As part of my representation of parties in a divorce proceeding, the question often comes up as to what property is part of the marriage and what part of the property is not. The answer is not always clear. Parties tend to commingle and combine assets to a point that the distinction between separate and community property will require substantial tracing and characterization of assets which in turn tend to make litigation more costly and time consuming.
What is separate property in a divorce?
A party’s separate property consists of the property owned or claimed by the spouse before marriage; the property acquired by the spouse during marriage by gift, devise, or descent; and the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
This section of the law is derived from Texas Constitution which defines separate and community property. Characterizing marital property in Texas as either community property or separate property is essentially a task of elimination. If property falls within a delineated category as separate property, the property is separate property. All other property is community property.
In the Texas case, Jensen v. Jensen, Texas uses the “inception of title” rule to characterize property. This rule characterizes marital property as separate even though the legal title or evidence of title might not be obtained until after marriage. The status of the property is determined by the origin of the title to the property, not by the acquisition of the final title. Inception of title occurs when a party first has a right of claim to the property by virtue of which title is finally vested. The Jensen case also holds that an increase of value of property during marriage, even if the increase is due to the time, toil, and effort of either or both spouses, does not cause separate property to become community property.
In the Texas case of Cockerham v. Cockerham, when one spouse uses separate property to pay for property acquired during marriage, but then takes title to the property in the names of both spouses jointly, a presumption arises that a gift is intended.
In the case, Henry v. Reinle, when character as separate property attaches, it is immaterial that part of the unpaid purchase price is thereafter paid from community funds. Property acquired by devise or descent does not become community property through the use of community funds to discharge a lien on the property or to make improvements to it.
What about recovery for personal injuries? Recovery for personal injuries to the body of a spouse, including disfigurement and past and future pain and suffering, is the separate property of the injured spouse. Recovery for lost wages, past and future, is community property. If a party does not prove which amounts, if any, of the proceeds from a personal injury settlement are separate property and community property, the entire proceeds are conclusively presumed to be community property. Texas law also provides that a recovery for personal injuries during the marriage, except for loss of earning capacity, is characterized as separate property.
What about Social Security benefits? Social Security benefits, even though received at the time of divorce and held in bank accounts, are not subject to division as part of the community estate.
Income distributions received by an income beneficiary during marriage from a trust established before the marriage are separate property if the beneficiary has no present possessory interest in the corpus of the trust.
What is Community property?
Community property consists of the property, other than separate property, acquired by either spouse during marriage. Again, characterizing property in Texas is essentially a process of elimination. Rarely does Texas law specify that certain property is community property. Rather, Texas law specifies that certain property is separate property and that all remaining property is community property.
When separate property corporate stock has increased in value during marriage due, at least in part, to the time and effort of either or both spouses, the stock remains separate property. However, a claim for reimbursement may arise. Property acquired by the joint efforts of the spouses is regarded as acquired from “onerous title” and belongs to the community estate.
In summary, all marital property, if not specifically included within the scope of the statutory and constitutional definition of separate property, is by implication excluded. Therefore, it is community property regardless of how it was acquired. As long as separate property can be definitively traced and identified, it remains separate property even if the separate property undergoes mutations and changes. When a lessor receives a royalty for oil or gas produced from the lessor’s separate property, the royalty is payment for the extraction or waste of the separate estate and remains separate property. Similarly, income from separate property is community property.
Always retain an experienced family law attorney when your estate has property acquired both prior to the marriage and during the marriage. You will save a lot of money and aggravation by having a professional explain the difference between separate property and community property in a divorce scenario.