The Line between Marital and Separate Property in a Texas Divorce

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Even if you and your divorcing spouse are in nearly perfect unison regarding your divorce, you can expect complications. Further, divorce rarely sets the stage for perfect unison. In other words, even peaceful divorces tend to have their rocky moments.

The division of marital property is likely to be one of the most challenging divorce determinations you face, and the dividing line between separate and marital property can become especially murky if your finances are complicated.

Whatever your questions and concerns regarding the division of your marital assets, a dedicated Killeen divorce attorney with considerable experience favorably resolving cases involving the complex division of property can help.

Marital vs. Separate Property

In the State of Texas, marital property is everything you, your spouse, or both of you together come to own during your marriage. It can also be called community property. There are two main exceptions to this classification:

  • Anything a spouse purchases with separate assets that belong to him or her alone during the marriage is not considered marital property.

  • Any gifts or inheritances that either spouse receives in his or her name alone over the course of the marriage are not considered marital property.

Any property that either of you owned prior to marriage and brought with you into the marriage will be classified as separate property – but only if the separate owner can maintain its separate nature over the course of the marriage, which is not an easy feat.

The Division of Marital Property

The division of marital or community property in a Texas divorce must be “just and right,” which means it must be fair in relation to a wide range of factors deemed relevant by the court. While just and right can mean an equal division of assets, this is not necessarily the case.

Here are some examples of the kinds of factors that the court takes into consideration in the division of marital property:

  • The age and overall mental and physical health of each spouse

  • Each spouse’s level of education, current employment, and earning power

  • Each spouse’s financial obligations

  • Each spouse’s separate estate and any expected inheritances

  • The tax implications of the proposed division

  • The nature of the marital property and whether or not it tends to benefit one divorcing spouse over the other

  • Any temporary spousal support paid while the divorce is pending

  • Whether any of the couple’s adult children have any special needs that require addressing

  • Whether either spouse engaged in fraud on the community property during the marriage or the divorce process

  • Whether one spouse will become the primary custodial parent of the couple’s minor children

  • Any other factors the court considers relevant

It’s important to note that even in no-fault divorces, which make up the vast majority of divorces in this country, the matter of wrongdoing can play a role in the division of marital property in Texas.

The Court’s Involvement

Many divorcing couples prefer to retain the authority to make decisions about the division of their assets between themselves – and out of the court’s purview. For this reason and others, most divorces in Texas are settled out of court.

However, it is far more likely that the matter of dividing your marital assets will require the court’s intervention if the two of you disagree regarding the separate nature of specific assets.

While anything that you keep strictly separate throughout your marriage should remain clearly separate, any intermingling of assets can tarnish this distinction – and you might be surprised how challenging it can be to keep separate assets strictly separate. In such situations, the court’s intervention is more likely to be required.

If you’re trying to keep your divorce out of court, enlist the help of a divorce attorney. He or she can help you move through your negotiations more smoothly to ensure a cleaner resolution of your case.

Prenuptial and Postnuptial Agreements

If you have a prenuptial or postnuptial agreement that addresses property division, there will likely be far fewer obstacles involved. Such agreements can directly address the matter of separate assets, the division of marital assets, and a range of additional financial issues.

Clearly identifying an asset as the separate property of either spouse helps to ensure that difficult complications in relation to property division do not arise.

Complicated Assets

There are a number of assets that are more likely to complicate the division of your marital property. Review the items below and contact a divorce attorney for more information about your specific circumstances.

Your Family Home

Your family home is likely a primary example of community property, and divorce negotiations can prove exceptionally challenging when it comes to the division of this asset.

Beyond the financial aspect, there are emotional factors to consider. Your family home is where you raised or are raising your children, and the emotional impact of walking away should not be discounted.

Further, divorce is hard on children, and being able to maintain the status quo for them by remaining in your family home as the primary custodial parent post-divorce can go a long way toward helping them adjust to the difficult transition they are experiencing.

Finally, even if your kids are grown and out of the house or you do not have children, the stress of moving during a divorce can make it that much more difficult to cope. In other words, there are many reasons why you may want to retain ownership of your family home.

If retaining ownership is your goal, you have several options:

  • Allowing your spouse to retain ownership of other marital assets that equal their share of ownership in the home

  • Obtaining a loan and buying out your divorcing spouse’s ownership in your home

  • Remaining co-owners of the home while you remain living in it with your children until they leave the nest

The other option is selling your home and dividing the equity between you according to a just and right distribution, but this may or may not be a sound financial move – depending upon the market at the time.

Making the right decision for you regarding your family home must be based directly on your financial situation, your priorities in relation to your home, and the circumstances at hand.

Investment Properties

If you own investment properties, the matter can be even more complex. For instance, if you owned a home prior to marriage that you turned into a rental property upon marriage, it began as your separate asset. If you strictly maintained its separate nature throughout your marriage, it may retain its classification as separate, but this can be tricky.

Any of the following factors can blur the line between an investment property that is separate in nature and one that is a marital asset:

  • Failing to keep the investment property’s financial matters completely separate from your household’s financial matters

  • Using marital assets to make improvements to the investment property

  • Spending a considerable amount of time working on and maintaining the investment property and failing to compensate yourself accordingly, which can directly affect your household income

  • Keeping sloppy books that fail to differentiate between the investment property and your marital estate

Any increase in the home’s value over the course of your marriage will be considered marital, and if marital assets went into paying the mortgage on the property, into making improvements on the property, or both, your spouse will likely be entitled to fair reimbursement – at the very least.

Business Ownership

When it comes to complications related to the division of marital property in a divorce, few are as challenging as business ownership. To begin, the value of a business is often hotly contested, and obtaining a valuation that you both find acceptable can be next to impossible.

The best path forward tends to be agreeing to a reputable business valuator who is a neutral third party in the matter and accepting their findings. Generally, selling a business for the purposes of divorce is not an economically sound approach, which means obtaining a valuation may be just the tip of the iceberg.

When a Business Is a Separate Asset

If one of you owned the business prior to marriage, it may be a completely separate asset, but there are considerations that you will need to factor in, including:

  • Any increase in the business’s value will almost certainly be deemed a marital asset.

  • If the business owner worked at the business without paying themselves a fair wage, the dividing line between marital and separate property could be weakened considerably.

  • If marital assets were used to grow the business or to help finance it, it will also muddy the waters.

When a Business Is a Marital Asset

If you and your spouse or one of you on your own started or purchased a business during your marriage, it is a marital property, but this does not lessen the complications related to dividing a business in a divorce.

If, for example, your spouse runs the business, they have far more working knowledge of the enterprise, which makes hiding assets or obfuscating value far easier. When you compound this with the fact that your spouse may feel more entitled to ownership, it can set the stage for a battle.

There is also the matter of dividing the business’s value fairly upon divorce, which can become another major roadblock. Consider the following potential options:

  • The spouse who is keeping the business buys out the other’s share in it directly by allowing them additional assets that equal the value to which they are entitled, which can be very difficult unless considerable marital wealth is involved.

  • The spouse who keeps the business buys out the other’s share over time.

  • The spouse who keeps the business obtains a loan and buys out the other’s share directly.

  • Both spouses continue owning the business together, which can be the most challenging approach of all.

If both spouses work at the business, the one who walks away, if that is how the matter is resolved, also loses their job and primary source of income in the process – regardless of ownership. In other words, there is a lot to consider.

The Matter of Hiding Assets

If your spouse handles the finances of the business in question, they have ample opportunities to hide assets, cook the books, undervalue the business, and more, and the stress of divorce can push those who ordinarily conduct themselves in a forthright manner into less than honest practices.

If you believe that your spouse is attempting to deceive you concerning business ownership during your divorce, bringing in a forensic accountant to get to the bottom of the matter is almost certainly in your best interest.

Retirement Accounts

Retirement accounts can be another sticking point in the division of marital property. If you, your spouse, or both of your retirement accounts were initiated after your marriage, they are marital property.

This concept feels very alien to many people, but those assets that you acquire while you are married – regardless of how you acquire them – are community property that must be divided equitably upon divorce. If, on the other hand, either of you – or both of you –¬†bring a retirement account with you into marriage, they are separate assets, but any increase in their value is marital.

Because cashing out a retirement account upon divorce is generally not feasible, the matter of dividing the asset will need to be addressed in relation to the unique situation at hand.

An Experienced Killeen Divorce Attorney Is Standing by to Help

Brett Pritchard at The Law Office of Brett H. Pritchard – proudly serving Killeen, Texas – is a well-respected divorce attorney with a wealth of experience helping clients like you favorably resolve the divorce term of dividing marital assets, and he is here for you too.

This division will guide your financial future, which makes it paramount, and having focused legal guidance in your corner can make a considerable difference in the outcome of your case.

Our practiced legal team is well prepared and well positioned to skillfully advocate for your financial rights, so please do not hesitate to contact us online or call us at (254) 781-4222 for more information about what we can do to help you today.