Getting married? Or already married? Then you’ll want to understand Texas’ “community property” laws. You’ll share beyond bed and bath.
“Separate property” versus “community property” should be easily understood, right? Think again. Texas community property law continues to confuse married folks and debt collectors.
What is “Community Property”?
Before discussing the vagaries of community property, let’s start with a fundamental premise: couples can agree how they want to handle their property (e.g., money, other assets). These written contracts are known as prenuptial (before marriage) and postnuptial (after marriage) agreements.
But without an ‘agreement otherwise’, community property becomes the ‘default’: meaning the law controls how marital property is handled.
Community property is a simple concept: subject to exceptions, any asset acquired during marriage belongs to both spouses as community property (Texas Family Code §3.001).
What are Community Property Assets?
Virtually anything valuable, which spouses acquire during marriage, is considered community property, including:
- real estate (homes, office buildings, shopping centers)
- personal property (checking and savings accounts, stocks, bonds, mutual funds)
- intangible property (copyrights, patents, trademarks)
- pensions
- wages / salaries
- lottery winnings
What Assets are Excluded?
The following are considered separate assets if acquired by husband or wife:
- before marriage
- after separation
- through gift or inheritance
- from a personal injury lawsuit
Dividing it Up
So now we have a sense of what assets are in the ‘community property basket’. How to divide it? It’s not a Solomonic exercise of literally splitting the physical property in half; that’s impractical and usually impossible. Instead, the parties will try to value what all property is worth, and then try to agree on how to allocate it. This often results in extensive discussion, negotiation, and reliance upon experts (e.g., accountants, attorneys, appraisers) to strike a balance (and often, compromise) to satisfy divorcing couples.
For example, it’s common for one spouse (usually, the primary custodial parent) to be awarded the family residence, and the other spouse a second home, other investment real estate, etc., if the values are equal; differences can be “made up” with other property. The ultimate goal is for husband and wife to receive one-half of the community property, in cash or in-kind (i.e., with physical property).
Usually, it’s not hard to determine community vs. separate property. However, unique issues arise. For example:
- pension and other employment benefits that were in place before marriage, and continued to grow after marriage
- family businesses that existed before marriage
- professional degrees (e.g., physician, attorney, accountant, engineer) earned during marriage
These many nuances require an experienced attorney, familiar with identifying and solving thornier issues.
Debts: All in this Together
Community property is subject to debts of either spouse, except for a significant exception (among others). While Texas is a community property state, creditors cannot garnish your account for your spouse’s debt if you did not share the account with your spouse.
There is an important, subtle-but-significant distinction, to understand. A creditor may look to the ‘community property basket’ to satisfy its debt. However, a spouse is not personally liable for the other spouse’s debts. In other words, although the creditor can attack the community property, the non-debtor spouse is not subject to personal liability. This is especially important after divorce, when one spouse’s exposure ends.
Furthermore, creditors are subject to Texas’ debtor-friendly exemptions.
What Happens when Separate Property Increases in Value?
This gets complex. Imagine this scenario: Wife had a $50,000 stock portfolio before marriage, which she received when her father died. That started as separate property. Through the years, Husband regularly reviewed quarterly statements, conferred with investment advisers, handled tax-related matters, provided input, and authorized sales and purchases. The portfolio grew to $150,000. How much (if any) is now community property?
Or suppose Husband had a family accounting business before marriage (again, separate property). Wife worked part-time as an assistant (for which she was fairly compensated as an employee), and through her social-media marketing skills, helped acquire new clients. The business’s ‘goodwill’ value grew. Again, after determining the before- and after-marriage values, how much of that incremental gain constitutes community property?
These are frequent tip-of-the-iceberg examples of community property issues. They dovetail with concepts like source, tracing, appreciation and accessions. For these types of complex matters, you should hire a seasoned family lawyer.
The Law Office of Jaclyn Y. Roberson, PLLC is a family law and estate planning firm based in San Antonio serving the citizens of South and Central Texas.
