Community and Separate Property in Texas
Texas law presumes all assets and liabilities are community property unless proved otherwise by clear and convincing evidence. Community property is all property that’s not separate. Separate property includes assets owned before marriage; property acquired during marriage by gift, will or inheritance; property purchased with separate funds; capital gains on separate property; personal injury awards, except for lost wages and property partitioned by a written marital agreement. All other property acquired during marriage is presumed to be community, including salary, wages, income from separate property, pension plans, closely held businesses, professional practices, assets acquired with community funds and assets acquired with community credit.
1. Inception of Title Rule.
Property is characterized as community or separate at the moment title is acquired. If a wife’s separate funds are used to purchase a home, it’s her separate property. This is true even if community funds are used to pay the mortgage or make improvements. The husband would have a claim of reimbursement for community funds used to pay down the mortgage, but no claim for the community funds used to pay mortgage interest. It doesn’t matter if title is held in both names–when the funds to buy the home came from the wife’s separate estate, it’s her separate property. Property retains its original classification even if transformed from real estate to cash.
2. Credit Purchases.
All assets bought on credit during marriage are presumed to be purchased with community credit. You may overcome this presumption by showing the creditor agreed to look only to the separate credit of one spouse or showing they agreed to use the separate credit of only one spouse for the purchase.
3. Commingled Funds.
Placing separate and community funds in the same account creates commingling problems. Community funds are presumed to come out of the account first, so what’s left may be separate property. However, when the account is refunded, separate funds are not restored. This means the lowest intermediate balance in the account, or the amount of separate funds placed in the account (whichever is lower) defines the amount of separate property in a commingled account at divorce.
4. Income from Separate Property.
Most income from separate property is community property, with two exceptions: the spouses may agree in writing that this rule doesn’t apply and income from a gift by one spouse to the other remains separate property. Delay rental payments from separate property mineral interests is community property, but bonus and royalty payments are separate property.
5. Management Powers.
Characterization of property as community or separate determines who may manage the funds. Salary, wages and income from separate property may be managed exclusively by the spouse who earned the funds or owned the separate property. All other types of community property may be managed jointly. Separate property is managed exclusively by the owner.
6. Pre- and Post-Marital Agreements.
Because Texas law presumes that all property on hand at divorce is community property, individuals who bring substantial separate property into a marriage may want a pre- or post-marital agreement to clarify the nature of their assets. A marital agreement in writing can state that income from separate property will remain separate and can contain unique rules to govern the division of assets upon divorce. The only major right that cannot be limited is for receipt of child support.
Assets and liabilities are presumed to be community property unless shown otherwise by clear and convincing evidence. Separate property includes assets owned before marriage or acquired during marriage by gift, will or inheritance. Community property includes salary, wages, income from separate property, pension plans, closely held business, professional practices, assets acquired with community funds and assets bought with community credit. Property is characterized as community or separate when title is acquired. All assets bought on credit during marriage are presumed to be community. In a commingled account, the lowest intermediate balance or the amount of separate funds placed in the account (whichever is smaller) is the amount of separate property in the account at divorce. Income from separate property is community property, with a few exceptions. The spouse who earned salary or wages and all income from separate property can be managed exclusively by her. All other community property may be managed jointly.
