In Texas, all property owned
by either party to a marriage is either separate property or
community property.
It is a matter of
constitutional import.
Texas Constitution Article
16 Section 15.
Everybody owns some separate
property. It might only be a wedding ring, but
everyone owns some separate property - grandpa's shotgun,
momma's neckless, the old photobook. I once received a
stinging letter from a lawyer stating - "the parties own no
separate property! Why did you plead that?" The
letter told me allot about the opposition. Namely, not a very
bright bulb to put it mildly.
Note, you must prove the separate property characteristic or
it will be community property. DO NOT rely on your
spouse's testimony to establish separate property.
Prove it with documents.
Table of Contents - Marital
Property
Community Property:
``Community property'' is all property, other than separate
property, acquired during marriage.
Separate Property:
``Separate property'' is property owned before marriage,
acquired during marriage by gift, devise, descent, or
received as recovery for personal injuries sustained during
marriage, except for any recovery for loss of earning
capacity during marriage.
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Gifts: Any property acquired by
gift is separate property. To prove "gift" there has to
be an intent to make a gift; the transmission of the
gift and the receipt of the gift. If there was no intent
to make a gift, then there is no gift. Classic examples
include a parents $12,000 tax free gift to a child or,
in one case, a winning lottery ticket placed under the
tree.
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Devise: Any property received by
will.
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Descent: any property that was
received by inheritance but not via a will is separate
property.
Commingled Property:
“Commingled Property” is marital Property that is a mixture
of both separate property and community property.
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Example A.
Farmer Husband
owns a farm prior to his marriage – separate property.
After marriage, he raises crops – community property. He
takes the proceeds from the sale of the crops and buys
more land. This land is community property.
His father dies while he is married, and leaves
his farm to his son – separate property. Thus, Farmer’s
land is both separate and community property. In this
case, the farmland is “commingled” but it is easily
identifiable because we have county records, which are
easily located and specifically identify the property.
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Example B.
Husband opens a bank account with funds which are
clearly separate – inherited monies. He then deposits
his paychecks into the account – community monies. The
account is commingled. Wife withdraws funds to pay
expenses. What money did she withdraw – community or
separate? Under the community out first presumption, she
has withdrawn community funds. If she withdraws all of
the money out of the account, she has withdrawn both
community and separate property. The separate property
is gone.
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Example C.
Husband takes both separate and community funds to buy
Microsoft stock. He then sells Microsoft in order to buy
AT&T. He holds AT&T for two years and then decides to
invest in local real property. Where is the separate
property? If we are unable to trace the separate funds,
then no one knows. We know it is there, but we do not
know where it is. It may have been hopelessly
commingled. Therefore, the community property
presumption prevails and husband looses. If husband can
“trace” the separate property funds, then husband may be
able to recover.
Tracing:
“Tracing” is about finding the separate property. It is
about proof. Property purchased or exchanged for separate
property is and remains separate property. Mutations and
changes in the form of the property do not affect its
character as separate or community. However, the spouse must
clearly trace and identify the property.
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Example:
If husband owns
separate property land which he then sells in order to
buy AT&T stock, then that stock is separate property.
The difficulty arises, however, because the burden of
proof is placed upon that person claiming the separate
property. This
person must build a chain by documents and/or other
extrinsic evidence establishing the separate property
characteristic.
He or she must clearly identify the separate property.
Otherwise, the community property presumption will
prevail.
Property Acquired Outside of Texas:
Property which is acquired outside of Texas is characterized
as either separate or community under the same conditions as
if it were in Texas. This property is also known as
“Quasi-Community Property.”
Property which would be classified as community
property if the spouses had resided in Texas at the time of
its acquisition is classified as community property. If
property acquired while the spouses were domiciled in
another state would be classified as separate property if
they had resided in Texas then that property is classified
as separate property.
Martial Property Management:
Each spouse has the sole management, control, and
disposition of his or her separate property. Each spouse
also has the sole management, control, and disposition of
the community property he/she would have owned if single.
Sole management community property includes personal
earnings, revenue from separate property, and the increase,
mutation of, and revenues all property subject to his/her
sole management, control, and disposition.
Property in which both spouses have joint control is called
joint management community property.
Specific Examples
Community/Separate Property
Caveat:
The following examples are subject to the characterization
rules outlined above and the particular facts of your case.
Each rule of law is subject to either exception or
argument to either maximize or minimize its effect.
Real Property:
Appreciation in value is separate property. Rents, revenues,
and income derived from separate real property is community
property.
Stocks:
Appreciation in the
value of stock and/or stock splits is separate property.
Dividends are community property.
The exception to this rule is when corporation is
closely held and corporation is really an alter-ego of the
stock holder. In this case, the stock may be impressed with
the community characteristic.
Partnership Interests:
Generally, profits
earned by the operation of a business during marriage are
community property even if the business is separate
property. Even though
partnership property is owned by the partnership, and not by
the individual partners, each partner’s partnership
interest, that is, his/her right to receive a share of the
profits and surpluses of the partnership is subject to
characterization rules. If the right to partnership profits
accrues prior to marriage, the profits are the separate
property of the partner. If the right to partnership profits
accrues during marriage, but the profits are not distributed
until after the marriage, the profits are nevertheless
community profits. If profits have been retained in the
business to meet the needs of the business, then the profits
remain partnership property whether in the form of cash in
the bank, increased inventory, or otherwise.
Trusts:
A beneficiary’s equitable interest in a trust is
characterized according to the rules of separate and
community property. If the beneficial interest is acquired
before marriage or through gift devise or descent, it will
be separate property. If the beneficial interest in a trust
was funded by the Trustor out of separate property funds
then the beneficial interest is separate property.
Oil & Gas Mineral Interests:
Oil and gas
mineral interests are separate property. Think about it, you
are removing a piece of the land every time you sell a
barrel of oil.
Employee Benefits:
It is well
settled that a spouse has a community property interest to
that portion of retirement benefits of the other spouse
earned during marriage regardless of when the retirement
account was opened.
Generally, the community interest may be mathematically
ascertained by apportioning the benefit between the months
in the plan during the marriage and the total number of
months necessary for accrual and maturity.
Livestock:
The growth of livestock is separate property. Offspring is
community property. This rule is derived from a classic case
entitled
Stringfellow v.
Sorrells. Stringfellow was about mules. The
mules grew. The mules became more valuable. Creditor tried
to execute upon the increase in value. Creditor lost.
Stringfellow is one of the foundation cases for the law of
separate and community property.
Crops:
Whether mature or growing, crops are impressed with the
community presumption. Does not matter whether the crops are
growing on separate property land. For example, the proceeds
derived from the sale of timber growing on separate property
were community property. It is only in the instance where
crops are sold with separate property land without
reservation that crops take on the characteristic of the
property.
Claims of the Federal Government
Tax Liens:
The federal
government's claims for taxes is a lien in favor of the
United States on all property and rights to property,
whether real or personal, belonging to the person who is
liable to pay the tax and who neglects or refuses to pay the
tax after demand.
Taxable Estate:
Under federal law,
one half of all community income is taxable to each spouse,
regardless of which spouse exercises control over the income
at issue.
Homestead:
A homestead right,
though securely established and existing, is subject to a
lien for federal taxes. When a homestead is subject to a
federal tax lien, the federal government must compensate the
nondelinquent spouse for his or her homestead interest,
regardless of whether the property is community or separate.
Sole Management Community Property:
The federal
government's claim for taxes may subject even a spouse’s
sole management community property to the other spouse's
premarital income tax liability. Be that as that may, the
Internal Revenue Service has ruled that a spouse's community
one-half interest in a joint income tax refund may not be
used to offset the separate premarital tax liability of the
other spouse, unless state law permits that interest to be
reached to satisfy premarital debts.
Texas law does not permit that interest to be reached
to satisfy premarital debts. Under Texas law, each spouse
has sole management and control over his or her personal
earnings. In addition, unless both spouses are liable by
other rules of law, community property subject to a spouse's
sole management and control is not subject to premarital
liabilities of the other spouse.
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