Placeholder canvas

Characterizing Marital Property

Characterizing Marital Property

“Because Texas is a community property state, all marital property is characterized as “separate”, “community” or mixed. See Hilley v. Hilley.   The process of determining whether separate, community or mixed is known as characterization.

When a marriage is dissolved, the character of the property determines what property the court can divide between spouses (community property) and what property the court must confirm to each spouse individually (separate property).

All property possessed by either spouse during or upon divorce is presumed to be community property.

To rebut the community-property presumption, a party must present “clear and convincing” evidence of the property’s separate character.

Community Property

Community Property is property that is acquired or created during marriage by either spouse, with each spouse sharing an undivided one half interest in the property.  In a divorce, all assets and liabilities identified as community property must be divided between the spouses in a “just and right” manner.

The following property is considered community property:

  1. Property acquired during the marriage.
  2. Generally, rents, revenues, profits, interest and other income generated from separate property.
  3. Current wages
  4. Future Wages –wages that have not been earned if the wages are contingent on spouses work during the marriage.
  5. Retirement Benefit earned during the marriage.
  6. Disability Benefits and Worker’s Compensation for lost earnings earned during the marriage.
  7. Life Insurance Policies (exempt as provided by an ERISA employer) acquired during marriage.
  8. Compensation from Personal Injury of either spouse for Medical Expenses, lost earning capacity and los of spousal services recovered by either spouse.
  9. Real Property acquired during the marriage by purchase, or purchased on community credit.
  10. Rental Payments from an oil or gas lease.
  11. Corporation (Ownership Interest)- if incorporated during the marriage or capitalized with community property
  12. Partnership (Ownership Interest)- if partnership formed during the marriage
  13. Distributions from a Partnership – if distributions are made during the marriage
  14. Gambling Winnings – if won during marriage
  15. Interest on Property – Interest on property, even separate property is characterized as community property
  16. Livestock and pets – if purchased during the marriage livestock is considered community property, however, the offspring of livestock purchased before marriage is considered separate property.
  17.   Stocks – if purchased during the marriage
  18. Cash Dividends from Stock purchased during the marriage
  19. Trust – the property in the trust (corpus) is funded with community property the trust is also community.

All property possessed by either spouse during or upon divorce is presumed to be community property.

Separate Property

Separate property is property that does not owe its existence to the marriage, it is acquired or created apart for the marriage and is owned individually by each spouse.  In a divorce, the court is prohibited by law from divesting a spouse of title to his or her separate property.

The following property is considered separate property:

  1. Property acquired before marriage
  2. Property acquired by inheritance (i.e. distributed by will or intestate succession.)
  3. Property acquired by gift from the other spouse or from a third party.
    • To prove that property was gifted to someone the person claiming that there was a gift must show that there was:
      • Intent to make a gift at the time that the gift was transferred;
      • Delivery of the property;
      • Acceptance of the property
  4. Income from a gift
  5. Property recovered for a personal injury, including recovery for bodily injury, mental anguish and pain, and suffering, whether the recovery occurred before or during the marriage.
  6. Property acquired by agreement, for example, if there was a prenuptial or post-nuptial agreement.
  7. Property acquired during the marriage that was a result of an exchange of separate property.
  8. Property acquired during the marriage from the separate funds of one spouse.

Methods of Rebutting Community Property Presumption

1. Inception of Title Rule – If a person first acquires an ownership interest in the property before marriage the property may be considered one spouse’s separate property, conversely, if a person first acquires an ownership interest in the property while they are married it will be considered community property.

The date of inception of the title is listed below for the following:

    1. Bank Account, Accrued interest – Date interest was earned
    2. Corporation – Date of Incorporation
    3. Insurance proceeds (term or whole life)- Date policy was issued
    4. Insurance proceeds (term or whole life) after the policy is renewed – date renewed policy was originally issued.
    5. Joint venture (ownership interest)– Date business commenced or date condition precedent for formation of joint venture was completed
    6. Partnership (ownership interest) – Date partnership commenced or date condition precedent for formation of partnership was completed
    7. Partnership (distributions) – Date of distribution
    8. Real property date  contract is signed
    9. Salary – date earned
    10. Sole Proprietorship (assets of business) – Date asset was acquired
    11. Stock – date purchased
    12. Stock dividends – Date of Distribution

2. Property acquired by cash – When property is purchased during the marriage with cash or check, the law presumes it was purchased by the community.  To show that property is separate the party claiming it was separate must show that the cash came from separate funds.

3. Property acquired on credit – When a party is claiming that property brought during the marriage is separate property because it was bought with separate credit, the party must establish that the property came from a separate source of credit.

When property is bought during marriage on credit, the law presumes it was brought with community credit and is thus community property.

To rebut the community presumption and claim that property bought on credit is separate property, a party must establish that there was an express agreement by the lender that the lender would look solely to the separate estate of the purchasing party for satisfaction of the debt.

The intention of the spouses do not control the character of property purchased on credit during the marriage, rather, the lender’s intention when seeking repayment is of primary importance in determining the character of the credit.

Case Law:
“Fact that lender looked solely to husband’s separate-property house as collateral for home equity loan was not sufficient to rebut community presumption because both husband and wife consigned loan” estate.