This is one of the most frequently asked questions I hear during divorce consultations.  The answer is much more complicated than a simple yes or no.  There are several questions that need to be answered first:

  1. Is the house community property or separate property?  If the house was purchased by either one of you before the date of the marriage, or if either one of you entered into the contract to purchase the house before marriage, then it is separate property.  If your spouse is the one who purchased it before marriage, you are almost certainly not going to be able to keep the house, no matter how long you have lived in it.  If you purchased the house during the marriage, then it is community property.  If the house is your separate property, you can almost certainly keep it (provided you can buy out any reimbursement claims your spouse may have).  If the house is community property, you may be able to keep it, depending on your answers to the following questions.
  2. How much equity is in the house?  It is very important to know how much equity is in the house.  This is determined by how much the house is worth minus how much is owed on the mortgage.  If you purchased the house a year ago with very little down, then there is probably very little equity in the home.  If you purchased it 20 years ago, the equity is probably significant.
  3. Can you afford to buy out your spouse’s share of the equity?  Most of the time, the community estate is going to be divided 50/50, so your spouse is probably entitled to 50% of the house.  That money does not necessarily have to come from the house, though.  For example, if the equity in the house is $100,000, you need to have $50,000 somewhere to put on your spouse’s side of the ledger.  Perhaps there is an investment account that has $50,000 in it that can be awarded to the spouse.  If there is not another $50,000 out there, can you cash out enough money on the refinance to buy out your spouse’s share?  If you cannot afford to buy our your spouse’s share of the equity one way or another, the odds are very slim you will be able to keep the house.
  4. Can you refinance the mortgage into your own name?  In order to keep the house, if the mortgage is not solely in your name, you would have to be able to refinance it into your own name within a certain period of time.  I normally see anywhere from 90 days to 6 months after the date of divorce, although in certain rare situations I have seen parties agree to a longer period of time.  If your income is not sufficient to qualify for the refinance on your own, you will not be able to keep the house.  If you have been a stay-at-home parent, even if you recently started a job, you will most likely not have a long enough work history to qualify to refinance within the necessary amount of time.
  5. Can you afford to pay the mortgage on your own?  I always recommend against including expected child support in the budget when trying to determine if you can afford the house.  Too many people fail to pay child support in a timely fashion, and the child support could be modified down the road for a variety of reasons.

In the majority of cases, I see divorcing couples selling the house.   Sometimes, parties sell the house because everyone wants a fresh start.  Sometimes parties sell the house based on the answers to the questions above.

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There are two types of property in a marriage:  separate property and community property.  Separate property is defined as anything either spouse owned before the marriage or anything either spouse received during the marriage through inheritance or a gift.  Community property is any property owned during the marriage that is not separate property.  Property issues can be very complex, and this post is designed to give just a brief overview of a few issues.

In Texas divorce cases, there is a presumption that all property is community property.  In order to prove separate property, the proponent must establish by clear and convincing evidence that the property is separate.  It will generally not be enough for one spouse to simply claim that he or she had certain property before the marriage or that it was received as a gift / inheritance.  He must show records to back it up.  Below are a few examples of separate property issues and how a party could prove them.

Example 1:  Husband owed Home 1 prior to marriage.  Wife moves into Home 1 with Husband.  Two years later, the couple sells Home 1 and uses the $50,000 proceeds from the sale of Home 1 as a down payment on Home 2.  Home 2 is now co-mingled community property and separate property.  Husband must be able to prove (a) that he owned Home 1 as his separate property prior to the marriage, and (b) exactly how much money from Home 1 was put down for Home 2.  He could show that Home 1 was his separate property by producing a deed for the house dated before the marriage and showing him as the owner.  He could show how much money from Home 1 was put down for Home 2 through closing records from the sale of Home 1 and the purchase of Home 2.  Through those records, Husband has established a separate property claim for $50,000 in Home 2.  Husband would be entitled to a dollar for dollar credit for that separate property.

Example 2:  Wife has a separate property bank account before the marriage that contains $100,000.  The account is in her name alone.  Wife marries Husband and continues to have her paycheck deposited into the account.  Her paycheck is community property, and now she is commingling community funds and separate funds.  If Wife is making withdrawals from the account over time, Wife will need to providing a tracing of the account to prove her separate property.   There are a variety of different tracing methods used in Texas.  The most common is the “community out first” rule.  This provides that all withdrawals are presumed to be community so long as there are community funds in the account.  Wife deposits an additional $20,000 into the account during the marriage.  She withdraws money numerous times, for a total of $30,000 in withdrawals.  Under the community out first rule, the first $20,000 out would be the community funds.  The next $10,000 would be her separate property.  In the end, the community would have $0 in the account and Wife would have $90,000 in separate property.  There are other methods of tracing that could lead to a different result.

Example 3:  Husband and Wife are married for 30 years.  Husband receives an inheritance of $50,000 ten years into the marriage.  Husband deposits the $50,000 into the parties’ joint bank account.  Over the years, hundreds of deposits and withdrawals are made from that account.  Twenty years later, the parties divorce.  Husband is unable to provide tracing to prove what happened to the $50,000 because it was hopelessly commingled with community funds.  Husband is most likely out of luck in trying to keep any of the inheritance as his separate property.   The community property presumption will prevail.

Separate and community property issues can be complex and far exceed what can be put into a single blog post.  It is important to have an attorney familiar with the rules and the various ways to characterize property in order to ensure that it is done right.  It is also important to have an attorney who will help you understand the cost benefit analysis of trying to prove separate property.  Is it worth it to spend thousands of dollars on a forensic accountant to trace the money in an account?  Maybe.  It depends on the amount of separate property at issue.

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Texas is a community property state, and there is a presumption that ALL property in the name of either party at the time of divorce is community property.  Certain types of property are classified as separate property, specifically any property owned before the marriage or any property received by inheritance or gift during the marriage.  The big problem here is proving the amount and existence of the property as separate.

For example, Husband had several 401(k)s from employers he had before the marriage.  At some point during the marriage, he rolled the 401(k)s into a new account.  He is able to show the creation of the account during the marriage and that the funds came from these other accounts.  The only way the husband can show by clear and convincing evidence that the money in the account is his separate property is to produce statements from right before the marriage and trace those accounts to their current location.  If the account has been rolled over and there is no paperwork from the prior account, this can be very difficult to do.   Husband would have a much more difficult time in this scenario if he had rolled the separate property accounts into an account co-mingled with community property.  Establishing what is separate and what is community in a co-mingled account can be extremely difficult.

If you happen to receive separate property during the marriage, either by inheritance or gift, it is advisable to keep that property in its own, separate account.  Once you co-mingle the funds, it can be hard to prove which funds were separate and which funds were community, especially if some funds have been spent or moved around.  It is also critical to keep records reflecting where the separate funds came from so you can prove that money is, in fact, your separate property.

Although very few people expect to get divorced, the bottom line is that many people find themselves in that situation some day.  The moral of the story is to keep records of separate property accounts going all the way back to before the marriage or to the date you received the separate property.

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Texas is a community property state.  All property acquired during the marriage that is not separate property is community property.  Each spouse shares an undivided one-half interest in all community property.  Examples of community property include wages earned during the marriage, retirement benefits earned during the marriage, real property purchased during the marriage, and any furniture or personal property purchased during the marriage.

Under the Texas Family Code, all property possessed by either spouse is presumed to be community property in a divorce.   Either party can rebut that presumption by establishing by “clear and convincing evidence” that certain property qualifies as separate.

Property is considered the separate property of one spouse if: (1) the spouse owned the property before marriage; (2) he or she received the property as a gift during the marriage; or (3) he or she inherited the property during the marriage.  However, any income earned on separate property is considered community property.

Characterizing community and separate property can be complicated if the parties have a lot of assets and one or both had assets prior to marriage.  However, an experienced family law attorney can help wade through the property issues to help determine how everything should be properly categorized.

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Lately I have seen a large number of divorcing couples who have kept their bank accounts and debts completely separate all throughout their marriage.  Does that mean those accounts are separate property and the debts will go to the person whose name is on the debt?  No.

In general, any property accumulated during the marriage is community property, regardless of whose name is on the account or the title.  Any property owned by either spouse prior to the marriage is the separate property of that spouse.  Therefore, if the couple buys a house together prior to marriage and it is in only one spouse’s name, it is technically the separate property of that spouse.  (There are ways for the other spouse to get access to some money from the house, but that is another topic for another day.) Inheritance is also considered separate property, as are gifts.  If it does not fall into one of those categories of separate property, it is community property.

I do not recommend keeping your financial life separate from your spouse’s financial life, at least without full knowledge of what is going on with your significant other.  You could be help responsible for a portion of your spouse’s debt, even if it was in his or her name alone and even if it was frivolous spending.  Proving that the parties had an agreement to keep everything separate and to each be responsible for his or her own debts (or to each keep his or her own property) is difficult unless such an agreement is in writing.  The spouse in the weaker financial position will undoubtedly be looking to equalize in the event of a divorce.

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In Texas, the general rule is that property accumulated during the marriage is considered community property and subject to division in a divorce.  However, certain property is considered separate and cannot be touched by the opposing spouse.

First, any property brought into the marriage by either side is considered separate property.  This can include only a portion of property.  For example, if one spouse has $10,000 in a retirement account before the marriage and adds an additional $30,000 to the account during the marriage, the first $10,000 (plus any interest) is considered separate property.

Next, a gift can be considered separate property.  For example, if one spouse’s parents gift that spouse with real estate, cash, etc., it is often considered separate property.  The parties may dispute whether or not the parents intended it to be a gift for only their child or for both spouses.  This would be a fact question for the judge or jury.

Inheritance is also separate property, regardless of when the spouse inherited the property.

Property that has been mutated (sold or exchanged) since its inception must be traced through each mutation or it will be considered community property.    For example, if separate property was used to purchase a home during the marriage, and then that home was sold and the equity was used to buy another home, the spouse who owned that separate property must be able to trace the separate property back to its origin.  Separate property must also be traced when it has been comingled with community property.  For example, if one spouse used separate property as down payment on a home during the marriage but community property was used to make the mortgage payments, the spouse claiming separate property must be able to trace the down payment funds.  Simply testifying that separate property was used in either case is not enough.

In order to rebut the presumption of community property, a party must present “clear and convincing evidence” that something is separate.  In order to meet that standard, the party trying to establish separate property generally needs more than just testimony.  He or she will need some type of documentation to prove separate property.

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Texas is a community property state, so any property in the possession of either spouse at the time of divorce is presumed to be community property.   However, certain property may actually be separate property.  “Separate property” is property that was acquired or created separate from the marriage and is owned individually by one of the spouses.  The court is prohibited from awarding one party’s separate property to the other spouse.

Property acquired before the marriage is always considered separate property.  For example, if one spouse owns a home and the other spouse moves into that home, it still is separate property of the original owner.  If the parties put joint money into the house during the marriage (either for the mortgage or improvements to the house), the non-owning spouse may be entitled to reimbursement for the money put into the house.

Property one spouse inherits is also considered separate property, even if that property is acquired during the marriage. Similarly, property acquired by a spouse as a gift from a third party or from the other spouse is also separate property, even if the gift is received during the marriage.  Finally, money received by a spouse for personal injury damages is considered separate property.

Because all property is presumed to be community property at the time of divorce, the spouse seeking to characterize something as separate property has the burden of rebutting that presumption.  This can be done through spousal agreement, the inception-of-title rule or tracing.  If there is a dispute about the characterization of property, it is certainly advisable to have an attorney on your side.

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Texas is a “community property” state.  This means that each party owns 50% of all property accumulated during the marriage.  This includes cash, real property, retirement accounts, personal property, and any other property.

Even though each party technically owns 50% of each individual piece of property, the court generally does not go about diving each item down the middle when it divides property.  If the situation calls for a 50/50 split, the goal is to equalize the value of the property.  For example, if the marital residence has $20,000 in equity in it and the investment account has $20,000 in cash, the court may award the equity to one party (especially if that party is keeping the house) and the cash to the other.  If both parties have a retirement account that was accumulated during the marriage, you usually will not see both accounts split in half.  Instead, if one is larger than the other, only a portion of the larger account will be split off to equalize the retirement property.  If the accounts are substantially equally, then the court will likely not divide the retirement accounts at all.

Any property accumulated before the marriage is considered separate property.  If one party has a retirement account that dates back to a time period before the marriage, only that portion of the account that was earned during the marriage is considered community property.

It can be helpful to consult a financial analyst when trying to determine how best to equalize or split property.  What may look equal on paper today may be significantly different ten or twenty years down the road.  Our firm often works with a certified divorce financial analyst, who can show you what various property divisions will look like years down the road.

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