Whose stuff is it anyway?

The concept of "Yours, Mine and Ours" is fairly easy to understand. Texas community property law makes this concept into legal categories. What is "Yours" and "Mine" are called Separate Property. What is "Ours" is called Community Property.

Under the Texas Family Code, Separate Property is defined as: 1) the property owned or claimed by the spouse before marriage; 2) the property acquired by the spouse during the marriage by gift, devise or descent; and 3) the recovery for personal injuries sustained by the spouse during the marriage, except any recovery for loss of earning capacity during the marriage. To translate this into something that make sense (to me, at least): 1) what you owned before you got married; 2) anything you received as a gift or inherited while you were married; and 3) the money you got when you won that lawsuit against the jerk who broke your arm. The first two categories are the most common, and therefore the ones to which I will most often refer.

The Texas Family Code defines Community Property as the property, other than separate property, acquired by either spouse during marriage. This basically means that if you got the thing while you were married, and it doesn’t fit one of the Separate Property categories, it will be Community Property.

The distinction between community and separate property is vitally important. This is, if for no other reason, because a divorce court cannot split up separate property. It must award those separate assets to whomever they belong.

At first glance it may not seem that difficult to tell community and separate property apart. Nothing in the law is ever as clear as it seems (if it even seems clear to begin with). Texas has had a community property law system in place since about 1840, so the courts and lawyers have had the chance to play with it over the last hundred-sixty some-odd years and make lots of little extra rules that complicate the issue. I will not attempt to go into every single one, but rather hit the highlights.

First, we have the "community presumption". Under the Texas Family Code, all property possessed by either spouse during or on the dissolution of marriage is presumed to be community property. So, even if you and he both know for a fact that you owned a certain item before you married him, you are going to have to prove it. The degree of proof necessary to establish that property is separate property is "clear and convincing evidence." There is no official definition of what constitutes "clear and convincing evidence." We know that it is a higher standard than "more likely than not" and less harsh than the "beyond a reasonable doubt" standard that is used to convict someone of a crime.

One of the ways to overcome the community presumption is with the "inception of title" rule. The separate or community character of property is determined at the EARLIEST moment to which the person claiming the property can claim title to it. When did you buy it – before or after you got married? This gets particularly sticky with real estate. The contract to buy the house you and your husband end up living in may be signed before the wedding, and the deed may be dated after the wedding. In that hypothetical situation, the date on the contract would win because it is the earliest that either of you could claim title to the house.

Another way to overcome the community presumption is through "tracing." Tracing an asset means that there is a paper trail between the thing you own now and something you owned before you got married. For example, I own a car. When I get married, that car will be my separate property (inception of title). If I sell my car and buy a High Def 1080p 60-inch flat screen TV with surround sound system (and yes, I’ve actually considered this), as long as I can prove the TV was bought with the money from selling my car, the TV will be my separate property. This is a fairly simplistic example. When stocks, bonds, securities, and bank accounts are involved, you will almost definitely have to call in an expert to follow the money trail for you.

Sometimes the separate assets of a spouse have become so hopelessly mixed in with community assets that they can no longer be traced. This is called "comingling". You know that joint checking account you have with your soon-to-be-ex? Do you think you have kept pristine enough financial records to prove which money in it is yours and which is hers? If you are the richer spouse, comingling works against you, allowing your ex to get a cut of money or assets that would otherwise be your separate property. If you are the poorer spouse, comingling can be your friend, allowing you to get a share of money or assets that you otherwise would not be entitled to. Ethics note: I am not encouraging you to go comingle your funds as you premeditate your divorce. That would be tacky, and possibly fraud.

Aside from the community presumption, Texas community property law has other quirks to complicate matters. By way of example, let’s look at the rules on increase vs. income. Some types of property grow in value; stocks go up with the market, real estate appreciates. This is an increase. Increase in value of separate property stays separate property. Some types of property generate money; investments earn interest, rental property generates rent. This is considered income. Income is always community property. Even if you inherited those rent houses from your grandfather, and they are your separate property, the rent money that comes from renting them out to tenants is community property. Importantly, your salary that you earn from your job while you are married is income, and therefore community property, too.

To confuse the issue further, an asset is not necessarily just community or separate. It can be both at the same time. For example, I own my car now, but it has a huge scratch down the side. After I get married, I decide I want a nicer car, so I trade my (separate property) car in at the dealership and get a shiny new one. My trade-in is not enough to cover the full purchase price of the new car, so I finance it. I make my monthly payments out of my joint checking account with my husband in which we deposit our paychecks (community property). Now my new car is part separate and part community property.

Retirement funds are invariably both separate and community property. Think about it: the benefits you earned before you got married are your separate property, while the benefits earned during your marriage are part of how our employer pays you, and therefore income, and therefore community property. But you haven’t actually been paid that money yet! Surely your ex can’t get part of your retirement funds when you will have been divorced for years by the time you collect them? Oh, yes she can. Throw into the mix a federal law called ERISA that dictates what can and can’t be done with employee benefit plans, and you have another very good reason to call in an expert.

These are just a handful of the twists, turns and pitfalls of community property law. Your lawyer can explain more fully which rules will apply to your facts. Hopefully, this has illustrated why I encouraged you from the beginning to get a lawyer and to communicate fully and honestly with him. If you aren’t convinced yet, keep reading.