Separate v Community Property
A significant portion of the divorce process will be dedicated towards dividing the property of the marital estate. Texas is a community property state. What that means is, the court first presumes that all the property belongs to the community, that is by both spouses. It is incorrect to assume that the marital state will be divided 50-50, but rather, courts are required to make a “just and right division” of the marital assets. What this means is that the court has discretion to make decisions that can be based upon a number of factors.
Before the court orders a division of the marital estate, the judge will first assume that all property is community property. It is then the burden of an individual spouse to establish that specific property is not community property but rather, as we say their separate property. Once an item is determined to be separate property, that item is no longer considered amongst the community property that will be divided. To establish property as being separate property, a spouse must show through clear and convincing evidence that the character of that property is separate. The standard of clear and convincing is heightened over the preponderance of the evidence standard, which means that the evidence used to establish the separate character of a property must be “more probable to be true than not” and not merely that trier of fact has a firm belief or conviction in its factuality. Compare that burden of proof to a preponderance of evidence standard, which states that our version of facts must merely be more likely than not to be the correct version of facts. Nevertheless, there are general guidelines that we can depend upon:
• It will be a spouse’s separate property if it was owned or acquired by a spouse before the marriage; • It will be a spouse’s separate property if it was acquired by that spouse during the marriage as either a gift or inheritance; • Also, it will be a spouse a separate property if it was acquired during marriage but with separate property funds.
Generally speaking, the date by which a spouse acquires the property is key. With few exceptions, anything acquired before the marriage will be considered separate property and everything acquired during the marriage will be considered community property, except for a gift or inheritance. Keep in mind, because these general rules establish a property purchased before the marriage as separate property, it follows that income derived from that separate property, such as dividends, rent or interest but earned during the marriage will be considered community property.
With regards to a gift, the courts will look towards the intent of the party giving the gift and whether or not the gift was purchased with community funds. For example, a birthday or Christmas gift will be considered separate property.
The difficulty of dividing a marital estate frequently arises from the need to present clear and convincing evidence that a property’s character is separate. To accomplish this we look at various documentation, such as deeds, bank accounts and other financial records, often times, we must bring in experts to testify as to why the property should be considered separate. CPAs and forensic CPA’s can be extremely helpful. One great legal tool used to establish that a property is separate property when it was acquired with separate property funds during the marriage is tracing. As the name implies, we trace the origins of the property acquired during the marriage to its separate property roots, which when done so clear and convincingly, establishes the property acquired during the marriage as separate in character. As you can see, dividing property can be complicated. It is also extremely important because the outcome can seriously affect a person’s future. Needless to say, it is important to get it right and fraught with potential for error.