Flowers, puppies, rainbows, music – just wanted you to have a happy moment before we waded into the law regarding community and separate property.
Texas is a community property state. That means that all of the property belonging to a married couple – whether titled in both of their names or only one – is presumed to be community property. Proof that a certain property is separate (belonging to one spouse) has to be by clear and convincing evidence, which is a tremendously heavy burden.
Why should you care how the property is titled? It matters in a lot of situations. When you die, your estate will be all of your separate property and ½ of the community property. If you are ever under a guardianship of the estate, the guardian will usually manage your separate property and ½ of the community property. If you divorce, the court cannot award your separate property to your spouse, but your community property interest is fair game. You have a right to manage and sell your separate property without your spouse’s involvement, but do not have that same right with your community property.
So what is separate property? It is property that you owned before you were married, property you inherited, property you were gifted, property you acquired when you lived in a non-community property state, and damages you recovered for a personal injury (not including any award for lost earnings).
This all seems fairly simple – what, you ask, is the problem? Well, it is what happens to your separate property when you are married.
While any increase in value to your separate property remains separate, any income from the property is community property. Imagine a separate property stock that issues a dividend. The dividend is community property. If you reinvest the dividend in the same stock account, you have now commingled your community property and separate property interests.
Now you’ve got problems. Because the property has been commingled, you will have to trace the separate property interests. Without adequate records, tracing is almost impossible.
Some people want to convert their separate property into community property, and mistakenly think they can do that by simply adding their spouse’s name to the title. Unfortunately, that doesn’t make the property community. Instead, that ½ interest is a gift to the spouse. A gift is, of course, separate property. Now the property is owned ½ separate by the original owner, and ½ separate by the spouse.
There is a solution for couples who wish to maintain separate property. They can enter into a written marital agreement that identifies specific property as separate. It can also provide that income from separate property is not community property and that a spouse’s earnings are separate property. There are some statutory requirements for marital agreements, so if this is something you want to do, make sure you work with an attorney.
There is a lot more to the community property law. It is a nuanced law with, admittedly, some blurred lines.
Hammerle Finley Law Firm. Give us a call. We can help.
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The information contained in this article is general information only and does not constitute legal advice.