Separate Property

What is Separate Property?

In Texas community property is defined as “property, other than separate property, acquired by either spouse during marriage.”

There is a presumption that property owned by either spouse is community property that the court can divide during a divorce.  Separate property on the other hand consists of specifically defined categories. The spouse seeking to prove a separate property claim must do so by “clear and convincing evidence.”

• Property owned or claimed by a spouse before marriage.
• Gifts received by a spouse during marriage.
• Property acquired during marriage through inheritance.
• Recovery for personal injuries sustained by a spouse during a marriage, except for recovery relating to loss of earning capacity during the marriage.

Property a spouse had before their marriage sounds like it should be straight-forward. If you had something before the marriage it shouldn’t be divided. Often problems arise when the property you had before marriage gets mixed with property you acquired during marriage. If you had a 401(k) before your marriage and continued contributing to the account during your marriage the characterization of this asset becomes both separate property and community property.

Gifts received for special occasions, such as an anniversary, birthday, or Christmas, will be considered separate property and not subject to division if a spouse can prove it was a gift. Did a spouse receive a new car on Christmas morning with a red bow on top like in the commercials? Was a luxury watch given as an anniversary gift? These are examples of a high value assets that could be considered gifts.

If one spouse received inheritance during the marriage, the funds and property from this inheritance will be considered separate property. Often though, inheritance funds will be deposited into a joint bank account and prior to being expended on various investments and living expenses.

This can create issues with tracing where the inheritance proceeds went and can also give rise to reimbursement claims.

A common scenario of personal injury separate property arises when one spouse was in a car accident and received a settlement for pain and suffering. The funds from that  personal injury settlement will be considered separate property, but where those funds went can create issues with characterization, tracing, and reimbursement.

Mixed-Characterization Assets

Separate property and community property commonly become commingled during a marriage. Funds get transferred between accounts, stocks are sold and reinvested, and retirement accounts from prior to the marriage continue to grow.

When assets consist of a mix between separate property and community property, issues arise in determining what portion is owned by a spouse’s separate estate and what portion is owned by the community estate. For short-term marriages this can be easier to determine, but for long-term marriages it can often be highly complex and requires a skilled attorney to trace and value these competing interests.

Tracing Separate Property

Tracing separate property in the simplest of terms is essentially following where the money went. Did it go into an investment account, was it used to purchase a vehicle, or was there a down-payment on a home? It is not always a simple process though.

There are multiple types of tracing methods that are accepted by Texas courts, and the appropriate method depends on the specific circumstances in your case. There is no prevailing method that courts view as best, and often spouses with present competing methods of tracing to support the outcome that benefits them the most. If you are trying to prove you separate property you will likely want to present the method of tracing that maximizes the value of separate property. Conversely, if you are disputing separate property then you will likely want to present a method of tracing that minimizes or even negates separate property value.

Additionally, complications can arise when the type of separate property assets change. For example, separate property could have started out as funds in a checking account that were then used to purchase a car. The car was later sold, and the funds were deposited into a joint bank account. Those funds were then used to begin a fine art collection. Throughout building your art collection you traded pieces and used funds during the marriage to add new pieces. It can get complicated.

When it comes to proving your separate property it can require a skilled attorney to conduct a tracing analysis, often working together with non-attorney financial experts and appraisers. The divorce lawyers at Mims Ballew Hollingsworth are experienced in tracing separate property to protect your financial interests.

Separate Property Retirement and Employment Benefits

Retirement and employment benefits have their own unique considerations when it comes to separate property. With 401(k) accounts it can sometimes be simple to show what was in the retirement account prior to marriage. But what if there were significant increases in the account’s value that are not due solely to continued contributions? Texas courts can consider increases in the value of separate property, although this can often be difficult to prove.

Pension plans and employer stock options can also create issues with separate property. Property rights in these benefits are often tied to employment prior to and after your marriage. It is important when you have these types of retirement assets that only the portion earned during the marriage is divided. Dire consequences can arise there are not distinctions made between community property and separate property portions of these accounts.

Reimbursement Claims

Reimbursement claims arise when funds or assets of one estate (a spouse’s separate estate or the community estate) are used to benefit or enhance another estate. These can include the following scenarios:

• Mortgage payments made during the marriage for a home that was owned by a spouse prior to the marriage. The portion of these payments that went towards reducing the home mortgage’s principal resulted in increasing home equity and can be subject to a reimbursement claim.
• Inheritance funds used to remodel a home that was purchased during the marriage.
• Payment of a debt that one spouse had prior to marriage with funds earned during the marriage.
• Time and effort of a spouse during the marriage to increase the value of a business one spouse owned prior to the marriage.
• There are a few scenarios that one would think fall within the categories above for reimbursement that are specifies as non-reimbursable in the Texas Family Code. These include:
• Payment of child support, alimony, or spousal maintenance.
• Living expenses of a spouse or child of a spouse.
• Nominal values of property contributions or liability payments.
• Student loans.