In Texas, property division in a divorce follows the principles of community property law. This means that any property acquired by either spouse during the marriage, with a few exceptions, is considered community property and subject to division upon divorce. Property owned by a spouse prior to the marriage or acquired during the marriage by gift or inheritance is considered separate property and is not subject to division upon divorce, for example.
Under Texas family law, property in a divorce is divided according to what is considered “just and right” by the court. This means that the court will consider a variety of factors to determine what constitutes a fair and equitable division of the marital property, based on the specific circumstances of the case. This does not necessarily mean an equal or 50/50 division of property, but rather a fair and equitable distribution based on factors such as each spouse’s earning capacity, education, and contributions to the marriage.
In many cases, spouses are able to negotiate a property settlement agreement outside of court. This agreement may include provisions for the division of both community and separate property, as well as issues such as spousal support and child custody.
If spouses are unable to reach an agreement, the court will make a determination on the division of property. The Court has broad discretion to divide the community property of the spouses in a manner it deems “just and right.”
The court will typically begin by identifying and characterizing the property owned by the spouses as either community property or separate property. Once the property has been characterized, the court will then determine the value of the community property and how to divide it between the spouses. In so doing, the Court considers a variety of factors, which may include.
- The length of the marriage: the duration of the marriage and what each spouse contributed, including the acquisition of community property during the marriage.
- The earning capacity of each spouse: the current and future earning capacity of each spouse, including their education, work experience, and ability to earn income in the future.
- The age and health of each spouse: the age and health of each spouse, including their ability to work and earn income.
- The needs of each spouse: the financial needs of each spouse, including any ongoing expenses or obligations.
- The debts and liabilities of the parties: any debts or liabilities of the parties, including any outstanding mortgages, credit card debt, or other obligations.
- The fault in the breakup of the marriage: Although Texas is a no-fault divorce state, the court may consider any evidence of the fault in the breakup of the marriage when making a property division determination.
- The contributions of each spouse to the acquisition of community property: the contributions of each spouse to the acquisition, maintenance, and improvement of community property during the marriage.
- Any prenuptial or postnuptial agreements: any prenuptial or postnuptial agreements that the parties have entered into regarding property division, which often provide that no community property is ever created during the marriage.
These factors are not exhaustive, and the court may consider other factors that it deems relevant to the particular circumstances of the case, such as the nature and value of the property, whether one spouse has significantly more separate property than the other, and the needs of any children involved.
Ultimately, the court will make a determination of how to divide the community property that it considers “just and right” under the circumstances. This most often results in an equal division of the property, or it may result in a disproportionate division based on the unique circumstances of the case.
It is important to note that property division in a Texas divorce can be complex and may involve a significant amount of negotiation and litigation. If you are considering a divorce in Texas and have questions about property division or property valuation, it is important to consult with an experienced family law attorney who can advise you on your rights and options and help you navigate the property division process and advocate on your behalf.
What property do I keep in a Texas Divorce?
Under Texas family law, the difference between separate property and community property is significant because it determines how property is divided in a divorce.
What is Separate Property?
Separate property refers to any property that a spouse owned before the marriage, or acquired during the marriage by gift, inheritance, or personal injury settlement. Additionally, any property that was purchased with separate funds or that is traceable to separate property is also considered separate property. This means that if a couple divorces, each spouse is entitled to keep their separate property, and it is not subject to division between the spouses.
On the other hand, community property refers to any property acquired by either spouse during the marriage, with the exception of separate property, such as property received by gift or inheritance. In Texas, community property is presumed to be owned equally by both spouses. This means that if a couple divorces, the community property is subject to division between the spouses.
The distinction between separate property and community property is critical because it can impact the overall division of property in a divorce. For example, if one spouse owns a business before the marriage and the business grows significantly during the marriage, determining whether the business is separate property or community property, or a mixture of both, can greatly impact the overall property division.
Categories Of Separate Property In Texas Divorces
The four most common categories of separate property in Texas divorces include:
- Property acquired before marriage: Any property that a spouse owned prior to the marriage is generally considered separate property under Texas law. For example, a home or other real estate that a spouse owned before the marriage would be considered separate property.
- Inheritance and gifts: Property that is received as an inheritance or as a gift to one spouse alone during the marriage is generally considered separate property. For example, if one spouse inherits a sum of money or receives a valuable piece of artwork as a gift from a relative, that property would be considered separate property.
- Property acquired by one spouse using separate funds: If one spouse uses separate property to acquire an asset, that asset may be considered separate property. For example, if one spouse uses their inheritance money to purchase a vacation home, that vacation home would likely be considered separate property.
- Property specifically designated as separate: Property can also be specifically designated as separate through a written agreement, such as a prenuptial or postnuptial agreement. For example, a couple may agree in a prenuptial agreement that a particular piece of property will be considered separate property in the event of a divorce.
Proving Separate Property is Difficult
Proving separate property in a Texas divorce can be difficult. There is a community property presumption, which means that property acquired during marriage is presumed to be community property. This presumption applies to all property, including real estate, personal property, retirement, and income, that was earned or acquired by either spouse during the marriage, regardless of how the property is titled or who earned the income. This means that if one spouse earns a salary during the marriage, that salary is presumed to be community property, even if the paycheck is deposited into an account that is titled solely in that spouse’s name.
This community property presumption applies in all Texas divorce cases unless a spouse claiming separate property provides clear and convincing evidence that the property in question meets the requirements for separate property. The Texas Family Code defines clear and convincing evidence as enough proof to make the judge or jury hold a firm belief or conviction as to the truth of the allegations. A clear and convincing standard is a higher standard of proof than is required in many other civil cases.
Separate Property Claim
Proving separate property by clear and convincing evidence involves providing documentation or other evidence to support the separate property claim. For example, if one spouse claims that a piece of real estate is separate property because it was owned before the marriage, that spouse would need to provide documentation, such as a deed or title, proving ownership before the marriage.
Proving separate property can also involve tracing the property back to its origin. Separate property tracing is the process of proving that certain property is separate property, rather than community property, based upon the principle that assets acquired with separate property are also separate property. For example, if one spouse inherited a sum of money during the marriage and used it to purchase a piece of real estate, the community property presumption would indicate that the real estate is community property. However, if the spouse can trace the source of the funds used to purchase the property back to the inheritance, they may be able to establish that the property is separate property.
Determining Whether The Property Is Separate Or Community
It can be difficult to determine whether the property is separate or community when it is commingled, meaning it is mixed with other property, or when it is transmuted into community property through a spouse’s actions during the marriage. In such cases, a tracing analysis is used to identify and segregate the separate property from the community property. It may be necessary to hire a forensic accountant or other financial expert to help trace the origin and ownership of separate property and to give testimony to support a claim of separate property.
It is important to note that determining whether the property is separate or community can be complicated. The clear and convincing evidence standard is a high bar to meet in order to overcome the community property presumption. As a result, proving separate property can be a complex, time-consuming, and expensive process.
If you have questions about your separate property rights under Texas law, it is important to consult with an experienced family law attorney who can provide guidance and advice based on your specific circumstances.
How is property valued in a Texas divorce?
Texas divorces are resolved in one of only two way: by agreement or court order. As a result, property is typically valued as of the date of the settlement agreement or the judge’s decision after trial, though parties may mutually agree to a different valuation date under certain circumstances. The court may rely on the testimony of expert witnesses, such as appraisers or accountants, to determine the value of the property.
There are different methods for valuing different types of property. For example:
- Real property: Real property, such as a home or land, is typically valued by an appraiser who considers factors such as the location, condition, and recent sales of similar properties.
- Personal property: Personal property, such as cars, furniture, or artwork, may be valued based on its fair market value, which is the price that a willing buyer would pay to a willing seller in an arm’s-length transaction. This is often locally called the “Goodwill” value of the property, except in the case of items that retain their value, such as certain jewelry, vehicles, books and artwork.
- Business interests: Business interests, such as ownership in a company or professional practice, may be valued based on factors such as the company’s assets, liabilities, earnings, and goodwill. Often, and particularly in the case of high-value businesses and practices, it is common for one or both parties to retain a business valuation expert to value the business for property-division purposes.
- Retirement accounts: Retirement accounts, such as 401(k) plans or IRAs, may be valued based on the current balance of the account, or they may be valued with more sophisticated financial and economic formulas. These types of accounts may be transferred tax-free between spouses as part of the property division in a Texas court using a Qualified Domestic Relations Order (QDRO) and consulting and following the advice of a licensed tax professional about handling those funds.
Consider The Value Of The Community Property
Once the property has been valued, the court will typically consider the value of the community property as a whole and may also consider any debts or liabilities of the parties. This often means that rather than dividing each asset between the spouses (50/50 or otherwise), the court focuses on dividing the overall estate (net) between the spouses (again, 50/50 or otherwise). The court will then divide the property in a manner that it deems “just and right” under the circumstances, taking into account the various factors that are relevant to the case.
Property Division In A Texas Divorce Can Be Complex
It is important to note that property division in a Texas divorce can be complex, and the valuation of certain types of property may require the expertise of a professional appraiser or other expert. If you are considering a divorce in Texas and have questions about property division and valuation, it is important to consult with an experienced family law attorney who can advise you on your rights and options.
Do I keep my retirement account in a Texas divorce?
Retirement accounts are often subject to division in Texas divorces. Retirement accounts, such as 401(k) plans, IRAs, and pensions, are considered to be a type of property and may be subject to division under Texas law.
In Texas, retirement accounts earned or otherwise funded during the marriage are generally considered to be community property, which means that they are subject to division between the spouses. Similarly, income from separate property retirement accounts, such as reinvested dividends, are also community property, because income from separate property is considered community property as a general rule under Texas law.
However, if one spouse had a retirement account prior to the marriage, the portion of the account that was acquired before the marriage may be considered separate property and not subject to division.
Commingling through post-marriage contributions and reinvested income (e.g., dividends) into an otherwise separate property retirement account can complicate things. For example, it is significantly more difficult and costly for the expert to prove the separate property claim when there is significant commingling of separate property and community property within a retirement account.
Qualified Domestic Relations Order (QDRO)
The division of retirement accounts in a Texas divorce is typically accomplished through a Qualified Domestic Relations Order (QDRO). A QDRO is a court order that directs the plan administrator to transfer a portion of the retirement account to the non-owning spouse as part of the divorce settlement. The QDRO must comply with federal law, and it is important to work with both an experienced attorney and a qualified tax professional to ensure that the QDRO is properly drafted and executed to avoid any tax or other financial penalties.
In a Texas divorce, retirement accounts that are divided pursuant to a Qualified Domestic Relations Order (QDRO) can be transferred tax-free from one spouse to the other. This is because the transfer is considered a “transfer incident to divorce,” meaning it is part of the overall division of the estate and not a transfer or taxable event. Again, it is critical that federal and state tax law is followed closely, however, and that you work with a qualified tax professional.
QDRO Specifies How The Retirement Account Will Be Divided
A QDRO is typically prepared by the divorce attorney or by a qualified pension administrator, and it must be approved by the court before it can take effect. The QDRO specifies how the retirement account will be divided between the spouses, such as a percentage or a specific dollar amount. It may also state how gains and losses will be apportioned between the spouses during the period prior to distribution of those funds.
Once the QDRO is approved by the court, it is sent to the administrator of the retirement account, who is then responsible for dividing the account in accordance with the terms of the QDRO. The QDRO allows the receiving spouse to roll over their share of the account into a separate, qualifying retirement account without incurring any taxes or penalties.
To transfer retirement accounts tax-free in a Texas divorce, the following steps are typically taken:
- A QDRO is prepared by the attorney and approved by the court. The QDRO specifies how the retirement account will be divided between the spouses.
- The QDRO is sent to the administrator of the retirement account, who is responsible for dividing the account in accordance with the terms of the QDRO.
- The receiving spouse establishes a new retirement account and rolls over their share of the account into the new account, working with an experienced divorce attorney, qualified tax professional, and qualified financial planner.
Avoid Incurring Any Taxes Or Penalties
By following these steps, the receiving spouse can avoid incurring any taxes or penalties on the transfer of the retirement account, subject to several exceptions. For this reason, it is critical to work with an experienced family law attorney, a qualified financial advisor, and a tax professional to ensure that retirement accounts are divided properly and in a way that is tax-efficient and beneficial to both parties.
What if I commingled property?
Commingling is a term used in Texas divorce law to describe the mixing of separate property and community property. This can occur when separate property, such as money or assets owned by one spouse prior to the marriage, is mixed with community property, such as income earned during the marriage.
For example, if one spouse owned a rental property prior to the marriage and used rental income to make mortgage payments on the rental property during the marriage, the otherwise separate property rental may have become commingled with community funds. This is because income from separate property is generally considered community property in a Texas divorce. In such a case, it may be difficult to determine the portion of the rental property that is separate property and the portion that is community property due to mortgage payments made with community property rental income during the marriage.
Tracing Separate Property To Segregate It From Community Property
When separate property is commingled with community property, it can create complexities in the property division process during a divorce. Texas law recognizes the concept of “tracing” separate property to segregate it from community property. Tracing involves demonstrating that the separate property retains its original identity and that any increase in value or kind is due to the separate property contribution.
If the court is unable to determine which portion of the commingled property is separate property and which portion is community property, the court may find that the separate property has been transmuted, or transformed, into community property. This can have a significant impact on the property division process during a divorce.
However, commingling is not the only way that property can be converted from separate property to community property (or vice versa). Transmutation occurs when one spouse takes actions that change the ownership or character of property during the marriage.
For example, if one spouse owned a house prior to the marriage, that house would likely be considered separate property. However, if the couple used community funds to pay for significant improvements to the house, such as a major renovation or addition, some portion of the separate property may be transmuted into community property. Similarly, if one spouse owned a business prior to the marriage and then added the other spouse’s name to the business, the business may be transmuted into community property.
Transmutation can occur through an express or implied agreement between the spouses. An express agreement is a written agreement that specifically states the spouses’ intention to change the character of the property. An implied agreement can be inferred from the conduct of the parties, such as using community funds to pay for separate property expenses over a long period of time.
In a Texas divorce, the court will examine the facts and circumstances surrounding the transmutation to determine whether the property should be classified as separate property or community property. If the court finds that the separate property has been transmuted into community property, it will be subject to division in the divorce.
It is important to note that commingling and transmutation can occur with many different types of both assets and liabilities, and the rules governing the identification, characterization, and division of such property can be complex. If you are facing a divorce and are concerned about the impact of the commingling of separate property, it is important to consult with an experienced family law attorney who can help you navigate the process and protect your interests.