THE
ULTIMATE
GUIDE TO
MARTIAL
PROPERTY
DIVISION
Introduction
What is community property? How is it
divided in a divorce?
What is separate property? Can
separate property also be divided
during a divorce?
What is commingling?
Who will get the family pets in a
divorce?
How does one prove separate
property?
How does one prove community
property?
What is a reimbursement claim?
How will a business owned by the
parties be affected by a divorce?
We created this guide to provide an
overview of how property may be divided
by a court in a divorce.
Along the way, we’ll answer the following:
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Community property is defined through
exclusion as “the property, other than
separate property, acquired by either
spouse during a marriage.” Texas courts
presume that all property acquired during
a marriage belongs jointly to both
spouses. This “community estate” is
subject to a “just and right” division by the
court, which typically means as close to
50/50 as possible.
What is Community Property?
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Separate property refers
to assets that courts are
required to award
exclusively to one spouse
during a divorce. While
community property is
subject to a “just and right
division” at a court’s
discretion, separate assets
are awarded in entirety to
their respective owners. In
Texas, all assets are
presumed to be
community property.
What is Separate
Property?
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The asset was acquired before the
marriage;
The asset was a gift;
The asset is an inheritance; or
The asset is a recovery from a
personal injury.
To claim separate property, a party must
demonstrate one of the following through
“clear and convincing evidence”:
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Here are four scenarios exploring each
basis for separate property claims:
Assets (including real property, vehicles,
personal possessions, or securities) and
accounts owned prior to marriage are
considered separate property. A court is
required to award these exclusively to
their respective owners.
Acquired Before Marriage1.
Under Texas law, a gift is an item given
voluntarily and without consideration (an
expectation of a return or exchange). For
example, engagement rings are frequently
deemed to be gifts to spouses, and
subsequently articles of separate
property.
2. Gifts
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Devise refers to acquisitions by way of last
wills. Descent refers to acquisitions through
bloodline inheritance. If an individual
inherited $500,000 from an aunt and later
spent $150,000 of those funds towards a
community asset (like improvements on the
marital home), courts would be required to
characterize the remaining $350,000 as
separate property.
3. Acquired Through Devise
or Descent (Inheritances)
Texas law considers most compensation for
personal injuries to be separate property.
For example, courts will likely be unable to
divide a judgment for medical expenses
won by either spouse. However,
compensation for lost earning capacity is an
exception to this rule. Because wages are
community property, restitution for
lost wages also falls into this category.
4. Recovery for Personal
Injuries
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Commingling refers to situations in which
spouses combine separate and community
assets. For example, consider a situation in
which a husband contributes $45,000 of his
income to an account containing $45,000 of
savings his wife amassed before marriage.
During this period, the account also
accumulates $10,000 worth of interest. In
this instance, 45% of this $100,000 account
would likely be considered the wife’s
separate property, while the remaining 55%
would be a community asset.
What is Commingling?
Property Has Been Commingled.
Now What?
When faced with commingled accounts,
spouses who wish to retain separate assets
must “trace” or prove the origin of these
assets. Tracing is generally conducted by a
forensic CPA. However, their testimony
alone may not be sufficient to win a
claim. Tracing is a complex process that
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often requires substantial time and
resources. It is vital to hire a reputable
forensic CPA who is both familiar with your
attorney and skilled at presenting testimony
during litigation. Experienced family lawyers
will have strong relationships with qualified
experts in your area.
When considering the division of household
goods and personal property, courts seek to
divide the assets reasonably rather than
evenly; this rarely results in a 50/50 split. It
is impossible to evenly split personal
property because each individual places a
different value, both numerical and
sentimental, on items.
Personal Property in Divorce
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Start by making a four-column table.
List assets in the first column, monetary
value in the second, perceived
sentimental value in the third, and a
proposed owner for each item in the
last column.
If unable to agree upon the value of an
item, couples may hire an appraiser.
To begin this process:
1.
2.
3.
Download Your Asset and
Property Division Spreadsheet
How to Agree to Split Personal
Property with Your Spouse?
Most couples are able to review the
contents of the marital residence and
informally agree on an item-by-item division.
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With an attorneys assistance, spouses often
find it manageable to negotiate a division
using these spreadsheets. When faced with
disagreements, courts may use items’
appraised values as guides to award
ownership.
What Happens to Pets in a
Texas Divorce
The State of Texas treats pets similarly to
property. Generally, spouses will decide
among themselves
where family pets will
live following
separation. In some
cases, courts may
formalize an agreed
pet “possession”
schedule through
inclusion in a final
divorce decree. When
faced with
disagreement, courts
will treat pets
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identically to any other property. If a pet was
acquired before marriage, it may be
deemed separate property. Otherwise, a
judge will award pets based on monetary
and sentimental value.
How to Prove Separate
Property in Texas?
All parties claiming separate
property must demonstrate at
least one of four criteria:
acquisition before marriage, as
a gift, through an inheritance,
or as compensation for a
personal injury.
Examples of evidence used to
prove these criteria may
include a title to a house
showing acquisition before
marriage, testimony that
certain funds were presented
as a gift, or a last will
elaborating upon
an inheritance.
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In general, testimony alone is insufficient to
prove separate property and will need to be
supported by some form of documentation.
Often, when separate and community
property become mixed, a forensic CPA is
needed to conduct thorough “tracing” of
relevant assets and accounts.
How to Prove Community
Property in Texas?
In the State of Texas, all property jointly
owned by spouses is presumed to be
community property. Parties claiming
separate property carry the burden of
demonstrating otherwise. However, even
with this presumption, reinforcing the
character of community assets can
be essential.
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Bank statements proving deposits
during marriage;
Titles to a boat, motor vehicle, etc.
showing acquisition during marriage;
Receipts or invoices showing loans or
other debts acquired during marriage.
Examples of documentation used to
reinforce the nature of community
property include:
What is a Reimbursement
Claim?
A “reimbursement claim” is an attempt by
one estate (typically the separate estate of
one spouse) to recover money spent on
another estate. When this type of cross-
estate spending occurs, separate
and community assets may
become “commingled,”
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opening the possibility of reimbursement
claims.
Let’s apply this concept to a real-life
situation; let’s say a wife purchases a single-
family home before marriage. Then,
throughout the marriage, both spouses
contribute to improvements and
renovations of the residence. In this case,
the couple’s community estate may have a
reimbursement claim against the wife’s
separate property for the increase in value
of the property caused by the
improvements and renovations made
during their marriage.
How to Present a
Reimbursement Claim
Although property division and
reimbursements within a divorce are most
frequently settled in mediation, about 5% of
cases will go before a judge or a jury
instead. Despite these odds, you should
prepare yourself to present
a reimbursement claim at trial.
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Understanding what is likely to happen to a
business is one of the most critical and
complex issues facing business owners
during divorce. A key first question is
whether a business will be considered
community or separate property.
Is your Business Community
Property or Separate
Property?
Check out
Steps to Present a
Reimbursement
Claim
The Court’s Decision
Few courts advise awarding joint ownership
to parties in a divorce—running a company
is challenging enough without the added
complication of working with a former
spouse. To mitigate the damage divorce
may have on a business, one spouse will
usually buy out the other’s interest in
their company.
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To ensure fair compensation,
parties must conduct a business
valuation. Unless a company is
traded on the stock market,
precise values can be
challenging to determine and
assessments may require a
great deal of time and effort.
During the valuation process,
each side may hire an expert
whom they believe will arrive at a
conclusion favorable to their
position. Courts faced with
competing valuations may arrive
at a figure somewhere between
those proposed by each party or
the Court may select the value
proposed by one party. In some
instances, courts may order
parties to sell the business in its
entirety, particularly when the
composition or size of the
community estate does not
allow for one spouse to buy the
other spouse out of the
property.
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No matter what, marital property will be
divided during a divorce. To maximize the
potential of a favorable settlement, parties
should hire an attorney experienced in
complex asset division. Experienced attorneys
will be able to help to provide you with the
guidance, expert referrals, and litigation
strategy necessary to protect your interests.
To learn more about property and asset
division, check out the
Walters Gilbreath Blog.
Conclusion
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