Practice Areas
Complex Separate Property Matters
A Texas divorce court can divide community property but cannot award one spouse’s separate property to the other. Separate property is property that is proved to be acquired before marriage, gifted or inherited, or the subject of a prenuptial agreement. Community property is divided in a “just and right” manner, which does not necessarily mean a fifty-fifty division. A third category of property is commingled property—that is, property that has both separate and community portions.
The more significant the separate property claim, the more important it becomes to identify the property early and determine how it can be proven.
FAQs
What Is Separate Property in Texas?
Generally, property acquired before marriage and property acquired during marriage by gift or inheritance can be separate property. Property possessed during or at the dissolution of marriage, however, is presumed to be community property unless its separate character is established by clear and convincing evidence. Said otherwise, you have to prove separate property to an extreme level to be entitled to an order confirming it.
Sometimes the distinction is easy. If the deed to a house reflects that it was acquired prior to the wedding date, it is separate property. If the deed is dated after the wedding, it is community. It gets messier if the house was purchased with money acquired prior to marriage and then titled in the parties’ names jointly. Probably in the latter case, the house is community property but the spouse who paid for it with their separate funds is entitled to a reimbursement of those funds, provided they can prove its separate property character by clear and convincing evidence.
What Happens When an Asset Is Part Separate and Part Community?
Many significant assets do not fit neatly into one category.
Bank accounts, investment accounts, retirement benefits, and businesses may involve both separate and community property interests. A 401(k), for example, may have existed before marriage and continued receiving contributions throughout the marriage. It is possible to separate the community property from the separate property through a mechanism called tracing. Preparing for this is a lawyer skill you will want to seek out.
The existence of community funds in the same account does not necessarily cause the separate property to disappear. The problem is often proving what portion remains separate.
We often encounter clients or adverse parties with deeply sincere beliefs about retirement accounts that are theirs in the context of separate property. If you have acquired retirement assets such as a pension, 401(k), stock or others, it does not matter that your blood, sweat, and tears created that asset. It only matters if those tears were exerted during the marriage because assets, even special ones, that are acquired during the marriage are community property. The only exception is that the parties agreed to partition their earnings in a prenuptial agreement.
What Does It Mean to “Trace” Separate Property?
Consider a bank account containing $100,000 at the time of divorce. The account may be presumed community property unless the spouse claiming a separate interest can exactly trace some portion of that money to separate property through admissible evidence.
If $60,000 can be traced and established as separate property by clear and convincing evidence, that can substantially change what is available for the court to divide.
Tracing becomes considerably more difficult after a long marriage. Accounts change banks, investments are bought and sold, property is refinanced, stock distributions are used to reinvest, inherited money is transferred, and records disappear.
This is why detailed account statements, brokerage records, closing documents, probate records, tax returns, and other historical financial records can become critical.
Tracing can also occur in a business interest such as a membership or partnership percentage. For example, if a spouse starts a business prior to marriage and it becomes more valuable during marriage, mutates, has retained earnings, acquires other interests, and so forth, a tracing may need to be established to prove its separate character origin. To prove this, one will need company agreements, bylaws, stock certificates, minutes, stock ledgers, tax returns, K-1s, contracts, and probably an expert.
When Is an Expert Needed?
Complex separate property matters frequently require more than collecting documents. A forensic accountant or tracing expert may need to reconstruct years of transactions and explain how today’s asset relates to property originally acquired before marriage or by gift or inheritance.
Timing matters. The earlier we identify a substantial separate property claim, the sooner we can determine what records exist, what additional discovery is necessary, and whether an expert should be involved before mediation or trial.
Establishing separate property also may not end the analysis. Reimbursement claims or other financial issues may exist between the marital estates even when ownership of the underlying property is established.
Our role is to identify the property claimed as separate, determine what must be proven, locate the evidence necessary to trace it, and work with the appropriate experts when the financial history requires it. In complex separate property cases, what someone knows they owned and what they can prove they owned can be two very different things.
Real World Examples Drawn from Actual Experience
- KDL client obtains one half of all retirement held in spouse’s name by pointing out defects in opposing party’s proof that the retirement was acquired prior to marriage.
- KDL client proves that separate property was used to acquire a primary residence and that because the loan was taken only in our client’s name, the entirety of the property including all of its growth in market value is her separate property.
- KDL uses expert tracing to show a variety of inherited real estate, cash, annuities, and life insurance proceeds were not commingled and were therefore separate property.
- KDL client successfully demonstrates that the separate estate was entitled to reimbursement for funding the acquisition of assets transferred to community businesses that originated during marriage.
- KDL successfully disproves opposing party’s expert’s testimony that the allegedly inherited business interests holding vast amounts of land were adequately traced as separate property. Court awarded our client one half of the asset.