Texas is a community property state, and all property belonging to either spouse is presumed to be community property. Property that either spouse had before the marriage, along with any property either spouse received as a gift or through inheritance, is the separate property of that spouse. The burden is on the spouse claiming separate property to prove it. Although there are a number of ways of proving separate property, below are a few issues that commonly arise.
The longer a couple has been married, the harder it can be to prove what one spouse had before the marriage. Most people do not keep financial records when they get married thinking, “I’d better keep this statement so I can show how much was in my 401(k) at the time of marriage just in case we divorce in 20 years.” Often people switch jobs and 401(k)s get rolled over, sometimes multiple times, which can make tracing back to the beginning of the marriage a challenge. The spouse trying to prove separate property will need to show how much was in the account at the time of marriage and that it never went below that amount during the marriage.
Certain types of property are easier to trace than others. For example, if one spouse owned a home before the marriage, it is easy to look at the property records and show that he or she purchased the house before marriage. Be warned, though, that if you ever add your spouse to the deed, it will likely be presumed that you gifted your spouse half of the house. This seems to happen regularly when a couple wants to refinance a separate property house.
When one spouse receives a gift or inheritance during the marriage, that spouse will also need to trace the money in order to confirm it as separate property. If separate property is co-mingled with community property, this can become more difficult to do.
Example A: In 2004, Husband receives a $10,000 inheritance. Husband puts it into a bank account in his name alone and never puts other money in that account. In 2014, money from the account is used as a down payment on a house for the couple. In 2017, the couple divorces. Husband should easily be able to trace the down payment back to his separate property account with a cancelled check or confirmation of a wire transfer, plus proof of where the funds in that account originally came from. His chances of receiving his money back from the down payment are high.
Example B: In 2004, Husband receives a $10,000 inheritance and puts it into a joint bank account. Over the years, the parties deposit their paychecks into the account and pay their bills and various other expenses out of the account. In 2014, money from the account is used as a down payment on a house. In 2017, the couple divorces. Husband will have a much more difficult time proving that the down payment came from his separate property inheritance. He would need to hire a forensic accountant to trace the funds in the account, which could cost just as much as the separate property at issue.
Establishing separate property can be a difficult task if the parties do not keep good records or if they co-mingle funds.