Historically, Texas has treated a marriage between a husband and wife somewhat like a partnership, with property acquired during the marriage belonging to the community estate. Many of the community property concepts in Texas were derived from Spanish law, and survive to this day. The partnership, or community property approach to marriage holds that each party brings unique talents to the marriage, that the parties work together to support the marriage as husband and wife, and that the property that either one or both of them acquire, belongs to the community estate. The legal definition of community property in Texas is that it, “consists of the property, other than separate property, acquired by either spouse during marriage.” Along with the legal definition of community property, there is a legal presumption in Texas that all property possessed by either spouse during or on disillusion of marriage is community property.
By contrast, a spouse’s separate property consists of:
(1) the property owned or claimed by the spouse before marriage;
(2) the property acquired by the spouse during marriage by gift, devise, or descent; and
(3) the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
The burden is upon a person claiming separate property to prove that the property is in fact separate by “clear and convincing evidence”.
In a normal case, the party has to prove facts by a preponderance of the evidence --- the greater weight and degree of credible evidence. In a criminal case, the party has to prove that the defendant is guilty, “beyond a reasonable doubt”. The, “clear and convincing evidence” test is somewhat analogous to 75%, or more, of the evidence.
Generally speaking, a party’s testimony is insufficient to prove that a piece of property is their separate property. I have watched case after case when the Judge ends the trial by saying something to the effect of, “you did a really good job of explaining the property to me, but you did not quite meet the burden so I have to find that the property is community property” – and boom. here comes the ax to what you thought was your separate property. Furthermore, trial judges in Texas are aware that the Court of Appeals frequently reverses the trial judge’s finding of separate property because to the Court of Appeals, the clear and convincing evidence standard has not been met.
In Texas, upon divorce, the Court will divide the community property in a manner the Court deems just and right. Please note that the Court does not have to divide community property equally. Instead the judge gets to divide community property in a manner the Court deems just and right.
The significance of separate property in a divorce in Texas is that if a party can show by clear and convincing evidence that property is their separate property, the divorce court cannot divest them of the title to their separate property.
It is not uncommon to find cases where one party has significant separate property, they are able to prove that it is their separate property by clear and convincing evidence, the parties acquired very little property during the term of the marriage, and upon divorce the other spouse gets virtually nothing.
Over the years, Texas courts have adopted a number of significant rules regarding how to determine separate property, and how to trace separate property.
One rule is that if a party starts out with separate property, sells that separate property and acquires new property during the term of the marriage, the new property becomes a spouse’s separate property, provided they can trace the acquisition by “clear and convincing evidence”. For example, if a party has a $300,000.00 certificate of deposit prior to marriage, is married for five years, liquidates the certificate of deposit for $300,000.00 and uses the money to purchase a ranch, then the ranch becomes that party’s separate property. Frequently, in order to be able to adequately trace seperate property, it is necessary to hire a forensic accountant to analyze all of a party’s transactions and be available to testify.
Another rule that Texas courts have adopted over the years is the so-called, “inception of title” rule. If you will note, the definition of separate property includes property that was owned or claimed by a spouse before marriage. For example, if a spouse enters into an earnest money contract to buy a piece of property prior to marriage, and then closes on the property after marriage, the property remains their separate property since it was claimed prior to marriage.
Another rule regarding separate property is that the appreciation on separate property remains a spouse’s separate property. If a spouse owned 100 acres of land on the date of marriage, and that land is valued at $1,000.00 per acre (or $100,000.00), and thirty years into the marriage, that spouse sells the 100 acres of land for $50,000.00 per acre, (or $5,000,000.00), the entire $5,000,000.00 is the spouse’s separate property. The same rule applies to other assets, such as stocks, small businesses, equipment, gold, etc.
Another rule of separate and community property in Texas is that the income from separate property is considered to be community income. For example, if a party owns 100 acres of land, and rents it out for grazing rights for $5,000.00 per year, and saves the $5,000.00 per year in a savings account, and then gets divorced after ten years, the entire $50,000.00 in the savings account is community property. The same rule applies with income from stock. Many people use the dividends on their stock to reinvest and acquire new shares. If a spouse starts out the marriage with 1,000 shares of stock and receives a 4% dividend each year, then uses the dividend to acquire 40 shares of stock, and at the end of the 10-year marriage has 1400 shares of stock, the initial 1,000 shares of stock constitute the spouse’s separate property, but the 400 shares of stock acquired with the dividends constitute community property and is subject to division by the Court.
Another rule of separate property is that if part of the separate property is severed off during the term of the marriage, the proceeds from that severed property constitute a spouse’s separate property. This usually arises in connection with oil and gas, and timber. If a person owns a tract of land prior to marriage with mineral rights, and oil is discovered on the property, when the person sells the oil, they are actually selling a piece of their ownership interest in the land each and every year - - - therefore, the sale of oil is not considered income, but is considered the sale of the property and is treated as a spouse’s separate property. The same rule applies with timber.
All too often, clients place little emphasis upon the importance of separate property in a divorce. They are wrapped up with establishing new households, dividing the furniture, children’s schedules, and establishing their new life. Unfortunately, by not paying attention to the importance of identifying and tracing separate property, a litigant in a divorce frequently shortchanges him or herself.
Additionally, my observation is that judges in Texas are overworked and overloaded, so they are not going to sort through all of a client’s documents to satisfy themselves that property is in fact separate property – they are going to take the easy way out, find the property is community property, and then may use their discretion to award the party claiming separate property a disproportionate share. As a practical matter in Texas, I have found in is almost always necessary to hire a highly qualified forensic Certified Public Accountant to work with the client and the client’s attorney in identifying and tracing separate property. And since this can be a time consuming job, the sooner the process is started, the better.
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