agencies, (viii) partnership interests, and (ix) oil and gas properties.
Sometimes in high net worth divorces, one spouse attempts to hide assets acquired during the marriage. Hidden assets are usually in the form of cash, collectibles, jewelry and real estate. Spouses also hide assets by temporarily transferring title or possession to a friend or relative (sometimes via family limited partnerships), and then retrieving the assets after the divorce becomes final. In situations involving marital fraud, the deceived spouse may be entitled to additional compensation as punishment for the deceiving spouse’s wrongful conduct even after the divorce is final.
Navigating the treacherous waters of a “just and right” property division is best accomplished by an attorney with a financial background and training. As a Certified Public Accountant, former stockbroker and former chief financial officer of a small, closely-held business, Sonya Coffman has the training, expertise and experience to evaluate complex financial situations, recognize when the situation “does not add up,” trace and preserve separate property, and work with investigators and financial professionals to locate and value hidden assets.
Regardless of your individual situation, whether simple or complex, you are entitled to your “just and right” share of the marital property. Because . . . family matters.