Introducing Texas Community Property

Speaker 1 0:09

Welcome back to the Texas Family Lawyer Podcast . My name is Alex Hunt , I'm the Managing Attorney at Hunt Law Firm and I'm joined today by Attorney at Hunt Law Firm , david Teasdale . Welcome , hi . Happy to be here . So today , david and I are going to discuss a little bit about community property versus separate property and we're going to give a bit of a rundown of some of the things we talk about in our initial consultations with clients . But it's incredibly important to know the difference between community property and separate property , especially in Texas . Texas is a community property state . We're going to get into what that means . Other states are not and let's just dig right in . David tell us a little bit about community property versus separate property . What is community property ?

Speaker 2 1:00

Community property is anything acquired during the marriage . So this is going to be you get married , you bought marriage or during the marriage you inherited something or you were gifted something . Those are your separate properties . Now a court is not going to . A court is only going to divide the community assets . So things you acquire , those spouses acquired during the marriage .

Separate Property: What Stays Yours

Speaker 2 1:40

A court is not going to divide separate assets . So it's really important to know what is community property versus what is separate property , because that can affect the overall division .

Speaker 1 1:50

And for clients that we have that are more visual learners , like I am , I like to envision it as having three buckets . So you've got this big community property asset bucket and it doesn't matter if the husband is the breadwinner , the wife is a breadwinner , both of them are breadwinners . It doesn't matter whose name is on the bank account , it doesn't matter whose name is on the check that's coming in . If they've got money that is coming in as income into that estate , it's going into this middle bucket that's called community property . And then each of the spouses will have their own separate property bucket and that separate property bucket is going to hold , like you mentioned , any gifts , even if it's a gift from the other spouse . So you know that engagement ring that the wife got when they were getting married . That's a gift . They're getting that , or they got some sort of Christmas gift , or their parents gave them a gift . If it's a gift , it's going into their separate property , depending on which spouse it is .

Speaker 1 2:56

And then there are some other ones like inheritances , like you mentioned , personal injury settlements . That's one that is not typical , but sometimes you'll have personal injury settlements and sometimes it can get a little bit difficult because if you say , you get a gift from somebody that can start . You know , maybe you put that into a bank account that's mixed in with your income and that's where it can get a little bit jumbled and that's where the property is what we call mixed character . So tell me a little bit about what is the process then . What do we need to do if you've got a divorce case and you've got a bank account that's got a little bit of separate property , gift money , you've got a little bit of income in there , you've got a little bit of inheritance in there , is it all just loss and it's all just community property , or is this something we can do ?

Speaker 2 3:50

There's something we can do Now . The starting point for any judge is it's community

Tracing Mixed Assets: Banking Records

Speaker 2 3:56

property . If you're trying to say that you have a commingled account , that your separate property was put in , but now there's community property in there , it's your burden to prove that it is separate property . It is mixed character , and how much is that your separate property ? What we do in those situations is really bank statements . You have to prove it by what's called clear and convincing evidence . So you need to show the judge .

Speaker 2 4:23

At the date of marriage , this was what the account was . Since then , every monthly statement . This is what we have today , and that can be really difficult because these financial institutions , these banks , don't always keep years worth of statements . I think we go back five to seven years , depending on the bank . So if you're dealing with a 10-year marriage , a 15-year marriage , it can be very difficult to go back that far . So I would encourage people to go ahead and start collecting bank statements now , in case you just don't know if you have separate property , especially if you have money you owned prior to the marriage or your inheritance , and you put your family money into a joint checking account or into a checking account that you had other assets in there . It's really important that we show the court that that is your separate property , and the only way to do that is through tracing and bank statements .

Speaker 1 5:16

And that tracing process often happens in coordination with a forensic accountant and you think about you're already paying a lawyer , your spouse is already paying a lawyer for a divorce , and now you've injected another professional into the mix that's going to charge you potentially thousands of dollars to do this , what we call tracing . They're literally tracing where the money went from the inheritance or the gift throughout that account . And when they trace it they need to have a clear chain . Every month they need to show so that no money went in , no money went out . And , as you talked about that burden , there's a presumption that everything that a husband and wife owned is community property . Clear and convincing evidence is not typically a burden that we deal with . We usually deal with preponderance of the evidence , which is 50.1 percent more likely than not , and clear and convincing evidence is a pretty high burden . It's just a notch below beyond a reasonable doubt , which is the highest burden that you can have . That's using criminal standard .

Speaker 1 6:28

So there really is a presumption that something's going to be community property and you've got to have your T's crossed and your I's dotted to make sure you can get a separate property claim established . So that's why , as you mentioned , incredibly important , save your bank statements . I know people aren't saving their bank statements , thinking , well , I might get divorced in 10 years , right , but just good record keeping is going to help you establish that an inheritance or a gift , especially of a large amount , is going to be documented . It should something happen and you get divorced , did it , should something happen and you get divorced . So it's important to figure out how to get that evidence . That's something that we help our clients with . What type of evidence would somebody need to establish a separate property claim in a divorce case ?

Speaker 2 7:21

It depends on the asset . So if we're dealing with a house , that one's pretty straightforward . We're going to go to the real property records , we're going to get the warranty deed . It's going to show when the house was transferred into that spouse's name . When you're dealing with retirement , the question is , was that 401k started before the marriage or after the marriage ? If it was before the marriage , then part of it is going to be separate property and part of it is going to be community property . If you're dealing with , like we said , checking accounts , brokerage accounts , any of those assets , the monthly statements are key . You have to show the court that you can't just go to court and say I had $100,000 in my checking account . I mean , you can testify to that , but you got to show the judge the proof .

Speaker 1 8:10

And if it's very complex , it's possible that the court is not going to accept you just taking the bank statements and explaining it yourself . They're going to expect a professional . Remember the lawyers in these cases . You know we deal with this stuff all the time , so we have , you know , we have some experience dealing with financial records and we know how to make our way around them , but we are not accountants and judges are just family lawyers that have been elected to the bench or appointed to the bench , and so they don't have any type of specialized accounting knowledge themselves and they're going to depend on the professionals in order to show them that something can be established by clear and convincing evidence . So let's talk a little bit about how we would then take all of that evidence to prove a separate property claim and build an inventory

Creating Divorce Inventories: Financial Truth

Speaker 1 9:05

. What is an inventory ? Because that's something that folks that are involved in a divorce where there's property issues are going to hear a lot .

Speaker 2 9:12

Yeah , it's required in every divorce case . An inventory is where we take a list of all your assets , everything you own with any financial institution checking account , savings account , brokerage , retirement IRAs , life insurance policies , real property , vehicles . We just put a list of all of your assets on a spreadsheet , basically , and we're going to swear under , you're going to swear under oath that this is everything that you know that you have , and it's going to list all your liabilities as well . Your spouse is going to do the same thing . We're going to have backup to support every value , whether we need an appraisal , whether we need a current statement . We're going to have backup attached to that .

Speaker 2 9:52

It's going to be filed with the court . We're going to exchange it , give it to the other side . They're going to give us ours , it's theirs , it's required and then , at trial , we're going to walk you through your testimony of this . I own this , I own this , I own this . This is the community property , these are the liabilities , but this is my separate property , if you have any of those , and then that's when we may need the experts to come in and walk them through the individual , separate property that we're trying to claim .

Speaker 1 10:21

And I can't stress the importance of the sworn aspect of an inventory more , because folks will come to us and they'll say I think that my husband , I think that my wife might be hiding something , and your inventory is your first line of defense to make sure that they're going to expose something that maybe they're hiding . The reason why is an inventory has language that they are swearing under penalty of perjury , that everything that is in that list of assets and debts is accurate and complete . Now people still lie when they sign something under penalty of perjury . So it's our first line of defense . On our last line of defense , we can still request bank records . We review those . We see if there are any accounts that we don't have statements for , we ask for those . We then will subpoena additional documents directly from the bank or from the institution .

Speaker 1 11:22

There's a lot of stuff we can do there , but the inventory , their employer , the inventory is the starting point , and we use it quite often when we're trying to negotiate a final settlement , because in the end , when you are dividing your property , you are simply figuring out what assets and what debts are going to which party , and so you've got this spreadsheet of all the assets and the debts and then you will literally have a column that says community property to spouse number one . Community property to spouse number two separate property spouse number one . Community property to spouse number two . Separate property spouse number one . Separate property spouse number two . And if you're living in the house , you want to keep the house , then that will go into your column for purposes of negotiation and then you have to make up the value of that somewhere else so you don't have a completely lopsided final agreement . And especially in mediation , especially in the final trial , if you're unable to reach an agreement , that's going to guide the discussion of what a property division is going to look like .

Speaker 2 12:35

Right , a lot of my . There's a misconception . I see this all the time with . A lot of my clients are in consults . People just say you know , is she going to get half my retirement or are we going to just divide everything in half ? And no , that's not what we're going to do . Like you said , we're going to you can , but we usually that would be so burdensome right To literally divide every checking account in half .

Speaker 2 12:58

What we typically do is we look at the bottom line of the community portion . We're going to put , like you said , alex , if you're going to get the house , we'll put that in your column and if there's a mortgage , we'll put that in your column . And then we're going to award everything that's in their names to themselves and see what the bottom line is . And see what the bottom line is If it's typically , if we're trying to get close to a 50-50 , there are factors that in negotiations that would maybe one spouse may need more of the estate than the other , but typically 50-50 is a good starting point . We're going to , once we assign every asset that each spouse may take , we look at the bottom line and see how far apart we are and then we can use like one of the larger assets . It's normally the house , the equity in the home , or it's normally a retirement to equalize the bottom line , basically .

Speaker 1 13:45

And not every case is going to have a 50-50 split , and so that is another myth that I think a lot of people think well , of course we're going to do 50-50 .

Speaker 1 13:58

That's not always the case , however . Other people will come to us and say you know he cheated or she , you know , has some sort of bad fact on her side and so it should be a 75-25 split . 25 split and generally , unless there are horrendous facts , courts in Texas , and especially around the greater Houston area , are not going to skew the division that much . The only time and there have been a handful of times where I have gotten an extraordinarily large division , I have gotten cases where it has been 70 to 80% for my client , where there has been really egregious things that have happened , like massively wasting money , spending things on things that the other spouse didn't consent to and that were just a total waste , inappropriate gifts , yeah , and those are things that we can certainly look into and that could skew it , but really the only thing that the court is required to do is a just and right division , and so that's

Just and Right Division Explained

Speaker 1 15:09

the gray area where family lawyers , you know , earn our fee .

Speaker 1 15:13

Is just and right . What does that mean ? It can mean anything to anybody is just in right . What does that mean ? It can mean anything to anybody Right . And so that's where we do our work to show the judge whether something is in fact just in right for our client and for the other side . So if the judge is taking kind of 50-50 as a starting point , what does it look like ?

Speaker 2 15:48

What needs to happen in order for the judge to say maybe I'm going to go 55-45 ? Name calling it has to be pretty intense , though Always belittling putting down there's a lot that goes into cruel treatment . But if you get those fault-based , the court could on those grounds award a disproportionate division on its own .

Speaker 1 16:07

And that is something that you need to know at the outset that you're going for . You need to let the other side know I'm going for a disproportionate share of the community estate , and so let's go down each of those factors . Fault based factors Somebody did something wrong in the divorce and they're the reason that it's going to be 55 , 45 , 60 , 40 . The first one would be grounds , and so typically we see most divorces granted on the basis of insupportability , which is people might have seen on TV or in other states irreconcilable difference , prize , no fault . Yeah , that just we grew apart . There's no fault . We're not going to get back together . It is what it is , no fault . Back together , it is what it is , no fault . But there are fault-based grounds , one of which is adultery , one of which is cruelty . Tell me a little bit about those two .

Speaker 2 17:05

So with adultery , you need to show that an affair has happened , that there's been a sexual relationship with someone outside the marriage . You didn't consent to it , you didn't , you know or anything like that . You need to prove to the judge that this person has stepped outside of the marriage and cheated on you .

Speaker 1 17:21

What about Facebook messaging somebody and talking with them ? Would that count ?

Speaker 2 17:28

No , it doesn't . Now you and I would agree that's probably not okay , right , but is that adultery under Texas law ? No , it's not . You need to show the sexual relationship .

Speaker 1 17:40

Yeah , emotional affairs , while certainly not great , don't qualify as adultery in a Texas court . Tell me a little bit about cruelty , because , again , that is this kind of amorphous term that can have a lot of different meanings to different people .

Speaker 2 17:58

It just basically means that you are so insufferable that the person can't live with you anymore that you really treated them like they're garbage and that means that's a different threshold for a lot of people . So it is a very fact intensive question . But it's again what I said earlier name calling , belittling , arguing but more than arguing , just screaming at each other , shouting All of those comes into play . Just because you had an argument and you all shouted at each other doesn't mean it's cruel treatment , but given one case , it could be . It's just a very fact-intense question .

Speaker 1 18:34

Yeah , and it's really tough to get absent any type of severe emotional abuse or family violence . Yes , you know if , if there's physical violence against the children or the spouse , that would most likely qualify to at least be considered as cruelty yelling at each other . A lot of times when people are getting divorced there's going to be some yelling at some point in the process , and so if that were the criteria , then everybody would have a cruelty ground . But the other thing to consider is that a lot of times I would say probably 80 to 90% of time a case is going to be resolved in mediation and if there is a mediated agreement or negotiated agreement , 99% of the time time there's going to be an agreement . We're going to do a non-fault ground because you can have the same property settlement . But most people don't want to have in a public record that they were adulterous or that they were cruel .

Speaker 2 19:33

That doesn't make any sense , Right ? Especially if we're having

Prenuptial and Postmarital Agreements

Speaker 2 19:36

two people come to an agreement .

Speaker 1 19:37

That doesn't make any sense right , especially if we're having two people come to an agreement . Yeah , so let's talk about , because I think this is likely a bigger area where people are going to seek a disproportionate share . Those were the fault-based grounds , these are the need-based grounds , and the first one is income and earning capacity of the spouses Right .

Speaker 2 19:56

Tell me a bit about that . So maybe you're dealing with I don't know a situation where you have a stay-at-home mom who's taking care of the kids the entire time and they're in the traditional roles . The husband has been the bread earner throughout the marriage and he has made the income and she has stayed home and raised the kids . Now , if they all are getting a divorce , she doesn't have any job prospects really . She's been out of the workforce for 20 years and he's continued to be in the workforce . Now they agreed to those roles , but that is a huge income disparity there .

Speaker 1 20:32

Yeah , certainly . And say you've got a $500,000 estate and one party is looking to do 250-250 , the judge might say I'm going to make it , you know , maybe 275 , 225 or 300 , 200 , because one of the spouses simply doesn't have the training and the ability to go and make what the other spouse is making , especially if they're making a really good salary , and so it compensates for the fact that they're going to be able to move on from this divorce and make up for whatever they're losing from their checking account or their retirement fairly quickly . The other person is not .

Speaker 1 21:13

And so it is not going to mean that the judge is going to give you 100 percent of everything . For some of my clients , I wish that were the case , because they need it , but that's just not the way Texas law is set up . In a similar vein , education and training would be another need-based ground . The judge is going to look at who has the ability to immediately go and make a larger income . If one party has a JD they're a lawyer and one party has a high school education and no applicable training where they can go and get a job right away .

Speaker 1 21:49

They might look at that . The court might also look at if one spouse is going through a job training program and they know that they'll be able to get a good job with a good salary in the future , but they need six months . Maybe the judge will account for that a little bit and say let's get them through this next six months by having a little bit more of a disproportionate share . The next one this is the third one the age and health of the spouses . Tell me about that .

Speaker 2 22:17

Well , so say so . Y'all are nearing retirement age and you're not going to have a job , or probably you're about to retire . The court can consider that in dividing an estate . What if one of the spouses is disabled ? There are other mechanisms that we're not going to get into here , like Texas's version of alimony spousal maintenance . That may be appropriate , but when dividing an estate , a court can look at is a spouse has a disability ? Are they able to work ? In dividing an estate , a court can look at is a spouse ?

Speaker 1 22:48

has a disability , are they able to work in dividing an estate , does have a disability , or they are a little bit older and they don't have the ability to meet their minimum reasonable needs , which is the criteria under Texas law then the court could order the other spouse to pay them a certain amount of money every month for a certain limited period of time , unless the disability is such that that person's never going to be able to work again , in which case the judge could order for a longer period . But that is a possibility and that is a way that that person can make sure that they can make ends meet . But for purposes of today we're just talking about community and separate property . But that is a possibility and something that your lawyer should discuss .

Speaker 2 23:42

Yeah , and the court can also just consider not to award the spouse on .

Speaker 1 23:45

just give them more of the estate , more of the Justin Ray vision and I have found that to be the case Most of the time . Judges , if you have a large estate if you have , say , a $2 million estate there is enough money there that somebody is good Could it would be the judge is going to give you a little bit more money versus having the other person pay you a monthly amount nearly every time . Um , which , if I'm the lawyer for the person that needs that extra money , I'm going to take that all day because I would rather have the money up front for my client and know that they're going to get it , versus every month . You're wondering if your ex spouse is going to put the check in the mail to pay you Right , and that's when we also meet with , you know .

Speaker 2 24:28

certified divorce financial analysts to figure out which assets we need to go after in the just and right . Maybe , if you have a spouse who isn't working , maybe we need to go for more liquidity versus retirement assets that they're not going to be able to touch for years without taking a huge penalty . So those are things that we discuss with our clients regularly .

Speaker 1 24:49

So the next need-based factor would be the benefits that would have been derived from the marriage had it continued . What does that mean ?

Speaker 2 24:57

Really , I believe that that means that . So if the marriage had continued maybe you have . So if the marriage had continued , maybe your spouse has access to specific benefits , or maybe there's a reason that if you had stayed together , you would have gotten something . You would be staying in the marriage and this thing would have continued .

Speaker 1 25:25

Maybe you would have gotten health insurance continued . Maybe you owned a business together and now you're missing out on the income from that business because you have given the business to the other person . So if you had stayed married , you probably would have gotten certain benefits . You're not getting them now .

Speaker 2 25:37

The court can consider that the court can consider that and giving you more of the estate .

Speaker 1 25:40

Yes . The next one is business opportunities . We talked about that , and then there's a number of other factors . The next one is business opportunities . We talked about that , and then there's a number of other factors . The last one that we're going to talk about today is the size of the separate property award that you got .

Speaker 2 25:52

So the court can consider if you're , if the community estate is five hundred thousand dollars and you're sitting on an inheritance of a million dollars , you know your family literally left you the farm A court can consider that in dividing the estate because the court can't divide the farm , it can't divide the separate property , it's going to confirm that as your separate property . So you're walking away with a one million dollar asset and the other spouse and then you're also getting half of the community . So it doesn't always happen , but a court does have the authority to look at this party's separate property when dividing the community estate .

Speaker 1 26:29

And so disproportionate share is one thing that can affect the typical property division . We would be remiss if we didn't talk about two other things that can affect it . The first one is a premarital agreement . The second one is a premarital agreement . The second one is a postmarital agreement . Tell me folks might have heard prenup prenuptial agreement , premarital agreement . Tell me a bit about how that can affect the outcome .

Speaker 2 26:56

Yeah , it can greatly affect the outcome . So in our premarital agreements and our postmarital agreements they're called partition or exchange agreements . You're contracting to change Texas law . Basically You're entering into a contract with your spouse or a future spouse in a premarital agreement to say we understand Texas law is a community property state , but in this prenup we're going to say there is no community property , everything is separate property . If I have the house in my name , that's going to be my separate property . If we have any accounts or retirements in my name , that's going to be my separate property .

Speaker 2 27:33

A court can't divide that . So you have to be very careful when entering into these agreements . Talk with your lawyer . We will sit down with you and go over and help draft these things for you . But these things can heavily affect Texas law and a judge . If it's a valid premarital agreement , the judge is going to follow that contract and not if you said no community property , it's only separate property . Typically the starting point for our courts is everything's community property . But you have a valid prenuptial agreement or post-marital agreement , the judge is going to divide the estate the way you told you contracted to be divided .

Speaker 1 28:12

And a premarital agreement would come before the marriage . I completely agree with you that you should consult with a lawyer when you're either drafting it or you're considering signing it . And just to give an example of one of the ways it can change , texas law is say , for example , you've got a bank , you've got a brokerage account , you've got stocks that are worth about $100,000 . And that's your separate property because you owned it before the marriage . If you got paid dividends on that , those would typically be income , which would then be community property . And it can make it kind of difficult to divide it up because then you've got this mixed character asset and you've got commingled community property and separate property in one account and you've got to go get a forensic accountant and all that . But a good premarital agreement can say any dividends , any income , is going to be separate property . It really simplifies matters . The other thing you can do is you can say specific accounts and you could say these are my accounts , this is my business , this is my house , this is going to remain my separate property , no matter what happens in our marriage . And then that post-marital agreement essentially does the same thing , but it's just after you're married and you can change what the default provisions would be .

Speaker 1 29:33

Sometimes we see people do post-marital agreements where there's just a change in circumstances in terms of business asset or something like that . Sometimes people will go down the road of divorce . They decide they want to stay together . They've gotten kind of far in the divorce process and then they say , look , we're going to try this out , we're going to try to make this work . But in the event that we can't work it out , let's work out the details of what our divorce is going to look like property-wise now and put it in an agreement and sign off on it . And then , if it ends up not working out , we don't have to go through the hassle and the financial costs and the drama of going through the divorce process again . It just simplifies things .

Speaker 2 30:18

You can be married and not worry about the what-ifs . You've already taken care of it .

Speaker 1 30:23

Yeah , married and not worry about the what ifs , because you've already taken care of it . Yeah , and so it's important to note this is just for Texas community property versus separate

Final Tips and Contact Information

Speaker 1 30:33

property . Other states , particularly those in the Northeast , have a different way of doing things . They're not community property states . A lot of the southern and western states are community property states and have a similar setup . Southern and western states are community property states and have a similar setup .

Speaker 1 30:49

But it's important to know these differences and these nuances because the decisions that you make while you're married , like the record keeping , and you know if you get an inheritance , I tell people put that in a separate account . Don't put that into your joint account . You never know what's going to happen in the future . Keep it in a separate account , don't put any community property in there . Just protect yourself for the future . But understanding a little bit about this community property versus separate property is that can help people both during the divorce process and even before , because they might make different decisions Right , absolutely Well , david , thank you so much for helping to explain this very important topic and if you wanted to do a consultation with myself or with David , you can come visit us at either our Katie office , cypress , sugar Land or League City at Hunt Law Firm .

Speaker 1 31:32

You can find us at familylawyerkatiecom , and at familylawyerkatiecom we not only have information on how to get in touch with us , but also a lot of resources , including articles and resources on community versus separate property and just property division in general . You can also call our office at 832-315-5494 . Thanks again , david . Thanks for having me All right . Until next time , everybody you .