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States all over the United States have different laws for dividing property. Texas, happens to be what is called, a “Community Property State”. What does being a community property state mean? What are the differences between community and separate property? Courts use a simple method to differentiate the two types of property—they look at the exact time the property was acquired.
What is Separate Property?
Separate property is property acquired by an individual before the marriage, or, during the marriage if acquired by gift, devise or descent, or agreement. Examples of separate property include: income earned or property owned by either spouse before the marriage; any property acquired by gift or inheritance; and damages for a personal injury claim for a physical injury sustained.
It is important to note that any damages awarded for a physical injury claim is separate property, even if the injury was acquired during the marriage. This is because the injury was sustained by one spouse, not both. One spouse cannot benefit from the other spouse’s physical pain.
What is Community Property?
In Texas, there is a rebuttable presumption that property is considered community property if the property was acquired during the marriage. This presumption can be rebutted by the methods of tracing, testimony, and documentation. Examples of community property include: income by either spouse during the marriage or property purchased with the income; real estate purchased during the marriage; and interest or capital gain earned on both separate and community properties.
Tracing Property
It is important to note that property acquires its classification as separate or community property at the time the property is acquired, this is called the “Inception of Title Rule” (See Inception of Title Article). Courts use the tracing method to trace back the origin of the property to the time it was acquired to determine its classification.
For example, if a home is purchased by an individual before the marriage, sells the home during the marriage, and with the funds from the sale buys a car during the marriage; the car will remain separate property. The courts will trace the funds back to its original form; therefore, because the home was separate property (purchased before the marriage) at the time it was acquired, the new car will be separate property even if it was purchased during the marriage since it was purchased with separate property funds.
Note, however, it is important not to commingle different types of property. Otherwise, it might be increasingly difficult for the courts to trace the property at the time of division.
Can Property be both Community and Separate Property?
Oftentimes, funds are commingled enough to make it difficult to trace the classification of a certain property. This is best illustrated with an example. Suppose a home was purchased during the marriage and the down payment was paid with separate property. Although the home would be considered community property, the down payment would still be considered separate property. Through the method of tracing, the down payment could be reimbursed as separate property at the time of the division of the property.
