Most Texas residents know that Texas is a community property state. Many residents do not seem to realize what this means.
Basic Overview of Community and Separate Property
Texas law general defines “separate property” as anything owned by a person prior to marriage, property gifted to or inherited by a person and the proceeds from a personal injury lawsuit attributable to pain and suffering. “Community property” is defined as everything else acquired after marriage.
That seems simple enough, right?
Where it gets particularly confusing is that, in Texas (unlike other community property states) income earned from separate property is community property. Furthermore, courts presume property is community property, so the spouse claiming an asset as his or her separate property has the burden of proving that to be true.
For example, if you owned a large investment account prior to marriage that has been earning and reinvesting income for the past ten years – what may have started out as entirely separate property could now be significantly commingled with community property. In the event of death or divorce, you may be facing very large forensic accounting fees to trace back and prove what, exactly, is your separate property and what, exactly, is community property of your marriage. Sometimes it is impossible to distinguish between the two types of property, and the separate property claim is lost altogether.
Another incorrect assumption we often encounter is that titling property in one spouse’s name or the other is enough to determine what is community or separate property. That’s simply not true. If a married couple purchases a vacation home during marriage, for example, and the husband is the only one who signs the deed, that does not create the property as his separate property. If a wife has a separate bank account and deposits everything from paychecks to gifts of cash from her parents, that bank account is not her separate property by virtue of how it is titled. In a divorce, she would have to trace back and prove what in the bank account should be considered her separate property (gifts from her parents) and the rest would be considered community property.
How do couples create or maintain characterizations of community and separate property?
The best way to make sure the characterization of property does not change during or because of marriage is for spouses or future spouses to sign a marital property agreement. A marital property agreement can be in the form of a premarital agreement (signed prior to marriage), a post marital agreement (signed after marriage) or a partition agreement. This blog is not about marital property agreements, but as a general piece of advice, we suggest you talk to a knowledgeable attorney about preparing these documents. We have yet to see a “do-it-yourself” marital property agreement that complies with Texas law, and this can be a very tricky area of law to navigate.