If you are facing a divorce in Texas, one of your primary concerns involves the division of marital property. And it is important to note that this topic has the potential to be the most hotly contested divorce term of all. Better understanding how the process works and having the answers to some of the most frequently asked questions can help you move forward in the divorce process with increased confidence and focus. One of the most important steps you can take to help ensure that your financial rights are well protected throughout your divorce is working closely with an experienced divorce attorney from the outset.
Is Texas a community property state?
Yes, Texas is a community property state. While many people have heard the term community property in relation to the division of marital property, they tend to be confused by its meaning. According to the IRS, Texas is one of nine states that uses the community property approach. At its core, this means that all the assets and debts that you and your spouse acquire while you are a married couple are considered marital property and are owned equally by both of you. It does not matter who made the purchase, who cut the check, whose name is on the title, or anything else – if it came to you while you were married, it is community property that will need to be distributed between you in the event of divorce.
Are there any exceptions?
Yes, there are exceptions to the marital property classification. If either of you receives a gift or inheritance in your name alone, the assets involved remain the separate property of the recipient.
What about separate property?
Separate property refers to any assets and/or properties that either of you brought into the marriage with you (other than the gifts and inheritances mentioned above) and that you kept separate over the course of your marriage. The trick is keeping things separate, which is often difficult to manage as the lives of married couples intermingle over the years. For example, if one of you brings a business into the marriage with you, any of the following can smudge the dividing line between separate and marital property:
If family funds are invested in the business or if the business dips into family funds from time to time, the separate nature of the business may be called into question.
If the owner works at the business but does not pay himself or herself a fair wage, it can amount to diminishing the family’s finances, which nudges the business toward marital property status.
If the non-owner helps run the business (even if he or she is paid to do so), it can also cast doubt on just how separate the business is.
In other words, it is complicated. Another complication is that, even if you bring something into the marriage with you, such as a retirement account, any increase in its value over the course of your marriage will very likely be classified as marital property. It is important to note that, under the eyes of the law, all your property is considered marital property, and it is the burden of the spouse who intends to claim separate ownership to successfully make his or her case to the court.
How is marital property supposed to be divided?
Marital assets are intended to be divided between both divorcing spouses fairly, which – in theory – is meant to be equally but often is not. The fact is that a wide range of factors can go into the court’s decision of how marital property will be divided, and as such marital property is generally divided equitably, which means fairly in relation to the relevant circumstances involved.
Your Overall Assets
The more property and assets you and your spouse share (and/or own separately), the more challenging your division of marital property is likely to be.
If you are a young couple who has only been married a few years and each of you has your careers ahead of you, the division of marital property may look decidedly different than if you are a couple who is rapidly approaching retirement age and who has been married for decades. Where you are in life can play a pivotal role in this critical element of divorce. If you are both on the younger side, neither of you is likely to depend on the other for financial support. If, however, you are older and one of you was the breadwinner over the years – while the other stayed home with the children and kept the house – it is a decidedly different matter.
The Length of Your Marriage
The longer your marriage, the more likely it is that the division of your marital property will become a sticking point for all the following reasons:
The more likely you are to have amassed more considerable assets
The more likely one of you is to have contributed to the other’s career while sidelining his or her own
The more intertwined your separate and marital assets are likely to be
Even a short marriage, however, can lead to considerable legal wrangling in relation to property division if the circumstances are right.
Your Level of Education
Each spouse’s level of education and job experience will be taken into consideration. For example, if one of you has a Ph.D. and has been developing his or her career for decades and the other has an associate’s degree and has not worked outside the home since the kids were born 15 years ago, the court will take notice. One’s education and experience on the job tend to play a primary role in one's earning power, which is factored into the division of marital property.
Your earning potential and education are not going to do you much good if your overall employability is low. Perhaps you have a rarified degree in Indian archeology, for example, but you live with your children in a small town in which your education and experience are not in hot demand. Other factors that can affect employability include:
If you are significantly older than your spouse
if you have been out of the job market and your age affects your ability to get a foot in the door
If your health interferes with your ability to find and keep a job
If you have a disability that affects your ability to obtain a job that pays a living wage
If your necessary involvement with the kids leaves you little time for working outside the home
If you or your spouse’s genuine efforts to find better-paying employment fail to achieve results, the court will take your employability into consideration. If increasing o income you bring in is unlikely, you may be entitled to a more considerable share of your marital property.
Your Legal Expenses
Generally, the legal expenses associated with divorce are paid out of the couple’s marital assets, which means the higher your legal costs rise (in direct relation to the complexity and the overall contentiousness of your divorce), the less extensive your marital assets are likely to be. If one of you is seen as having run these costs up unnecessarily, it can directly affect the division of marital assets.
Your child custody arrangements and child support are a separate matter (and stand-alone as divorce terms), but if one of you becomes the primary custodial parent who provides your children with their primary home and shoulders the brunt of the considerable expense of raising them, the court will take this fact into careful consideration. Raising children is costly, and if one of your children has special physical and/or emotional needs, it is more so. This fact can affect your marital property’s division.
The court will take the debts that each spouse either owns separately or that are assigned to him or her during the divorce into consideration. If one spouse’s debt load is especially high, it can affect the court’s decisions.
Each Spouse’s Relationship to His or Her Lenders
In the division of your marital assets, your separate property is taken into consideration right along with your separate debts (or the division of debt that each of you is assigned). The court will examine the relationship each of you has to your lenders before blindly accepting the assigned amounts. For example, if you have credit card debt and/or bank loans, your relationship with your lenders is likely not in question. If, however, your family loaned you a good deal of money to purchase your home outright, that outstanding debt to your family (who has not seen a payment in decades) is unlikely to be used to offset the assets that are distributed to you.
The Liquidity of Your Assets
If your total assets are liquid, which means that they are in the form of cash or can easily be converted into cash, the division of your marital assets will be far more straightforward than it will be if all your assets are invested in a family business, for example. Generally, divorces fall somewhere in the middle.
Separate assets are just that – separate – but if there is a considerable difference between your separate estates, the court may put some effort into balancing the financial effects.
When Fault Plays a Role
The vast majority of divorces in Texas are no-fault divorces in which neither party is identified as having caused the breakup of the marriage. In those rare instances in which a divorce is based on fault, the grounds can include:
It is important to recognize that, in order to obtain a fault-based divorce, you will need to prove your spouse’s fault in the matter. If your divorce is, however, based on fault, it can directly affect the division of your marital assets. Further, even if your divorce is not fault-based, the fact of one spouse's fault can affect how the judge handling your case divides your marital assets.
The tax implications of the division of your marital assets have to be taken into consideration. What would otherwise be a fair division can be rendered far less so when the tax burden is factored in. Consider the following examples:
There can be considerable tax penalties associated with cashing in certain retirement accounts early.
The sale of a house is often associated with hefty taxes.
Taking the children as a tax deduction can amount to a considerable financial boost.
Any capital gains and/or losses must be considered.
The court looks at tax consequences in the same way it looks at debts and assets (depending upon how the consequences play out).
Any Fraud on the Community
If your spouse, for example, engaged in any sort of spending that, in the end, artificially disposed of marital property (in an effort to keep total assets as low as possible), the court will not take kindly to his or her subterfuge. Examples include:
Siphoning money to family members
Spending lavishly on a paramour
Having a secret bachelor or bachelorette pad
Indulging a shopping addiction
The nature of the property
Some assets, which are owned jointly, are specific to one of you. For example, if you are an equestrian and your spouse has never ridden, it would make more sense for the horse farm that you own together to go to you. If, on the other hand, you are not particularly tech-savvy, but your spouse is, the IT business that you co-own is probably better suited to your spouse.
Things only become more complicated from here.
You Need an Experienced Killeen Divorce Attorney In Your Corner
Brett Pritchard at The Law Office of Brett H. Pritchard in Killeen, Texas, is a seasoned divorce attorney who has a wealth of experience successfully guiding the division of complicated marital assets like yours toward advantageous outcomes. To learn more, please do not hesitate to contact or call us at 254-501-4040 today.