When one spouse seeks to recover financial compensation for separate property in a divorce, they turn to a reimbursement claim.
Texas is a community property state, and while separate assets remain the separate property of the original owner, the commingling of marital and separate finances can complicate the issue, and reimbursement claims are a common consequence.
If you are facing a divorce, the matter of property division is a primary concern, and an experienced Round Rock property division attorney can help.
Property Division in Texas
To understand how reimbursement claims work in Texas divorce cases, it is important to understand property division in the state. Every state has different laws regarding asset and property division in divorce, so always hire a lawyer familiar with the laws in your state.
Community Property
All the assets that you and your spouse together or separately came to own while you were married are considered community property – or marital property – in Texas. These assets belong to both of you and in the event of divorce, they will need to be divided between you in a just and right manner.
Texas courts begin with the presumption that every asset involved in the divorce is a marital asset, and if either spouse claims separate property, they must prove its separate nature. This generally involves tracing the individual spouse’s ownership back to the point that they acquired the property in question.
Exceptions to the Marital Property Rule
In most cases, property obtained during a marriage is considered marital property, with only a few limited exceptions. Those instances when exceptions are made include gifts or inheritances that one spouse received in their own name during the marriage, and the pain and suffering portion of a personal injury settlement initiated during the marriage.
How Marital Property Is Divided
The State of Texas also begins with the presumption that marital assets will be divided between the spouses evenly in divorce, but factors like the following can potentially support one spouse receiving more than the other:
The length of the marriage
The contributions each spouse made to the marriage, including in relation to childcare and homemaking
Each spouse’s earning power and marketability, and the size of the earning gap between the two
Any wrongdoing on the part of either spouse, which can potentially have an effect even in a no-fault divorce
Whether domestic abuse played a role in the marriage
Any fraud on the community estate, such as spending down, giving away, or hiding marital assets in the buildup to divorce
Each spouse’s age and overall mental and physical health
The size of the marital estate and of each spouse’s separate estate
Separate Property
Separate property refers to those assets that either spouse owned prior to the marriage and that they kept separate during the marriage, which can be difficult to accomplish.
While the original owner retains ownership of their separate assets, a range of complicating factors can blur the dividing line between the two, or render part of a separate asset marital, and when this happens, reimbursement claims can come into play.
Increased Value
The amount that a separate property increases in value throughout the years of the marriage is likely to be treated as separate property.
For example, if your spouse had a retirement account in place when you were married, its value at the time of your marriage is a separate asset, but the increase in value at the time of your divorce will likely be treated as marital property.
The Commingling of Assets
When you are married, you may think of your marital and separate assets as being yours, mine, and ours, but your attitude may change in response to divorce.
If, for example, you used separate assets to make capital improvements on your spouse’s separate property or if marital assets were used to do the same, they would walk away from the divorce with assets that may belong to you. And this is where a reimbursement claim can help level the financial playing field.
Reimbursement Claims in Texas
Reimbursement claims in Texas divorce cases are claims in which one marital estate seeks reimbursement from another, and the estates in question include the community estate, which refers to the couple’s community property, as well as the husband’s separate estate and the wife’s separate estate, in a heterosexual marriage.
As such, there are three distinct estates that must be considered when determining a fair division of property in a Texas divorce.
When Reimbursement Claims Apply
Often, community assets are used to maintain or develop a separate property. Upon divorce, the community estate can seek compensation for the amount contributed to supporting the separate asset, which cannot be recovered through a reimbursement claim.
A prime example is when marital assets are used to improve real estate owned solely by one spouse. The purpose is to reimburse the marital estate in order to ensure a just and right division of marital assets.
For Example
Let’s consider a common example in Texas divorce cases. If a couple lives in a home that is the wife’s separate property and if marital assets were used to make $25,000 in home improvements, the husband may initiate a reimbursement claim for the $25,000 invested in his wife’s separate asset during the marriage.
Because these renovations cannot be liquidated and because they are a capital improvement on the wife’s separate property, the marital estate is likely entitled to reimbursement that will be reflected in the division of marital property.
Because reimbursement claims can significantly affect how property is divided, reaching out to a trusted Round Rock property division attorney can help ensure your interests are properly protected.
The Kinds of Reimbursements that Are Allowed in Texas
There are specific situations in which reimbursement claims are allowed in a Texas divorce, and they include all the following:
To reimburse the payment of one spouse’s unsecured debts with either marital assets or with the other spouse’s separate assets.
To reimburse one spouse’s inadequate compensation for the time, toil, talent, and effort they expended for a business entity that was under the other’s control.
To reimburse for a reduction in the principal amount of a debt that was secured by a lien on a property that one spouse received by gift or inheritance during the marriage.
To reimburse for a reduction in the principal amount of a debt that was owed prior to marriage and that was secured by a lien on one spouse’s separate property, which was owned prior to marriage.
To reimburse for a reduction in the principal amount of that part of the debt, including a home equity loan that was incurred during the marriage, that was secured by a lien on the property, and that was incurred for the acquisition of or for capital improvements to separate property.
To reimburse for a reduction in the principal amount of that part of a debt that was incurred during the marriage, that was secured by a lien on the separate property – which the creditor agreed to look to for repayment, and that was incurred for the acquisition of property or capital improvements to the property.
To reimburse for capital improvements made to property other than by incurring debt.
To reimburse for the reduction of a separate unsecured debt that was incurred by either spouse’s separate estate.
While reimbursement claims are often made on behalf of the community estate, such as when one spouse’s separate estate benefited from community assets, this is not always the case. Other situations in which reimbursement claims apply include the following:
When the community estate benefited from either spouse’s separate property
When one spouse’s separate estate benefited from the other’s
Texas courts have considerable discretion regarding whether a reimbursement claim will be recognized and the value assigned. This makes working closely with a practiced property division lawyer throughout the divorce process well-advised.
When Reimbursement Claims Do Not Apply
There are some situations that Texas courts will not consider reimbursement claims for marital expenditures or for one spouse’s separate expenditures during the marriage, including the following:
The living expenses paid for one spouse or for the child of one spouse
Either spouse’s alimony or child support payments
Either spouse’s student loan payments
Either spouse’s low-value property contributions
Either spouse’s payment of low-value liabilities
Resolving Reimbursement Claims
Because Texas judges have considerable discretion in reimbursement claims, they can resolve them through a range of methods.
One of the most streamlined approaches, however, is the money judgment. In these cases, one spouse is ordered to pay the amount addressed in the money judgment to either the community estate or to the other spouse’s separate estate.
Common Means of Addressing Reimbursement Claims
Another often-used method of resolving reimbursement claims is simply awarding the spouse who made the legitimate claim a larger share of the community estate. When each spouse has one or more reimbursement claims against the other, they can also be used to offset each other.
As such, the smaller reimbursement total is subtracted from the larger total, and the spouse who had the larger money judgment claim against their estate is required to make up the difference.
Other common examples of how reimbursement claims can be resolved include the following:
Awarding assets to a spouse as compensation for their reimbursement claim
Imposing an equitable lien on the separate property that benefited, which can attach only to the actual property whose benefit led to the reimbursement claim
The Division Method
Another means of resolving reimbursement claims is including the claim in the division of marital property. For example, in the case considered above, the wife’s separate property received $25,000 in enhancements that were funded by community assets, which means the marital estate likely had a valid reimbursement claim for that amount.
When the division approach is used, the amount in question is distributed to the spouses according to the just and right division of their marital property. This generally means an equal division, which translates to each spouse being entitled to $12,500 in marital assets in response to the $25,000 reimbursement claim considered.
Defenses to Reimbursement Claims
The division of marital property tends to be one of the most hotly contested issues in divorce, which means that reimbursement claims are often fought. While every property division case is utterly unique to the specific circumstances involved, defenses against reimbursement claims often fall into categories like the following:
The reimbursement is not fair, given the circumstances that apply.
The reimbursement amount should be offset because the community estate benefited from the expenditure in question.
The reimbursement amount should be offset by the objecting spouse’s own reimbursement claim against the community estate.
The reimbursement claim should be denied because it cannot be proven, such as by tracing it with admissible evidence.
Post-Divorce Medical Support and Reimbursement
A divorce decree in Texas can also require one spouse to reimburse the other for out-of-pocket medical expenses for their shared children.
Generally, the parent who covered the out-of-pocket medical expense must notify their ex within a specific number of days by sharing an invoice or receipt. At this point, the spouse who received the required notification has a specific amount of time to pay their portion – as stated in the divorce decree – which is usually half.
Failure to notify the other parent of the medical expense within the allotted time frame, however, leaves the other parent with no legal obligation to reimburse.
You Need an Experienced Round Rock Property Division Lawyer on Your Side
Brett Pritchard at The Law Office of Brett H. Pritchard is a proactive Round Rock property division attorney who is well-versed in the complexities of reimbursement claims and has the legal skill, drive, and experience to help ensure that your financial rights are well-protected.
Learn more about what we can do to help you by contacting us online or calling us at 254-781-4222 and scheduling a FREE consultation today!