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COMMUNITY PROPERTY AND SEPARATE PROPERTY

During the divorce process, you may hear your attorneys discuss terms like "community property" and "separate property" with you. Attorneys throw these words around often in family law cases, and we often assume that non-lawyers know what the terms mean. After all, during law school, attorneys take a semester-long course devoted to marital property that teaches us about community and martial property. Here's a quick "Cliff's Notes" version to help you better understand and begin thinking about the characterization of the property you and your spouse own.

Quick Definitions:

Separate property is property that was acquired prior to the marriage, or during the marriage through a gift, devise, or descent (inheritance). 

Community property is property that was acquired during the marriage, except gifts and property acquired through devise or descent.  

The Basics:

Don't be fooled by how simple the definitions above seem. While the rules above are pretty straight forward, other concepts regarding marital property complicate those simple definitions quickly. 

The first of these concepts is Texas's community property presumption. This means that a court presumes all property owned by a couple at the time of divorce is community property. In other words, if a party has property that qualifies as separate property (i.e., owned before marriage, received a gift, devise, or descent), it is the responsibility of that party to rebut the community property presumption.

The way a party rebuts the community property presumption is to trace the property back to its original origin and characterization. For example, if property was purchased before marriage, showing a purchase receipt with the date the party purchased the property would prove that the party owned the property prior to the marriage.  

Once property has been characterized as separate property, it does not change its characterization. For example, if a spouse has a 401(k) account that was opened prior to the marriage, that 401(k) account remains that party's separate property throughout the marriage, although not all of the money in the account remains that spouse's separate property. Additionally, remember that there is a presumption that all property a couple owns is community property. The burden lies with the party who wants the property confirmed as their separate property to trace the account and prove that a portion of the funds were contributed prior to the marriage.

To continue with my 401(k) example, let's say John started working for a company in 2000 and immediately started contributing to his 401(k). Then, in 2007 John and Jane married. The 401(k) account started in 2000 is John's separate property, because it was opened prior to the marriage to Jane. However, because John and Jane are married, unless John can rebut the presumption that the account is community property, the entire amount in the 401(k) is considered community property. The likely situation is that John will get a printout of the balance of the account on the date of marriage, and the court will confirm that amount as his separate property. Then the Court will divide the amount contributed from 2007-2017 and award a portion of that amount to Jane, as the funds contributed during that time are community funds.

Another example that comes up frequently is when one party has purchased a home prior to marriage. Let's say that John bought his home in 2005. He put a down payment down on the home and paid the mortgage by himself until he married Jane in 2007, and she moved into the house. From 2007-2017, the mortgage was paid with community funds, but as I mentioned earlier, the characterization of the home as John's separate property hasn't changed. A reimbursement claim is warranted here from John's separate estate to the community estate.

What that means is, although the house is John's separate property, for 10 years, the mortgage was paid with community dollars - that means the community estate is entitled to a refund or reimbursement from John's separate estate. It will be up to the parties, working with their attorneys, to attempt to agree on how to divide the property so as to ensure Jane receives her portion of the reimbursement claim on the home - whether there is a cash buyout, or whether a different asset is allocated to Jane to make up the amount of community funds paid towards John's separate property house. If the parties cannot reach an agreement, the Judge will decide how the property is divided. 

Conclusion:

As you can see, those quick definitions start to get murky very quickly! Here at Hoppes & Cutrer we have a lot of experience working with tracing separate property and coming up with creative solutions to equalize property in divorce cases. Give us a call today if you are ready to start the divorce process. 

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