Texas Divorce 101: Property Division
In a divorce, a major focus and concern is over how the marital property will be divided between the spouses. Understanding how Texas approaches marital property and its division in a divorce can help simplify the process and relieve some of the stress that comes with not knowing what to expect. This blog will provide insight into Texas property rights in a divorce and help prepare you to face this challenge in a knowledgeable way.
Texas follows the community property model for property division in a divorce. This means that all assets acquired by either party during the marriage are considered owned equally by the parties and, therefore, must be divided in a just and equitable manner between the two spouses upon divorce. Tex. Fam. Code § 3.002. It does not matter if the property is held in only one spouse’s name – if it was acquired during the marriage, it is presumed to be community property. Tex. Fam. Code § 3.003(a). This includes bank accounts and all income earned during the marriage, retirement account contributions, and long-term investments, among other assets. The only exception to the community property rule is if an asset or property qualifies to be separate property.
Separate property is property that was owned by one spouse prior to the marriage or acquired by only one of the spouses during the marriage by gift, inheritance, or personal injury settlement (except for any recovery for loss of earning capacity during the marriage). Tex. Fam. Code § 3.001. Any asset that can be proven to be separate property by clear and convincing evidence will remain the separate property of the owner spouse and is not subject to division in a divorce. Tex. Fam. Code § 3.003(b).
A request to “confirm” your separate property must be included in your pleadings before you can be awarded an asset as your separate property in the final decree of divorce.
Comingling of Property
While community property is divided in a just and right manner in a divorce, separate property belongs to the spouse who acquired it and it does not get divided in a divorce. An issue may arise, though, when separate and community property are combined in such a way that it becomes difficult to determine the nature of any property involved. This concept is known as commingling. If there is truly no way to parse through the history of the asset and determine which portions are community property and which are separate property, then the community property presumption would control. Tex. Fam. Code § 3.003(a).
Conversion of Property
The separate property of the spouse can be converted into community property during a marriage, thereby subjecting it to a fair and equitable division in the divorce. In order to convert the property, the spouses must both sign an agreement that identifies the property being converted and specifies that the property is being converted to the spouse’s community property. Tex. Fam. Code § 4.203(a). That written agreement would stand as proof in your divorce that one spouse’s separate property was, in fact, converted to community property during the marriage. Absent an agreement or some other form of pre- or post-marital agreement, it would be very difficult to prove conversion. Simply transferring one spouse’s separate property into the other spouse’s name, or into both spouses’ names jointly, like in the instance of a car title or real property deed, is not sufficient to convert the property to community property. Tex. Fam. Code § 4.203(b).
Matters to Consider
When one marital estate (the community estate or one spouse’s separate estate) pays for or contributes funds toward an asset that belongs to another marital estate, then the paying estate may seek a reimbursement for the amounts paid to the other estate. This definition may be confusing, so the following example is presented to better illustrate this concept:
Wife owned a house before marriage. Once married, Husband moves into Wife’s house and they choose to make it their marital residence. The spouses have a joint bank account from which they pay their mortgage and, over time, use to build an addition onto the home and do some renovations. Wife transfers the title of the home to include Husband’s name with her own, but they do not make any formal, signed agreements regarding the house. After many years, Husband files for divorce. How is the house treated, and what should they do about all the money used to pay for the mortgage and improvements over the years?
The house is Wife’s separate property. The amounts paid towards the mortgage, for the addition and all renovations are community property. Since the community estate paid for an asset of Wife’s separate estate, the community estate may seek a reimbursement from Wife’s separate estate for the total amount it paid to benefit the house (namely, the mortgage and improvements). If receipts and other evidence can prove the payments, then Wife’s separate estate shall reimburse the community estate for all funds paid to it, and that reimbursement goes to the community estate, which is then subject to a fair and equitable division between the parties.
While this is a simplistic example, it helps to illustrate how reimbursement’s work in a Texas divorce. A reimbursement claim must be included in your pleadings in order to be awarded in the divorce, so it is best to seek the help of a family law attorney to ensure this is done properly.
Fraud on the Community
Under Texas law, when one spouse transfers community property to or spends community funds on someone or something outside of the marriage without the other spouse’s approval or, sometimes, knowledge, with the purpose of depriving the other spouse of the use and enjoyment of the assets involved in the transaction, the transferring spouse has committed what is known as “fraud on the community.” A spouse must prove either “actual fraud” or “constructive fraud” to win a claim for fraud on the community in a divorce.
“Actual fraud” is proven by showing the court that the other spouse transferred community property for the primary purpose of depriving the alleging spouse of the property through dishonesty or with an intent to deceive. The alleging spouse has the burden of proof to show that the offending spouse acted dishonestly or with the intent to deceive him or her.
“Constructive fraud” is a bit more complicated, and must include a showing that the offending spouse has breached their fiduciary duty to the alleging spouse in some way. A fiduciary duty is a legal obligation to act in the best interest of another person who, in the instance of a divorce, would be the other spouse. In the case of Schlueter v. Schlueter, the Texas Supreme Court ruled that there is unquestionably a fiduciary relationship owed by the spouses to each other and to the management of the community estate. Schlueter v. Schlueter, 975 S.W.2d 584 [Tex. 1998]. In situations of constructive fraud, the burden of proof transfers from the alleging spouse to the offending spouse, who must show that the transfers of property and/or funds were fair and justified.
If the offending spouse did, in fact, commit fraud on the community, then how is the community estate divided in a just and right manner? Texas Family Code § 7.009 is very clear on the remedial options available to the alleging spouse, which mostly involve reconstituting the estate in order to award the alleging spouse a just and right division. Here is how the Family Code dictates fraud on the community must be treated (Tex. Fam. Code § 7.009):
If the judge determines that a spouse has committed actual or constructive fraud on the community, the court shall:
- calculate the value by which the community estate was depleted as a result of the fraud on the community and calculate the amount of the reconstituted estate; and
- divide the value of the reconstituted estate between the parties in a manner the court deems just and right.
In making a just and right division of the reconstituted estate, the court may grant any legal or equitable relief necessary to accomplish a just and right division, including:
- awarding the wronged spouse an appropriate share of the community estate remaining after the actual or constructive fraud on the community;
- awarding a money judgment in favor of the wronged spouse against the spouse who committed the actual or constructive fraud on the community; or
- awarding to the wronged spouse BOTH a money judgment AND an appropriate share of the community estate.
In addition to the above remedies, the judge may consider one spouse’s fraud on the community when making a spousal maintenance determination. Tex. Fam. Code §8.052(6).
Finalizing the Division
In a decree of divorce, the court shall order the division of the estate of the parties in a manner that the court deems is “just and right”. Tex. Fam. Code § 7.001. This means that the judge must divide the community estate in a fair and equitable way, while any separate property stays with its owner and is not subject to any division.
An exception to the “just and right” division of the community estate exists when fault grounds are proven in a divorce or there has been fraud on the community, both of which allow the court to award a disproportionate share of the community estate to the wronged spouse. As a reminder, fault grounds include the following:
- Cruelty (Tex. Fam. Code § 6.002)
- Adultery (Tex. Fam. Code § 6.003)
- Conviction of a Felony, with imprisonment for at least one year (Tex. Fam. Code § 6.004)
- Abandonment, with the intention of abandonment and remained away for at least one year (Tex. Fam. Code § 6.005)
- Living Apart, for at least three years (Tex. Fam. Code § 6.006)
- Confinement in a Mental Hospital (Tex. Fam. Code § 6.007)
The last two in the list are unlikely to cause the court to award a disproportionate share of the community estate to one spouse over the other, although it is still a possibility depending on the specific circumstances of each matter. The remedies for fraud on the community are outlined above and awarding a disproportionate share of the community to the wronged spouse is a clear remedy in those situations.
A final decree should outline when and how the awarded property division should be facilitated. Usually, the decree will include a deadline (for example, within thirty days from the date the Judge signs the decree), by which all property must be given to the spouse to which it was awarded. If the parties are unable to agree to a plan for each party to obtain any awarded property that is not in their possession, then they may ask the judge to order a more detailed manner for the exchange of property. A knowledgeable and experienced family law attorney can help you transfer titles and ownership documents for motor vehicles of any kind and real estate property, if needed, that will require additional documents that may need to be filed with the appropriate government offices to make the transfers official.