The May Firm

More than likely, each spouse entered into the marriage with personal assets. Just as likely, once married, the spouses accumulated joint assets including money, real estate, personal property such as cars and investments, and even debt. How to properly and fairly divide of this property can turn even the most amicable divorce into a bitter battle.

Texas, along with California, Louisiana and a handful of other states, use a “community property” system of property division, which was derived from Spanish law. Other states follow an English law tradition.

So what does it mean when we say Texas is a community property state? It means that a court can divide the community property between the spouses, but cannot divide separate property.

Separate property is something one person (1) owned before the marriage; (2) individually received during the marriage by gift or inheritance; or (3) in some circumstances, money received in a personal injuries lawsuit during the marriage (except for lost earning capacity.) Community property is everything other than separate property.

There is a presumption that all property owned at the time of divorce is community property. If either spouse insists that certain property is separate property, it is up to that person to prove their claim in court.

However, not every case has to go before a judge for asset division. After filing for divorce, the spouses are free to agree to divide their assets any way they see fit. They can even split their personal property or agree to pay alimony on their own.

PROVING SEPARATE PROPERTY

If a spouse wants to keep certain property after the divorce, it must be proven in court that it should be considered separate property. That determination (also referred to as the “inception of title” rule) is usually made according to when the item was purchased. The simplest way to prove this is to produce a title or receipt that shows the purchase date was prior to the marriage.

Also, if clear and convincing evidence is presented, assets purchased during the marriage using separate property funds can also be considered as separate property. The courts refer to this as “tracing.”

AGREEING AHEAD OF TIME ON WHAT PROPERTY IS SEPARATE

Before the wedding, the couple may make a pre-marital agreement (commonly known as a “prenuptial agreement” or an “antenuptial agreement”) that spells out who owns specific property in the event of a death or divorce.

The spouses may also create a post-marital agreement any time during the course of the marriage, as long as the agreement was not created in an attempt to defraud current creditors. A post-marital agreement might also change the status of property acquired in the future.

Both pre- and post-marital agreements must be in writing and signed willingly by both spouses. It is difficult to change the terms of these agreements when enforced at the time of divorce.

VALUING THE PROPERTY

Once the extent of the community versus separate marital estates is established, the next step is to determine the value of the assets and debts. Various procedures are used depending on the nature of the asset. For cash assets, like bank accounts, brokerage accounts, and most types of retirement accounts, the value is obviously the balance of the account. Some retirement accounts such as pension plans have to be valued by a forensic accountant in combination with an actuarial to determine life expectancy. For a real property valuation, the tax value can be used or a realtor may be consulted to give an opinion on value.

For closely-held business interests, a forensic business valuation expert, usually an accountant that specializes in business valuations, will be hired by each party to examine the different approaches to business valuation and give an opinion as to the values of the business. In any closely-held business interest, there must be a distinction made between personal goodwill and professional goodwill. Personal goodwill is that value to the business that is unique to the individual; whereas, professional goodwill is that goodwill separate and apart from the individual.

Personal property, like furniture, clothing, dishes, etc., will be valued at sales value – what the item can be sold for, usually garage sale value.

DIVIDING THE PROPERTY

Once it is determined the nature of the community estate and the value of the assets, the next step is to determine the division. Judges have tremendous latitude when dividing property – there is no set formula for who gets how much and there is no guarantee that assets will be split evenly. The legal standard for division is a “just and right” division – not necessarily 50/50, but what division, according to the Judge, is just and right.

Among the factors a judge may consider when dividing property:

• Age and physical condition of each spouse;
• Relative ability and earning power;
• Relative need for future support;
• Size of the estate;
• Benefits a spouse would have received if the marriage had continued; and
• Fault in the break-up of the marriage.

Even though Texas has adopted no-fault divorce, determining “fault” can still play a very important part in the division of the community assets. Also, judges are likely to award a slightly larger portion of the community property to a spouse who has not worked outside the home during the marriage. This is done because that spouse may find it difficult to secure employment that will provide adequate support.

The division of property (assets and debts) is similar to a balance sheet in the business world, with assets and debts being assigned to each spouse. Many people misunderstand the rules of division – the court does not have to divide each asset according to the percentage division assigned, but may make an award of each individual asset, with consideration of the percentage division being evaluated as to the overall division of the entire community estate.