Division Of Property in a Divorce in the State of Texas
The firm of John C. Mallios and Associates, PC understands how difficult and confusing divorce can be. John Mallios is dedicated to helping clients and potential clients understand the complex laws and circumstances they will face.
Just and Right Division of Marital Estate
In Texas, upon divorce the court's function is to enter a "just and right division" of the parties' property. While there is no set formula or calculation for this division there are certain factors which influence the court. Often the support of the children is one of these factors. Another is the cause of the divorce.
The classification of the property is divided into two basic types. These are: "separate property" and "community property." The court may not divide separate property. Separate property remains with the spouse who originally owned the property. However, the court may consider the amount, extent and nature of each of the parties' separate property in dividing the parties' community property. Income from separate property, however, is community property if it was earned during the marriage.
Fault or Cause in the Dissolution of Marriage
The Court in awarding a Division Of Property will consider fault or cause of the dissolution of marriage. For example a stay at home mother who has been out of the work force married to a husband involved in adultry may typically be awarded in excess of sixty or seventy percent of the marital assets. Example of fault or cause include adultry and mental cruelty. Hidden assets may also be a basis for a disporportionate Division Of Property.
Community Property is Divided
Community property is property belonging to the marital estate. There is a presumption that all property is community property. The Court will disregard the manner in which the property is titled if it was acquired after the marriage with community property, i.e. property which was not separate. For example real estate bought in the name of one spouse after the marriage will be community property regardles of the fact that it is titled in the name of but one spouse -- if that property is not acquired by gift or inheritance, an award for personal injuries, or separate property.
All property purchased with wages, salary, bonuses, and any other thing of value received during the marriage is community property. Income from separate property is community property if received during the marriage.
Separate Property Is Not Divided
While there is a presumption that all property is community the presumption is rebuttable. A spouse may prove by clear and convincing evidence that property is separate and not subject to division by the Court. Separate property is defined as:
(1) property owned prior to the time of the marriage; or,
(2) property acquired at anytime by gift or inheritance; or,
(3) recoveries for personal injuries sustained at anytime (but lost wages which are recovered which would have been earned during the marriage are community property); or,
(4) property which was exchanged for other property. For example separate property exchanged for another piece of separate property, remains separate. A Corvette bought prior to a marriage which was exchanged for a BMW will retain its separate character, assuming no community property was used in the purchase. If community property was used in the purchase in addition to the trade then 'tracing' becomes important.
Tracing Separate Property Assets
Tracing is the method by which a spouse proves that the ownership of specific property is separate. A spouse proves to the Court that it owns a specific asset as separate property by tracing the origin of the property to the inception of ownership of the property.
Commingling Assets
Commingle of assets occurs when separate property becomes community. In these instances the separate property is mixed with the community property so extensively that the property cannot be traced as separate property in a cost-effective manner. This can occur in the purchase of a house or in stock accounts.
Valuing Property
Valuing property can be the most contentious issue in a divorce. Closely held businesses can be extremely difficult to value. The value of an ongoing business is often greater than the value of the individual assets of a business. However, in some instances the assets may have a greater value than the business. An example would be an extremely valuable piece of property might be more valuable than the business located on the property.
There are business appraisers qualified to value a business and testify in court to their evaluations. Parties can testify to the value of their own property. The finder of fact will decide the value and may consider all testimony presented on the value of the asset.
Retirement Plans
Retirement plans are marital property and subject to a just and right division between the parties.
Sworn Inventory and Appraisals
Parties list the value of their property and then swear to that value. This "Sworn Inventory and Appraisal" becomes evidence for the court to consider in the division of the property.
Alimony
Alimony in the State of Texas is not typically awarded after the divorce. There does exist 'temporary alimony' awarded during the pendancy of divorce. In some rare instances alimony may be awarded by agreement where there are arranged tax advantages to the party who is paying the alimony as long as it complies with certain IRS requirements.
Liabilities are Also Divided
Liabilities are divided in addition to dividing the property. Often the party receiving the asset will also receive the liability. Liabilities are different from assets in that they involve a creditor. While the Court can assign the liability to one of the parties the Court cannot change the agreement the parties made with the lender. Although the Court may assign the liability in reality the spouse continues to have a responsibility to that lendor unless that agreement is changed with the lendor. This can create extreme financial difficulties if the spouse defaults on the obligation.
Hidden Assets
- A spouse contemplating divorce my engage in extensive prepaid expenses. The spouse may suddenly pay insurance premiums in advance. These prepaid expenses should be prorated only to the date of divorce and the excessive premiums should be included in the division of the marital estate.
- A spouse may suddenly place deposits on assets which will be redeemed after the marriage.
- A spouse may prepay taxes or income tax to an excessive amount. That amount which exceeds the date of the divorce should be returned to the marital estate.
- Inlaws may not repay loans to the marital estate until after the divorce and loans or payments may be made during the marriage to deplete the assets of the marital estate.
- A spouse may have been skimming cash from a business he or she owns for years and saving this as a 'nest egg'.
- The marital estate is entitled to be reimbursed for expenses spent on extra-marital 'friends' during the marriage.
- The Internal Revenue Service will provide copies of income tax returns. Link here to the IRS website to access information and forms necessary to obtain this information.
- Many IRS offices will provide print outs of relevant information found on income tax returns. This will enable spouses to immediately review data that may take weeks to access with forms and IRS channels. It is important to note that not all offices will do this.
Constructive Trust
A Constructive Trust attaches for moneys that are secreted. The law provides that for hidden assets discovered at point in time after the divorce a Constructive Trust will attach to the assets as a matter of law. The spouse who was originally defrauded can file suit for the hidden assets. It is important to note that there is no statute of limitations on fraud. A suit for Contructive Trust can be field at any time the assets are discovered.
Relevant statutes which apply to the division of marital property are included below for review.
FAMILY CODE
CHAPTER 7. AWARD OF MARITAL PROPERTY
Sec. 7.001. GENERAL RULE OF PROPERTY DIVISION.
In a decree of divorce or annulment, the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.
Added by Acts 1997, 75th Leg., ch. 7, Sec. 1, eff. April 17, 1997.
Sec. 7.002. DIVISION AND DISPOSITION OF CERTAIN PROPERTY UNDER SPECIAL CIRCUMSTANCES.
(a) In addition to the division of the estate of the parties required by Section 7.001, in a decree of divorce or annulment the court shall order a division of the following real and personal property, wherever situated, in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage:
(1) property that was acquired by either spouse while domiciled in another state and that would have been community property if the spouse who acquired the property had been domiciled in this state at the time of the acquisition; or
(2) property that was acquired by either spouse in exchange for real or personal property and that would have been community property if the spouse who acquired the property so exchanged had been domiciled in this state at the time of its acquisition.
(b) In a decree of divorce or annulment, the court shall award to a spouse the following real and personal property, wherever situated, as the separate property of the spouse:
(1) property that was acquired by the spouse while domiciled in another state and that would have been the spouse's separate property if the spouse had been domiciled in this state at the time of acquisition; or
(2) property that was acquired by the spouse in exchange for real or personal property and that would have been the spouse's separate property if the spouse had been domiciled in this state at the time of acquisition.
(c) In a decree of divorce or annulment, the court shall confirm the following as the separate property of a spouse if partitioned or exchanged by written agreement of the spouses:
(1) income and earnings from the spouses' property, wages, salaries, and other forms of compensation received on or after January 1 of the year in which the suit for dissolution of marriage was filed; or
(2) income and earnings from the spouses' property, wages, salaries, and other forms of compensation received in another year during which the spouses were married for any part of the year.
Added by Acts 1997, 75th Leg., ch. 7, Sec. 1, eff. April 17, 1997. Amended by Acts 1999, 76th Leg., ch. 692, Sec. 4, eff. Sept. 1, 1999; Acts 2001, 77th Leg., ch. 838, Sec. 4, eff. Sept. 1, 2001; Acts 2003, 78th Leg., ch. 230, Sec. 4, eff. Sept. 1, 2003.
Sec. 7.003. DISPOSITION OF RETIREMENT AND EMPLOYMENT BENEFITS AND OTHER PLANS.
In a decree of divorce or annulment, the court shall determine the rights of both spouses in a pension, retirement plan, annuity, individual retirement account, employee stock option plan, stock option, or other form of savings, bonus, profit-sharing, or other employer plan or financial plan of an employee or a participant, regardless of whether the person is self-employed, in the nature of compensation or savings.
Added by Acts 1997, 75th Leg., ch. 7, Sec. 1, eff. April 17, 1997.
Sec. 7.004. DISPOSITION OF RIGHTS IN INSURANCE.
In a decree of divorce or annulment, the court shall specifically divide or award the rights of each spouse in an insurance policy.
Added by Acts 1997, 75th Leg., ch. 7, Sec. 1, eff. April 17, 1997.
Sec. 7.005. INSURANCE COVERAGE NOT SPECIFICALLY AWARDED.
(a) If in a decree of divorce or annulment the court does not specifically award all of the rights of the spouses in an insurance policy other than life insurance in effect at the time the decree is rendered, the policy remains in effect until the policy expires according to the policy's own terms.
(b) The proceeds of a valid claim under the policy are payable as follows:
(1) if the interest in the property insured was awarded solely to one former spouse by the decree, to that former spouse;
(2) if an interest in the property insured was awarded to each former spouse, to those former spouses in proportion to the interests awarded; or
(3) if the insurance coverage is directly related to the person of one of the former spouses, to that former spouse.
(c) The failure of either former spouse to change the endorsement on the policy to reflect the distribution of proceeds established by this section does not relieve the insurer of liability to pay the proceeds or any other obligation on the policy.
(d) This section does not affect the right of a former spouse to assert an ownership interest in an undivided life insurance policy, as provided by Subchapter D, Chapter 9.
Added by Acts 1997, 75th Leg., ch. 7, Sec. 1, eff. April 17, 1997.
Sec. 7.006. AGREEMENT INCIDENT TO DIVORCE OR ANNULMENT.
(a) To promote amicable settlement of disputes in a suit for divorce or annulment, the spouses may enter into a written agreement concerning the division of the property and the liabilities of the spouses and maintenance of either spouse. The agreement may be revised or repudiated before rendition of the divorce or annulment unless the agreement is binding under another rule of law.
(b) If the court finds that the terms of the written agreement in a divorce or annulment are just and right, those terms are binding on the court. If the court approves the agreement, the court may set forth the agreement in full or incorporate the agreement by reference in the final decree.
(c) If the court finds that the terms of the written agreement in a divorce or annulment are not just and right, the court may request the spouses to submit a revised agreement or may set the case for a contested hearing.
Added by Acts 1997, 75th Leg., ch. 7, Sec. 1, eff. April 17, 1997.
Sec. 7.007. DISPOSITION OF CLAIM FOR ECONOMIC CONTRIBUTION OR CLAIM FOR REIMBURSEMENT.
(a) In a decree of divorce or annulment, the court shall determine the rights of both spouses in a claim for economic contribution as provided by Subchapter E, Chapter 3, and in a manner that the court considers just and right, having due regard for the rights of each party and any children of the marriage, shall:
(1) order a division of a claim for economic contribution of the community marital estate to the separate marital estate of one of the spouses;
(2) order that a claim for an economic contribution by one separate marital estate of a spouse to the community marital estate of the spouses be awarded to the owner of the contributing separate marital estate; and
(3) order that a claim for economic contribution of one separate marital estate in the separate marital estate of the other spouse be awarded to the owner of the contributing marital estate.
(b) In a decree of divorce or annulment, the court shall determine the rights of both spouses in a claim for reimbursement as provided by Subchapter E, Chapter 3, and shall apply equitable principles to:
(1) determine whether to recognize the claim after taking into account all the relative circumstances of the spouses; and
(2) order a division of the claim for reimbursement, if appropriate, in a manner that the court considers just and right, having due regard for the rights of each party and any children of the marriage.
