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Texas Property Division 101: Answering Eight Important Questions About Property Division in a Divorce

Hayley Collins Blair | May 29, 2024

Texas laws on divorce and property division can be complicated and overwhelming for those new to the process. How is property divided in a divorce in Texas? What is considered community property in a Texas divorce? Is Texas a 50/50 state in a divorce? The answers to these questions are essential to understand when going through a divorce. Having a good understanding of property division in divorce and seeking assistance from an experienced divorce lawyer can significantly impact the next chapter of your life.

1. In a Texas Divorce, How Is Property Defined? What Are the Important Words to Know?

To understand what you may receive or be entitled to in a Texas divorce, it is important to know how Texas defines property in this context.

In a Texas divorce, asset division starts with characterizing the assets into one of three categories: separate property, community property, or mixed property.

Separate property refers to assets that were not acquired as part of the marriage. These assets are obtained or established independently of the marriage and are individually owned by one of the spouses. According to divorce laws in Texas regarding property, the court is prohibited from stripping a spouse of their separate property and transferring its ownership to the other spouse. Consequently, in the event of a divorce, a spouse who owns separate property is entitled to be awarded that property.

Separate property can be:

1. Acquired before marriage
2. Acquired by devise or descent (e.g., inheritance)
3. Acquired as a gift
4. Certain types of personal injury settlements
5. Acquired by an agreement (such as a partition or premarital agreement)

Community property consists of assets acquired or established by either spouse during the marriage and does not qualify as separate property.

Mixed property consists of both separate and community property. When property is acquired using both separate and community funds, its character is considered mixed.

The community estate encompasses all community property and debts accrued during the marriage, including the community portion of mixed assets, which the court divides between the spouses in a divorce.

In a Texas divorce, community property, including the portion of mixed property characterized as community property, is all that can be divided between the spouses. If a spouse possesses separate property, that spouse is entitled to receive their separate property in its entirety, and it cannot be allocated, in whole or in part, to the other spouse.

2. How Is Community Property Divided in a Texas Divorce?

There is a somewhat common misconception that in all Texas divorce cases community property will be divided between the spouses equally, or “50/50.” However, the legal standard for dividing community property in Texas is not 50/50. The standard for dividing Texas community property in a divorce, according to state law, is that it should be done “in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.” In certain cases, a just and right division will result in one spouse receiving a larger share of the community property in the divorce.

Another common misconception about property division in a divorce in Texas is that each spouse will receive an even share of each community asset. Sometimes, specific assets are not equally divided between the spouses. It often makes more sense to award certain assets to only one of the spouses. This is frequently the case with complex assets characterized as community property.

3. What Are the Key Steps Before Dividing Property in a Texas Divorce?

When a divorce case is started, many spouses may not feel confident that they have a clear understanding of the marital assets and debts. Many spouses may also feel unsure about the total amount they will receive or which assets they should pursue as part of their property settlement. That’s why you should start by working with a knowledgeable divorce attorney experienced in property division to properly identify, characterize, and value all assets and debts. Working with a skilled attorney is essential to make sure that you can participate in informed discussions during your Texas divorce and property division is ultimately tailored to your unique needs and serves your best interests.

4. Is Texas a 50/50 State in Divorce When Dividing Property?

Texas divorce laws on property division do not automatically stipulate a 50/50 split, but it can sometimes happen anyway.

The Rule for Dividing Property in a Texas Divorce: “Just and Right” Division

In Texas, the standard for dividing community property and debts is “just and right” division. This standard is applied on a case-by-case basis, so the specific facts of the parties’ marriage will be considered when dividing their community property upon divorce.

Factors That Could Lead to a Disproportionate Division

In many cases, a just and right division of assets will be a 50/50 division. However, in many other situations, a just and right division may result in one spouse being awarded more than 50% of the community estate, a scenario referred to as a disproportionate division. Texas courts evaluate a comprehensive, though not exhaustive, set of criteria to decide if a community estate warrants a disproportionate allocation to one spouse. These factors include each spouse’s:

• Abilities and capacities
• Business opportunities
• Earning potential
• Financial obligations
• Need for support
• Separate estate size
• Age and health
• Education
• Dissipation or depletion of the marital estate
• Misuse of marital property
• Fault in the breakup of the marriage
• Gifts received during the marriage or excessive community property gifts to others

The courts may also consider:

• The nature of the marital property
• Tax consequences that will result from the division of property
• Who will be the primary conservator of the children
• The benefits the party not responsible for the divorce would have gained from the marriage’s ongoing continuation

5. How Can I Prove My Separate Property? What Documents Do I Need?

When a marriage is being dissolved by divorce in Texas, how property is characterized is crucial, as the court must confirm the separate property of each spouse and then divide the spouses’ community property. The burden of proof for separate property in a Texas divorce is that you must show clear and convincing evidence of the property’s character. To satisfy this requirement, a spouse will typically need to present testimony and written documentation to substantiate their claims.

Proving Separate Property With the Inception of Title Rule

For many items of property, its separate character can be proved by the inception of title. The inception of title rule helps establish a property’s character based on the time and method by which a spouse first took ownership of a property.

Typically, when a spouse gains an ownership stake in property prior to marriage, that property is deemed separate, regardless of how it was acquired. If a spouse first gains ownership of property while married, the property is classified as community property, unless there is evidence showing that the manner of acquisition qualifies the property as separate (for instance, property obtained through a gift, inheritance, or agreement).

Once the inception of title rule has established the property’s character, that character will not change because of changes in the property’s form (i.e., being sold or exchanged for other property).

Proving Separate Property Through Tracing

The separate nature of certain assets can also be established through a method known as tracing, which is used to reinforce the inception of title rule. Once an asset is assigned its character based on the inception of title rule, it maintains that designation despite undergoing any mutations. But if a separate property asset has changed form since its original acquisition, the spouse claiming its separate status is required to trace the lineage of the original asset through all of its mutations to the specific asset in question at the time of divorce. Should an individual fail to trace the separate property’s lineage clearly and convincingly through every mutation from its inception, the asset will be classified as community property.

In most cases, the documentation required to substantiate a spouse’s claims of separate property should illustrate both the timing and method of acquisition of the property and any changes it has undergone, showing that the property has preserved its separate nature. The particular documents necessary for a spouse to validate their separate property claims will vary depending on the kinds of property being claimed as separate. You should contact an attorney with deep knowledge of the Texas divorce law on splitting assets to find out which documents will be required to prove your separate property claims.

6. Do I Need to Hire a Forensic CPA to Prove My Separate Property?

Sometimes, an explanation and some supporting documents are not enough to show that an asset is separate property, and in these cases, a forensic CPA could help with proving the separate nature of the property. You should especially consider hiring a forensic CPA if the property has significant value.

Generally, a forensic CPA is hired by a spouse to use the tracing method to prove that certain assets should be characterized as separate property.

In the case of brokerage, retirement, and other types of investment accounts, a forensic CPA will examine and assess the account’s deposits, changes to its investments, and income and growth to trace and verify the presence of separate property within the account.

7. Do I Need to Hire a Business Valuation Expert?

In every divorce case in which the spouses own a community interest in a business, the value of the business is important and should be determined in the divorce.

Business valuation is not a black-and-white science where a mathematical formula is applied to obtain an exact and undisputable value. Three methods can be used for a business valuation during divorce. These are:

1. The asset-based approach
2. The market approach
3. The income approach

A business valuation encompasses all assets, including the business’s “goodwill.” Goodwill refers to the intrinsic value of a business beyond its physical assets. In Texas, goodwill can fall into two categories: personal goodwill and enterprise goodwill. Personal goodwill relates to the value specifically associated with an individual’s contribution to the business, whereas enterprise goodwill pertains to the inherent value of the business itself, independent of any individual’s involvement. Texas courts have determined that personal goodwill does not constitute community property and thus is not subject to division in a divorce. On the other hand, enterprise goodwill is considered community property and should be included in the overall business valuation.

If you are undergoing a divorce and either you or your spouse own a business of considerable value, you should consider hiring an experienced and certified business valuation specialist. Your divorce lawyer should assist you in securing the services of an appropriate business valuation expert and aid in compiling the necessary financial records that the expert will require.

8. What Assets Are Considered Complex Property in a Texas Divorce?

Complex property types in Texas divorce cases can include:

• Oil and gas interests
• Stock options and restricted stock units
• Various types of executive compensation, such as deferred compensation
• Business interests
• Pensions or other benefit plans

Any complex property owned by you or your spouse will likely require a more intricate process to properly characterize and value compared to your other assets. Be sure to contact an attorney with experience handling complex property to ensure that your interests are protected.

Work With Experienced Divorce Attorneys in Texas

When you’re involved in a Texas divorce, dividing assets can be one of the most stressful parts of the process. Having a reliable divorce attorney on your side can be a big help as you move through the process. Whether your marital property is relatively straightforward or more complex, it’s important to meet with an experienced divorce attorney as soon as a divorce becomes imminent. A trusted divorce attorney will work with you to protect and preserve your separately owned property and will help you to divide any community property in a manner that best meets your needs and serves your interests. To learn more about property division in divorce, contact Hayley Collins Blair at (214) 473-9696

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