Texas is a community property state. That means that upon divorce, all property acquired during the marriage is presumed to belong to the parties’ marital estate, even if the title to the property is placed only in the name of one of the parties. This also means all income earned by either party is presumed to be community income.

A divorcing party may only overcome this community property presumption by presenting clear and convincing evidence that the property is his or her separate property. In essence, all property on hand at the time of the final divorce hearing is deemed to be community property, except for those items that are proven to be the separate property of one spouse, or that are proven to be “mixed” property (partly separate property and partly community property). The most common “mixed” property is a party’s retirement account, if part of the contribution was made prior to marriage and part during the marriage.

Separate property is the separate property of one spouse only if the property was:

• owned or claimed before marriage
• acquired as a gift
• received as proceeds or income from a gift from one spouse to the other spouse
• received by inheritance
• partitioned between the parties in a pre-marital or post-marital partition agreement
• recovered for personal injuries (not including loss of earning capacity during marriage)

The characterization of property as either separate or community is one of the few issues that can be decided by a jury if a party requests a jury trial. Characterization involves proving when and how the property was acquired, and it may also involve tracing the property, if separate property was mixed with community property or if separate property money or assets were used to purchase other assets.  The character of property is fixed by the time and circumstances the property was first acquired, and it does not matter if  part of the purchase price was later be paid with other funds or that improvements on the property were made with other funds. Such payments or improvements may result in a claim for reimbursement or economic contribution to the marital or the separate estate that made the payments, but it does not change the character of the property.

The distinction between separate property and community property is important because a divorce court can only divide the community property and cannot give one party property that is clearly the separate property of the other spouse.  During the divorce process, each party will normally be required to file a sworn inventory and appraisement, a document listing the value of all the community property and separate property assets and debts.  After the characterization of property is decided, the Judge has broad discretion to divide the community property between the spouses in any manner that the Judge determines is “just and right.”  A just and right division does not have to be equal.  Texas law permits about two dozen factors which the court may consider in determining a just and right division.  Among them are:

• benefits the innocent spouse may have derived from the continuation of the marriage;
• disparity of earning power of the spouses and their ability to support themselves;
• education and future employability of the spouses;
• tax consequences of the division of property;
• nature of the property involved in the division;
• wasting of community assets by the spouses;
• gifts to or by a spouse during the marriage;
• reimbursement claims;
• attorney’s fees to be paid; and
• any other factor the judge deems to be important.

In addition to dividing community property assets, the Judge will also divide the marital liabilities (debts) in a manner the court believes is just and right. Courts will normally assign to each party any debts that are held solely in that person’s name. In most cases, however, many of the debts are held jointly in both parties’ names. The Court will normally assign such joint debts to one of the spouses. Since those creditors are not parties to the divorce case, however, the divorce assignment of the debt to one spouse does not relieve the other spouse from liability for the jointly held debts. If the spouse who was assigned the debt does not pay it, the creditor may still be able to pursue payment from both parties. If a creditor takes legal action against the parties after divorce, a post-divorce enforcement lawsuit may be needed for reimbursement from the spouse who failed to pay the assigned debt.  If a party files bankruptcy after the divorce is final, the ex-spouse may need to file a claim in the bankruptcy court to prevent being held responsible for a debt that was supposed to be paid by the bankrupt ex-spouse.

The experienced family law attorneys at The Guerra Law Firm, PLLC will help the client consider all relevant factors during property settlement negotiations and will provide candid and practical advice to help arrive at a fair property division.  We have many resources available to help determine the value of assets and to help the client consider the tax and cash flow consequences of property division alternatives.