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Specialty tag(s): Property Division

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

Hayley Collins Blair | October 25, 2021

1. In a Texas divorce, how is property defined? What are the important words to know?

To understand what property you may receive in a Texas divorce, it is important to know how Texas defines property in the context of divorce.

In Texas, property at the time of divorce is characterized as either separate property, community property, or mixed property.

Separate property is property that does not owe its existence to the marriage. Rather, it is acquired or created apart from the marriage and is owned individually by each spouse. Significantly, in Texas divorces, the Court is prohibited by law from divesting a spouse of title to his or her separate property by awarding it to the other spouse. Therefore, a spouse who has separate property must be awarded such property in the divorce. Separate property includes –

  1. Property acquired by a spouse before marriage;
  2. Property acquired by a spouse by devise or descent (e.g. inheritance);
  3. Property acquired by gift;
  4. Certain types of personal injury settlement received by a spouse during the marriage; and
  5. Property acquired by agreement (e.g. premarital or partition agreement).

Community property is property that is acquired or created during the marriage by either spouse that is not separate property.

Mixed property is property that consists of both separate and community property. When both separate and community funds are used to purchase property, that property has a mixed character in proportion to the amount paid with the separate and community funds.

The community estate is all community property and debts of the marriage, including the community property portion of mixed assets, which the Court will divide between the spouses upon divorce.

Only community property and the community portion of mixed property can be divided between the spouses during a Texas divorce. If a spouse has separate property, that spouse must be awarded his or her separate property and it cannot be awarded- in any part- to the other spouse.

2. How is 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 “fifty-fifty”. However, the standard for dividing community property in Texas is not fifty-fifty between the spouses. Rather, the Texas legal standard for dividing community property in a divorce is: all community property must be divided in a just and right manner, having due regard for the rights of each party and any children of the marriage. In some situations, it will be a just and right division for one spouse to receive more than half of the parties’ community property in the divorce.

Another common misconception regarding Texas divorce is that both spouses will receive an equal or proportional share of every community property asset. In many cases, it will not be best to divide each community property asset between the spouses. Rather, when dividing the community property estate between the spouses, it may make more sense that certain assets are awarded to one spouse or the other. This may be especially true if the community property includes complex assets.  

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 financial transparency regarding the marital assets and debts. Many spouses may also feel unsure about the total amount they will receive in the divorce or which assets they should pursue in the property division.

It is important to work with an experienced divorce attorney so that all assets and debts existing in the name of either spouse will be properly identified, characterized, and valued. Working with an experienced attorney to take these three steps are crucially important to making sure you are able to participate in informed settlement discussions, and so that you will receive a property settlement in your divorce that is specific to your needs and that will be in your best interest.

4. Is Texas a 50/50 state in divorce when dividing property?

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 that the specific facts of the parties’ marriage will be considered when dividing their community property upon divorce.

Factors for A Disproportionate Division

In many cases, a just and right division will be a fifty-fifty division of community property and debts. However, in many other cases, a just and right division of the community estate will be one spouse receiving more than fifty percent of the community estate, which is called a “disproportionate division”. Texas Courts consider a list of non-exhaustive factors in determining whether a community estate should be divided disproportionately to one spouse, including –

  • Each spouse’s capacities and abilities
  • Each spouse’s business opportunities
  • Disparity in the spouses’ earning incomes
  • The nature of the marital property
  • The size of the spouses’ separate estates
  • Tax consequences relating to the division of property
  • Each spouse’s education
  • Each spouse’s age and health
  • Each spouse’s financial obligations
  • A spouse’s need for future support
  • Which spouse will be the primary conservator of the children
  • Fault in the breakup of the marriage
  • The benefits that the party not at fault would have derived from the continuation of the marriage
  • A spouse’s dissipation or depletion of the marital estate
  • A spouse’s misuse of marital property
  • Gifts to a spouse during the marriage or excessive community property gifts to others

5. How can I prove my separate property? What documents do I need?

When a marriage is being dissolved by divorce in Texas, the characterization of property is critical because the court must divide the spouses’ community property and confirm each spouse’s separate property.

Burden of Proof for Separate Property: Clear and Convincing Evidence

At the time of divorce, a spouse who is claiming that certain property is his or her separate property must present “clear and convincing evidence” of the separate character of the property.

To meet this heightened evidentiary standard, a spouse generally will have to provide both testimony and documentary evidence to prove his or her claims of separate property. 

Proving Separate Property: Inception of Title Rule

There are different ways to prove a property’s separate character. For many items of property, the separate character can be proved by the inception of title. Under the inception-of-title rule, a property’s character is based on the time and manner in which a person first acquires an ownership interest in the property. 

Generally, if a person first acquires an ownership interest in property before marriage, the property is considered separate property regardless of the manner in which it was acquired. Or, if a person first acquires an ownership interest in property during marriage, the property is considered community property unless evidence of the manner in which it was acquired would make the property separate (e.g., property acquired by gift, inheritance, or agreement). 

Further, once the property’s character is established under the inception-of-title rule, that character will not change because of mutations in the property’s form (i.e., being sold or exchanged for other property).  

Proving Separate Property: Tracing

A property’s separate character can also be proven by a technique called tracing. Tracing is a method used to reinforce the inception-of-title rule. To elaborate, once property gets its character under the inception-of-title rule, the property will always retain that character even though it may go through several mutations. When separate property has mutated since its inception of title, the party claiming that the property is separate must clearly trace the original property through all of its mutations to the particular property on hand at the time of divorce. If a party cannot clearly and convincingly trace separate property through all of its mutations since its inception, the property will be characterized as community property. 

Generally, the documents needed to prove a spouse’s separate property claims should show the time and manner in which the property was acquired and all of its mutations, to show that the property has maintained it’s separate character. The specific documents that a spouse will need to prove his or her separate property depends on what types property that spouse is claiming as separate property. It is important to speak with an experienced divorce attorney to identify the documents that will be needed to prove your separate property claims.

6. Do I need to hire a forensic CPA to prove my separate property?

If it is not clear from a spouse’s straightforward explanation and a few supporting documents that an asset is separate property, then a Forensic CPA should likely be hired to help prove the separate character of the property, and especially if the property has a significant value.

Most commonly, a spouse will hire a forensic CPA to prove by the tracing method the separate property character of certain assets.

For brokerage accounts, retirement accounts, and other investment accounts, a forensic CPA will review and analyze the deposits into the account, the changing investments of the account, and income and increases of the account, to trace and confirm the separate property in the account.

7. Do I need to hire an expert for a business valuation?

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.

However, there are three main approaches that will be used to value a business during divorce: (1) the asset-based approach; (2) the market approach; and (3) the income approach.

Additionally, when a business is valued, all of the assets will be considered in the valuation, including the business’ “goodwill”. A business’ goodwill is the business’ value apart from the tangible assets owned by the business. In Texas, there are two types of business goodwill: personal goodwill and enterprise goodwill. Personal goodwill is the value of the business tied directly to an individual working for the business. Enterprise goodwill is attached to the business itself, regardless of whether an individual works for the business. Texas Courts have decided that personal goodwill is not community property that can be divided in the divorce. However, enterprise goodwill is community property and therefore should be valued as part of the business valuation.

If you are getting divorced and you or your spouse owns a business that has a significant value, then most likely it will benefit you to hire an experienced, certified business valuation expert. Your divorce attorney should be able to help you to hire the right business valuation expert, and should help you to begin gathering the relevant financial documents that the expert will request.

8. What assets are considered complex property in Texas divorce?

If you or your spouse has any complex property, there may likely be more involved to characterize and value that the property in the divorce. Types of complex property in Texas divorce cases include –

  • Business interests
  • Stock options and restricted stock units
  • Oil and Gas interests
  • Pensions and other defined benefit plans
  • Certain types of executive compensation, including deferred compensation

It is important to contact an attorney experienced in addressing complex property matters to make sure your interests are protected.

Work with Experienced Divorce Attorneys in Texas

Whether your marital property is relatively straightforward or more complex, it is important to meet with an experienced divorce attorney as soon as a divorce is contemplated. A trusted, experienced divorce attorney will work with you to protect and preserve your separately owned property during and after the divorce and will help you to divide your 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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