No matter the size of the marital estate, every marriage will involve property and the need to divide that property.
Texas is a community property state which means that any discussion of property division in a divorce requires an understanding of the community property rules.
There is a presumption under the law that everything you own in your marriage is community property. Community property is subject to division during divorce under the “just and right” standard discussed below.
Under the law, anything that is not separate property is community property. So what is separate property?
Separate property is property that you owned prior to your marriage as well as any property you received by gift, descent, or devise. Descent or devise means property acquired under the terms of a will or the estate of someone who passed away without a will.
Certain recoveries for personal injuries are also separate property of the injured spouse.
A court does not have the ability to divest a spouse of his or her separate property during a divorce. This means that separate property is not subject to division during a divorce.
The Inception of Title Doctrine
The inception of title doctrine means that an assets character as either community property or separate property is determined at the time the asset is acquired.
This is true regardless of when payments are made on the property.
A classic example is a house purchased by one spouse prior to marriage with a mortgage paid during the marriage. The Inception of Title doctrine means that the house is the separate property of the acquiring spouse regardless of the fact that community income was used to pay the mortgage.
What happens in this case is that the house may not be awarded to the other spouse, but the community estate will have a claim for reimbursement against the spouse who owns the house. That claim for reimbursement will factor into dividing the rest of the community estate.
Reimbursement claims are discussed in more detail below.
The “Just and Right” Standard
Texas law provides that during a divorce, a court shall:
Texas Family Code Section 7.001
…order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.
What constitutes a “just and right” division is not defined by statute.
Most people consider “just and right” to start with an equal division of the community property and then adjust the division one way or the other based on a number of factors.
Factors Affecting a “Just and Right” Division
There is no limit to the factors a court can consider in deciding what constitutes a just and right division of the community estate.
Listed below are certain factors that are commonly considered by courts in making this determination:
- A spouse’s fault in the breakup of the marriage.
- Relative education of the spouses.
- Relative employment, earning capacity, and business skills of the spouses.
- The age and physical conditions of the spouses.
- Financial obligations of the spouses.
- The size of separate estates and any expected inheritance of a spouse.
- The nature of particular property and whether that benefits one spouse over the other.
- Any wasting of community assets by a spouse.
- Any temporary support paid during the divorce.
- Excessive gifts to a spouse or children.
- Unusual needs of any adult children.
- Tax consequences of the property division.
- Whether a spouse committed fraud on the community.
- Which spouse will care for young children.
- The behavior of the spouses during the divorce proceedings.
- Whether separate property was a source of the community estate.
Process of Dividing Property
There are four steps to dividing property during a divorce: identify the property, characterize the property, locate the property, and value the property.
Identifying the property is simply having knowledge or suspicion that an asset exists and confirming its existence.
Characterizing the property means determining whether it is community property or separate property of one of the spouses.
Locating the property means knowing where it is located and keeping track of its location during divorce. It is all too common for items with unique value, especially small items of personal property, to disappear during a divorce.
Valuing the property is the process of determining the value of the asset. This may be done by agreement of the parties or through proof of the asset’s value by other means.
Marital Property Agreements
One important consideration in dividing property during divorce is whether there are any marital property agreements.
Marital property agreements may be made prior to marriage (a pre-nuptial agreement) or after marriage (a post-nuptial agreement).
A valid marital property agreement will override the statutory scheme for property division for any property addressed in that marital property agreement.
Clients often have questions about how retirement accounts are handled during a property division. The fact is that they are in fact community property to the extent acquired during marriage and subject to division as such.
There are two types of retirement accounts. The first are defined contribution plans, such as 401k’s and IRA’s.
The second type are defined benefit plans such as pensions.
The process of calculating the community portion of each account subject to division differs based on the type of the account but both defined contribution and defined benefit plans are subject to division during a divorce.
Federal Law Preemption
Texas state law provides that beneficiary designations on retirement accounts and other types of accounts which designate a former spouse as the beneficiary are void after divorce.
However, certain accounts are governed under ERISA and subject to federal preemption laws which have no such restriction. That is why it is always important after a divorce is complete to update beneficiary designations on every type of account you own.
It is not uncommon for spouses to spend money from their community estate assets on a separate property asset or vice versa.
Then when the spouses divorce, one spouse will want to recover that investment since the other spouse is keeping the separate property.
These are called reimbursement claims.
Reimbursement claims may exist between the community estate and either separate property estate or between the separate property estates themselves.
A claim for reimbursement is a factor a court will consider when making the just and right property division.