Texas Is A Community Property State
Texas is a community property state and that fact often leads people to assume the court is obligated to divide the marital property equally between the spouses. That is not the case. The judge in a divorce case is obligated to weigh all the facts and devise a “just and right” division of the assets and debts. Needless to say, what a party views as a “fair” allocation of the property may not correspond at all with the judge’s perspective or that of the other party.
Factors Affecting The Division Of Property
There are a number of factors that the trial judge may consider in determining what is a “just and right” division of marital property in a particular divorce case. The most common reasons for ordering a lopsided division of property involve responsibility for raising children and differences in the earning capacities of the spouses. In those situations, the judge may order a 55-45 or 60-40 division of the marital property.
The facts that may result in a disproportionate division of the marital estate include:
- Fault In The Failure Of The Marriage: The “innocent” party may receive a disproportionate division of the marital estate based upon an assessment of fault in the failure of the marriage relationship. Adultery, cruelty and various other fault grounds for divorce still exist in Texas.
- Benefits The Innocent Spouse Would Have Received By Continuation Of The Marriage: Akin to the assessment of fault approach is the compensation for the losses the innocent spouse will suffer by reason of the divorce. Certain valuable benefits may be lost (and perhaps be irreplaceable) as a result of the divorce.
- Disparity Of Earning Capacities: A gap between the business opportunities available to the spouses, a disparity in incomes, a difference in earning capabilities, and associated facts may affect the division of property.
- Physical Condition, Health: Physical health (or lack thereof) may affect the division of property between the spouses.
- Difference In Ages: A disparity in the ages of the parties may have a bearing upon ability to work, eligibility of a party for retirement benefits, etc. and, therefore, may be a factor in dividing property.
- Size Of Community Estate: The size of the marital estate may affect the methods by which the court allocates the properties. As a general rule, the larger the estate, the closer the court will come to a 50-50 division of property.
- Size Of Separate Estates: The approach to division of the community property may be affected by the nature and extent of the separate property owned by each party. The relative sizes of the community estate and the separate estates of one or both parties may be considered by the court.
- Anticipated Inheritance: An inheritance will be the separate property of the receiving party; therefore, this approach is related to other separate property factors stated within the section.
- Right Of Reimbursement: Claims for reimbursement are factors that can be considered in dividing the community property. The approach involves the financial interrelationship between the separate estates and the community estate.
- Gifts To A Spouse: A gift purchased with community funds serves to convert community property to separate property.
- Unusual Gifts To Third Parties Or Paramours: Spending money on the paramour may give rise to a claim for an unequal division of marital property.
- Improper Use/Waste Of Community Assets: A good faith investment that goes sour does not give rise to claims for a disproportionate division. However, misuse of community property resulting in losses may give rise to such claims.
- Property In Other Jurisdictions: Property in other geographic locations, particularly if it is beyond the effective reach of the Texas court, may be a factor in the division of the properties over which the court can exercise direct control.
- Tax Considerations: Existing tax liabilities, capital gains tax, income tax consequences, etc. are proper matters for consideration in dividing the marital estate.
- Spousal Support Obligations: The payment of (or failure to make payment of) spousal support ordered while the suit is pending may play a part in the court’s final division plan.
- Custody Of Children: Orders related to custody of minor children or the reality of a party having possession of a child over 18 years of age are matters that may affect the division of property.
Attorneys Fees & Costs Of Litigation: The expense of litigation, particularly attorneys fees, may be considered in dividing the community property.
- Unique Nature Of Property: Particular items of property are often of greater “practical value” to one party than the other. Business operations are the most common example of assets that are not readily divisible between the parties, yet may comprise a substantial percentage of the marital estate.
Community Property vs. Separate Property
Generally speaking, the community property concept means that both spouses own an interest in all property acquired by either of them during the marriage. The “name on the title” is generally not significant. A provision in the Family Code requires the judge to assume that all property accumulated during the marriage is community property unless a party proves otherwise.
With some exceptions, separate property consists of: 1) property owned before the marriage, 2) property acquired by inheritance, 3) property acquired by gift, and 4) certain recoveries related to personal injury claims. All other items are classified as community property.
Income received during the marriage is community property. With some limited exceptions, income from a person’s separate property (i.e., interest, dividends, etc.) is community property. Salaries, commissions, bonuses and other earnings are also community property.
The distinction between community property and separate property is important because the divorce court can only divide the parties’ community property. If a party can prove that a certain item is his/her separate property, the court must award it to that person.
Texas marital property law is rather complex, particularly with respect to reimbursement claims. Reimbursement claims are intended to remedy the potentially unfair aspects of the community property vs. separate property distinctions. For example, it is often the case that one spouse owns a house prior to the marriage (separate property) but the mortgage debt on the residence is paid down during the marriage with the parties’ income (community property) thereby resulting in the residence being more valuable because the mortgage debt has been reduced. In those kinds of situations, the divorce court may order that the spouse who owns the separate property is to reimburse the other spouse for a portion of the community property funds expended to pay the mortgage debt.
There numerous fact situations that might result in reimbursement claims and there are several different forms of reimbursement recognized by the Texas courts.
Texas marital property law is complicated. There are no iron-clad rules concerning how the divorce judge will divide the marital property because it depends upon the facts of the particular case.