Texas Property Division: How is property divided?
All states provide for a more-or-less equitable, but not necessarily equal, division of marital property. Texas is a “Community Property” state, meaning that most of the property – including both spouses’ incomes – acquired during marriage belongs to both spouses, and that property will be divided during divorce. That does not mean that every asset gets split 50/50: the separate property of each spouse will remain their own at divorce. In Texas, however, all property is presumed to be community property unless you can show sufficient evidence to prove that it is separate.
Separate Property in Texas
According to the Texas “Family Code,” a spouse’s separate property consists of:
- the property owned or claimed by the spouse before marriage;
- the property acquired by the spouse during marriage by gift, devise, or descent; and
- the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
Examples of property that could be separate include:
- Property purchased prior to marriage
- Assets acquired prior to marriage
- Inheritances (including during the marriage)
- A family heirloom
- Birthday presents
- Personal injury awards (unless the award replenishes community property spent because of the injury, such as reimbursement for medical bills, lost wages, etc.)
Dividing Your Community Property in Texas
If you and your spouse are able to come to a mutual agreement of how to divide your community property, that will likely save you both time and money. However, your Texas property division agreement could be subject to the court’s approval. In a divorce case, the judge must weigh all the facts in evidence and create a “just and right” division of the community assets and debts. Of course, what you consider “just and right” may differ greatly.
Despite lore to the contrary, most divorcing couples are able to negotiate a relatively fair division of their community property without having to ask a judge to make all the decisions for them. For those unable to come up with a mutually agreed upon division of property, most state law provides a list of factors that courts consider in making a final. The factors that Texas courts may consider when dividing your property could include the following:
- Length of the marriage
- Age and health of the spouses
- Contribution of each spouse to the acquisition of property
- Contribution of one spouse to the education or training of the other
- Custodial provisions for children of the marriage
- Whether either of the spouses will be awarded spousal support
- Present and potential earning power of each spouse
- The total economic circumstances of the spouses
- Community debts: if you owe more than you own
- The size of one or both parties’ separate estates
- The tax consequences of dividing your property
- Fraud/dissipation of community assets
- The existence of any pre- or post-marital agreement between the spouses
Texas Property Division: How does dissipation of marital assets work?
When the actions of one spouse during or after the breakdown of the marriage results in the loss of property owned by both spouses, the innocent spouse usually harmed because there is less property to distribute upon final dissolution of the marriage. The concept of dissipation of marital assets has developed to discourage such actions and to provide a remedy for innocent spouses.
When is an expenditure or a conveyance considered a dissipation?
In general, only conveyances of marital assets that are made or caused by one spouse, in anticipation of divorce, and for a non-marital purpose constitutes a dissipation of marital assets.
- Made or caused by one spouse. A majority of states consider intentional, reckless, or negligent actions resulting in the waste, concealment, or conveyance of marital assets sufficient.
- In anticipation of divorce. Before divorce is contemplated, a spouse is generally entitled to spend marital funds as he or she sees fit. To discourage misconduct related to marital assets and to preserve each spouse’s right to share in the marital estate, certain conveyances of marital assets are improper when divorce is anticipated. In general, divorce is anticipated when a marriage is irretrievably broken. “An ‘irretrievably broken’ marriage is one where either or both parties are unable or refuse to cohabit and there are no prospects for a reconciliation.” Harwell v. Harwell 233 Ga. 89, *91, 209 S.E.2d 625, **627 (Ga. 1974).
- Non-marital purpose. Not every use, sale, or conveyance of a marital asset in anticipation of divorce is a dissipation to which the innocent spouse is entitled a remedy. For example, a spouse’s reasonable expenditure of marital assets to purchase clothing only he or she will wear is not a dissipation even though the purchase benefits only one spouse. The determination of whether a use of marital assets was for a proper marital purpose is made on a case-by-case basis and typically involves an examination of factors such as the need for the expenditure, the amount of the expenditure, and the alleged purpose of the expenditure.
What are the remedies available to an innocent spouse?
The following remedies may be available to a person whose spouse has caused the dissipation of marital assets:
- Rescission. A potential remedy for the dissipation of marital assets is to treat the dissipating spouse’s transfers as fraudulent conveyances and order the cancellation of the transfers or return of the transferred property (rescission). Most states have a fraudulent conveyance statute, and such statutes generally apply to transfers in which both the spouse who transferred the property and the person to whom the property was transferred had a fraudulent intent or transfers made “without receiving a reasonably equivalent value in exchange for the transfer” and resulting in the transferring spouse’s insolvency. Unif. Fraudulent Transfer Act § 2(a).
- Unequal division of marital estate. The court can provide a remedy to the innocent spouse by considering the dissipated assets when ordering distribution of the marital estate. In general, the court can order an unequal division provided such division is reasonable in light of the facts and circumstances of the case. This remedy is typically available in cases where the dissipation was the result of fraud, waste, concealment, or a conveyance for a non-marital purpose. Additionally, this remedy may be available when neither spouse is completely innocent or when assets were not conveyed in anticipation of divorce but still conveyed in some way that is not completely fair to the other spouse.
- Dissipated assets classified as marital property. In general, only property owned jointly or individually by the spouses on the date it is classified as marital property may be so classified. However, in a majority of states, the court will treat dissipated assets as part of the marital estate and use those assets to satisfy the dissipating spouse’s share of the marital estate. If the value of the dissipated assets exceeds the dissipating spouse’s share of the marital estate, a cash payment to the innocent spouse may be ordered.
Texas Property Division: How are debt and other liabilities and obligations divided?
Debt division is considered part of the property division process. In community property states like Texas, liabilities, like assets, that are brought into the marriage belong to the spouse who incurred them. In equitable distribution of property states, the debt, like the property, is divided equitably between the parties. If the debt is secured debt, the general rule is that the value of the encumbered asset is reduced by the amount of the debt in determining division. For instance, this often happens in the case of family cars. For many divorcing couples, each spouse has a vehicle, but one may be a paid-for clunker worth relatively little with no car payment. The other may be a late model car worth well over $10,000, but with a loan balance equal to its present value. Despite the fact that the vehicles may have very different gross values, the net value for them is equal.
A very common problem for couples in our current economy is that they have accumulated high amounts of unsecured debt, with little asset acquisition during the marriage. This situation poses a complicated issue for debt division. In cases such as these, the advice of a financial consultant, or even a bankruptcy attorney, could be very helpful to the parties.
As with other property issues, if the parties cannot come to a fair and equitable division of debt on their own, state laws typically provide a rationale for courts to follow in making debt division decisions.