Texas Community Property

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Texas Community Property
2011-06-23 21:35:23
Texas Community Property

Texas Community Property
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  1. Separate Property
    1. Property owned or claimed by either spouse before marriage is separate

    2. Property acquired during marriage by gift, will (devise), or inheritance (descent) is separate

    3. Separate property can be produced by a written partition or exchange of community property (i.e. post-marital agreements)

    4. Tracing ("mutation") Principle - property purchased with separate funds is separate

    5. Tort recovery for personal injury (disfigurement, pain & suffering) is separate... but not tort recovery for earnings and lost wages (CP) or medical obligations (in the nature of reimbursement; to extent community has incurred the obligation)

    6. Loss of future earnings after the parties divorce will be spouse's separate property
  2. Community Property
    CP - Property, other than separate property, acquired by either spouse during the marriage. Examples:

    1. Salary and wages of either spouse;

    2. Income from community assets

    Community Property Income - In Texas, income from separate property is community property, unless:

    1. The spouses agree in writing that such income shall be spouse's separate property;

    2. Gift from one spouse to another spouse - income from donated property is presumptively the donee spouse's separate property (Tex. Const. Art. XVI s. 15)

    Division of CP on Death - Surviving spouse always takes his or her 1/2 (50%) of CP on the death of spouse
  3. The Community Property Presumption
    1. All assets on hand whenever the issue is raised (divorce, creditor's claim, death of spouse) are presumptively community property. Property possessed by either spouse on dissolution of marriage is presumed to be community.

    2. All assets acquired during marriage presumptively belong to the community

    3. All assets acquired on credit during the marriage are presumptively acquired on community credit

    4. The burden of proving that an asset is separate property is on the party contending separate property, who must overcome community property presumption by clear and convincing evidence
  4. Inception of Title
    (Characterization Principle)
    The character of an asset, as SP or CP, is determined at the time the asset is acquired.

    Subsequent events or expenditures (i.e. payment of remaining purchase price with community funds) never affect the asset's characterization, but go only to the:

    • 1. creation of a claim for reimbursement, if divorce filed or death occurs after 9/1/09; or
    • 2. creation of a claim for economic contribution if divorce filed or death occurs before 9/1/09

    Exception - Inception of title rule is applied in all cases except for two:

    1. Employee retirement benefits;

    2. Stock options
  5. Reimbursement for Spending CP Funds on SP
    (Community Reimbursement)
    Where community funds are expended to reduce secured debt or make capital improvements on one spouse's SP, the community does not have an ownership interest - instead, the community has a claim for reimbursement (likely, unless before 9/1/09, then E.C.).

    Calculating Community Reimbursement Claim - value of the reimbursement is w/in trial court's discretion but will likely be between:

    1. The amount of community funds actually used to reduce the purchase money debt, not considering taxes and interest, or

    2. Reimbursement for funds expended by marital estate for improvements to another marital estate measured is by the enhancement in value to the benefitted marital estate

    Dividing Community Reimbursement - Death v. Divorce

    1. Death - upon death, half (50%) of the existing community property estate must be ascribed to the decedent

    2. Divorce - upon divorce, the value of reimbursement claim is divided in the court's discretion upon ordering a "just and right" division
  6. Reimbursement for Spending CP Funds on SP
    (Community Debt Obligations)
    Handling Community Debt Obligations

    1. Upon Death - Community reimbursement claim is divided 50/50, also, community debt obligation is divided 50/50 and subtracted from each spouses reimbursement claim.

    2. Upon Divorce - the outstanding debt will be subtracted from the enhancement value and the remaining community reimbursement claim will be subject to a just and right division by the trial court
  7. Reimbursement for Spending CP Funds on SP
    1. Benefits for the use and enjoyment of property (value of that use) may be offset against a claim for reimbursement for expenditures to benefit a marital estate, except that a spouse's separate property may not claim an offset for the use and enjoyment of a primary or secondary residence owned wholly or partly by the separate estate against contributions made by community to the separate estate.

    2. Reimbursement claims are in equity, and thus the trial court has wide latitude in determining the amount of any reimbursement claim, and whether one shall be rewarded at all.
  8. Reimbursement for Spending CP Funds on SP
    (Securing Claim)
    Rule - A reimbursement claim does not give an ownership interest in the benefitted property, therefore must secure by:

    1. On Divorce - court may impose equitable lien on the property of a benefitted marital estate

    2. On Death - on application for reimbursement by an interested person, may impose an equitable lien on the property of a benefitted marital estate
  9. Reimbursement for Spending SP on Another's SP
    Spouse is allowed a claim for reimbursement, which is to be calculated exactly as if spending was by CP for one's SP, except the entire claim will belong to spending spouse (i.e. no division b/c of CP).

    Statute - Reimbursement Not Allowed For:

    1. payment of child support, alimony, or spousal maintenance;

    2. the living expenses of a spouse or child of a spouse;

    3. contributions of property of a nominal value; or

    4. a student loan owned by a spouse.

    **Note** - A reimbursement claim must exist between marital estates. BUT, there is NO equitable claim for reimbursement when CP is spent on CP.
  10. Property From Another State
    (Conflict of Laws Principles)
    Conflict of Laws Principles

    1. In a common law state, a husband's salary is his property, and a wife's salary is her property.

    2. In a common law state, how title is held determines ownership (i.e. if house titled in H's name, it was H's property).

    3. Conflict of laws separate property - If it was H's separate property in other state, it is H's separate property in Texas (don't lose property rights by moving to a new state)

    **Apply when couple is still together, and no divorce pending or death occurred**
  11. Property From Another State
    (Division - Divorce v. Death)
    Divorce Action - for marital property division upon divorce, property acquired in another state, which would have been community property if acquired while domiciled in Texas, is treated the same as community property, and is subject to "just and right" equitable division

    - Thus, what would have been SP while married or under other state's laws now becomes "quasi-community property"

    Upon Death - the quasi-community property rule does not apply to death actions, but only applies upon divorce. Upon death, the property is characterized according to the situs of the acquisition.
  12. Community Credit Presumption
    CCP - for property acquired on credit (any credit), during the marriage, it is presumed that the credit is community credit, unless rebutted. Accordingly, the property acquired will be presumed community.

    - To overcome presumption of community credit, creditor must have agreed to look solely to the separate credit/estate of the borrowing spouse (i.e. a non-recourse note).

    - Pledging separate collateral or security does not automatically overcome presumption
  13. Effect of How Title is Taken
    (SP v. CP)
    General Rule - How title is held does not affect/determine character characterization. Under inception of title rule, its the time and circumstances of the acquisition that determine character.

    Exceptions to General Rule

    1. When H acquires SP, but places title in that SP wholly in W's name, there is a rebuttable presumption of a gift to W --> Wholly W's SP.

    2. When H acquires SP, but places title in W's name and H's name, there is a rebuttable presumption of a gift of an undivided 1/2 (50%) to W --> H owns 1/2 as SP; W owns 1/2 as SP.

    3. When H participates in a transaction using CP and there is a significant recital (i.e. "W, as her sole and separate property"), the parole evidence rule bars a spouse's testimony offered to contradict the deed --> Wholly W's SP.

    4. Exception to #3 - If H does not participate in a transaction and W uses CP to purchase property solely in W's name the property is CP --> Can't unilaterally use CP to purchase property and hold in SP.
  14. Inception of Title and Adverse Possession
    As long as H originally entered land under a "claim of right" (believed he was supposed to be on the land), title by adverse possession relates back to H's entry under a rightful claim. --> If entered under claim of right before marriage, H's SP.

    BUT, if H originally enters w/o "claim of right" (i.e. naked trespasser), then H has no right until adverse possession period completed. --> No relation back, CP or SP determined at time adverse possession fulfilled.
  15. Life Insurance Policies
    Inception of Title rule applies to life insurance policies - the first premium payment determines SP or CP character of policy

    Equitable Claim for Reimbursement - If proceeds of a SP life insurance policy are left to someone other than surviving spouse, spouse can file claim for reimbursement to recover 1/2 the CP funds used to pay premiums
  16. Retirement Benefit Plans
    (2 Types)
    Defined Benefit Retirement Plan (DBRP) - amount of retirement benefit is tied to salary level and years of service.

    Defined Contribution Plan (DCP) - employee (and maybe employer also) makes contributions to an account for the employee, which grows with interest and future contributions.
  17. Employee Retirement Benefits (DBRP)
    (Calculating CP - Divorce)
    Defined Benefit Retirement Plan - Employee retirement benefits accumulated during marriage are CP (whether or not vested at time of divorce) - benefits are earned during the marriage.

    • Value of CP Portion of Benefits
    • CP = ((Years Married & Employed) / (Total Years Employed)) x Benefits Value @ Divorce

    - Value of the CP component is "frozen" at the time of divorce - future increases will be H's separate property.
  18. Employee Retirement Benefits (DBRP)
    (Divorce Decree Options)
    Two Forms for Decree:

    1. If, As, When Received Language - i.e court makes a 60/40 "just and right" division of community estate, therefore W will get 60% of CP value of Retirement Benefits;

    or the court can

    2. Cash W Out - award W other assets of equal value, leaving entire pension with H. In cashing W out, the value of pension fund could be reduced to present day value.

    **Note** - Due to federal preemption, W's CP interest in a pension plan end if she predeceases H.
  19. Employee Retirement Benefits
    Tracing Rules - used to characterize SP and CP components of Defined Contribution Plans, thus DCP's can be characterized as follows:

    Separate Property - the assets in the account as of the marriage, including appreciation of those specific assets.

    Community Property - (1) the additional contributions to the account during marriage; plus (2) interest and dividend income on the account (income from SP is CP).
  20. Employee Retirement Benefits
    (Military, Disability)
    Military Retirement Benefits

    1. Uniformed Services Former Spouses' Protection Act (USFSPA) - Spouses of military personnel DO have community property rights in a military retirement plan

    2. Military Disability Retirement - NOT community property under Federal preemption, and USFSPA doesn't apply. BUT, cannot elect to defeat W's CP interest by choosing disability retirement benefits over regular retirement benefits

    • Disability Payments
    • - If a person becomes disabled or injured, any disability insurance payment or worker's compensation payment is CP to the extent it is intended to replace earnings lost while disabled/injured person is married.

    - To the extent that any insurance payment or worker's compensation payment is intended to replace earnings while the disabled or injured person is not married, the recover is SP of the disabled spouse.
  21. Stock Options
    If a stock option is awarded during marriage but does not vest until after the marital community has ended, a proration formula is used to determine what portion of the option is CP and what portion is SP.

    Pro-Rating Options

    Formula - (Years from date option awarded to date of divorce) / (Years from date option awarded to date exercisable)

    Example - (4 years) / (6 years) = 4/6 CP; 2/6 SP
  22. Business Interests
    (Time, Toil, Talent)
    If H acquires stock/interest in a business venture that he runs before marriage, H owns as SP after divorce.

    - But, community may be entitled to a an Equitable Claim for Reimbursement for the value of the time, toil, and talent expended by H to enhance his separate estate...

    1. beyond that is reasonable necessary to maintain and preserve his SP; and

    2. reduced by compensation received for H's time and effort in the form of salary, bonus, and other fringe benefits.
  23. Business Interest
    (TTT Formula)
    Value (look to amt paid to similar CEO's) of Time, Toil, and Talent (beyond what necessary to maintain H's SP)


    Actual Compensation/Remuneration Received


    Amount of Reimbursement Claim
  24. Commingled Bank Accounts
    (CP v. SP)
    When SP and CP funds are commingled in a bank account, it can be presumed that CP funds are withdrawn first.

    - Must be able to trace funds back to SP

    - SP funds sink to the bottom
  25. Just and Right Division
    Just and Right equitable division power applies only to - community property and quasi-community property

    - divorce court cannot divest separate title of one spouse and award it to the other spouse. If a court gives one spouse's SP to another = a divestiture.
  26. Just and Right Division
    (Factors in Making)
    1. Age

    2. Relative physical conditions of the parties

    3. Earning power and business opportunities

    4. Abilities

    5. Education

    6. Need for future support

    7. Size of the community estate

    8. Size of each party's separate estate

    9. Length of the marriage

    10. Children of the marriage

    11. Child care responsibilities

    12. Benefits (innocent) spouse would have received from continuation of marriage

    13. Fault in the breakup of the marriage

    14. Reimbursement in the division

    15. Debt/community liabilities
  27. Just and Right Division
    Wide latitude is given trial judge's determination regarding the division of property upon divorce.

    **A decision will be reversed only if division is so disproportionate as to be manifestly unjust and an abuse of discretion**

    Automatic Reversal - only when there has been a divestiture of a spouse's separate property

    Appellate court cannot render judgment, must only reverse and remand unjust division
  28. Just and Right Division
    (Statue of Limitations)
    Statute of Limitations - 2 years after other party repudiated a claim of community ownership

    - Later discovered CP not partitioned at divorce is subject to a just and right division in separate action for that purpose
  29. Spousal Maintenance
    Eligibility - to be eligible for statutory maintenance:

    1. A couple must have been married for at least 10 years, unless other spouse convicted of family violence within last two years;

    2. the spouse must lack sufficient property, including property distributed to the spouse under the Family Code, to provide for her minimum reasonable needs; and

    3. the spouse seeking maintenance must either -

    (a) be unable to support herself b/c of a disability, or

    (b) be custodian of a disabled minor or adult child, or

    (c) lack employment and skills adequate to provide for her minimum reasonable needs.
  30. Spousal Maintenance
    Maximum Award - the lesser of (1) $2500 per month or (2) 20% of spouses average monthly gross income

    - Payments are limited to the shortest period that will allow spouse to get job or skills for a job

    - Payments cannot continue for more than 36 months (unless spouse disabled at divorce or custodian of disabled child)

    Modification of Award - award can be modified downward (but not upward) upon showing that circumstances of either party have materially and substantially changed.

    Termination - Award terminates (1) on death of either party, or (2) if receiving party remarries or cohabitates conjugally with another person
  31. Alimony
    Statutes and public policy of State of Texas doe not sanction alimony after a judgment of divorce entered


    1. Temporary Alimony - support payments until final divorce decree entered

    2. Contractual Alimony - parties can enter into agreement in divorce degree to provide periodic payments.

    3. Periodic Payments - only if referable to property not easily divided
  32. Bigamous Marriages
    2nd/Outside Spouse Unaware of Valid Marriage = Putative Spouse (PS)

    - 2nd/bigamous relationship is characterized like a partnership or joint venture, and property acquired during it is like CP

    - Upon divorce of valid marriage putative spouse gets 1/2 property acquired during putative relationship and H & W get other 1/2

    2nd/Outside Spouse Aware of Valid Marriage = Meretricious Relationship

    - Outside spouse gets $0 upon divorce of valid marriage, valid H & W take all acquired property during both relationships as their CP
  33. Income From SP = CP
    This is the rule, unless spouses agree in writing that income from each party's SP shall stay SP

    - Exception - Gift from one spouse to another: income from interspousal gifted property is presumptively donee spouse's SP
  34. Trust Income Interests
    (SP v. CP)
    The actual object here is the income of the trust itself, not the underlying trust principal that generates income - therefore, falls under the rule that property acquired by gift is SP.

    BUT, if spouse has unrestricted power to withdraw trust principal at some point, and doesn't do so, all income thereafter is CP.
  35. Mineral Interests
    (SP v. CP)
    Only mineral lease distribution that falls under the "income from SP = CP" rule is delay rentals, which are CP. All remaining payments = piecemeal sales of the corpus, and thus are SP.

    Lease Bonus - SP

    Delay Rental - CP

    Royalty from Well - SP
  36. Corporate Distributions
    (SP v. CP)
    ALL proceeds of a sale of a separate asset are SP, including any capital gain.

    Of all regularly encountered corporate distributions, the only one that falls under "income from SP = CP" rule is - Cash Dividends = CP

    Stock Dividend - SP

    Stock Split - SP

    Capital Gain - SP

    Cash Dividend - CP
  37. Increase From Animals
    (SP v. CP)
    Community Property
  38. Premarital Agreements
    1. Must comport with Texas Constitution Art. XVI § 15;

    2. Must be in writing and signed by both parties;

    3. No consideration for agreement is required;

    4. Future spouses may partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse in any other CP then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the SP and estate of the future spouse.
  39. Premarital Agreements
    (What can be exchanged)
    Rule - In a premarital agreement, the parties can contract on anything except to (a) limit either party's child support obligation, or (2) agree that, after marry, on spouse's SP shall be CP

    1. Future spouses can agree that income from each spouses SP shall be SP

    2. Agreement can cover disposition of property on separation, divorce, or death

    3. Agreement can waive right to homestead, exempt personal property, family allowance, and can deal with any matter including their personal rights and obligations

    4. Can agree that after marriage, each party's salary and wages shall be SP - an exchange

    5. Cannot convert SP to CP before marriage - only spouses can convert SP to CP

    6. Can waive right to spousal maintenance/support

    7. Cannot limit either party's obligation to furnish child support
  40. Premarital Agreement
    (Setting Aside)
    To Set Aside - must establish that the agreement:

    1. Was not signed voluntarily, or

    2. Was "unconscionable when made" and

    (a) there was no fair disclosure of H's property or financial obligations;

    (b) the right of disclosure was not waived in writing; and

    (c) W had no adequate knowledge of H's property or financial obligations.

    **Burden of proof on unconscionability or that agreement not signed voluntarily is on party seeking to avoid agreement** <-- decided as matter of law
  41. Marital Agreements
    - Spouses can agree in writing (signed by both spouses) to convert SP into CP

    - Spouses can make unequal partitions of CP

    - Spouses can agree to exchange property that is CP to SP
  42. CP Survivorship Agreements
    Rule - Spouses may agree in writing that all or part of the CP becomes the property of the surviving spouse on the death of a spouse"

    The Agreement - can be specific as to assets, or it can apply all CP now owned or acquired in the future, but must meet requirements:

    1. Must be in writing, and signed by both spouses;

    2. Either spouse must revoke by written notice to other spouse;

    3. Statute authorizes a court proceeding in which, upon proof of valid agreement and that agreement not revoked, the court enters an order adjudging agreement valid.
  43. Challenging Gift of CP
    (Fraud on Spouse's CP)
    On spouse can make "reasonable" gifts of CP, as long as such gifts are not so disproportionate as to be "in fraud on spouse's community rights"

    Also applies to life insurance policies.

    Fraud on Spouse - factors to be considered are:

    1. Relationship of the donee and the donor spouse - A gift to an unrelated party is presumptively fraudulent - can be set aside in entirety if challenged and w/o justification.

    2. Amount of Gift in relation to CP - if it is a relatively insignificant amount, no constructive fraud

    3. Whether spouse adequately provided for out of remaining community estate - if plenty remains, no constructive fraud.
  44. Effect of Divorce on Preexisting Creditors
    1. Divorce does not affect the rights of preexisting creditors.

    - If W does not personally sign on an obligation they will not be personally liable, unless it can be shown that H was acting as her agent.

    - If W did sign on obligation, W is personally liable = to the amount of H's liability

    - Creditor cannot get a judgment lien against a party who is not a signatory to the obligation b/c a judgment lien only valid against judgment debtor
  45. Classification of Marital Property
    (Management Purposes)
    1. W's separate property

    2. W's sole management community - W's salary; income from W's SP.

    3. Joint management community - If "sole management" CP of one spouse is mixed or combined with "sole management" CP of other spouse, it is subject to their joint management, control, and disposition.

    4. H's sole management community - H's salary, income from H's SP.

    5. H's separate property.

    **Property titled in one spouse's name (or in one spouse's possession) is presumptively subject to the possessing spouse's sole management and control -- intent is to protect BFPs**
  46. Liability for Torts
    During Marriage- If a tort is committed during marriage, all CP subject is liable; a tort judgment creditor can reach:

    1. Ws SP;

    2. W's sole management CP;

    3. Joint management CP;

    4. H's sole management CP.

    Protected - the only protected property is H's SP

    Before Marriage - tort judgment creditor can only reach assets over which W had management power, those being 1-3 above.
  47. Liability on Contracts
    Contracts for Necessaries - each spouse has the duty to support the other spouse and his/her minor children. Accordingly, each spouse is (personally) liable for the other spouse's contracts for necessaries

    Contracts for Non-Necessaries - debt creditors can only reach assets over which H has management powers:

    1. Joint management CP;

    2. H's sole management CP; and

    3. H's SP.