Division of Property and Debt

Division of Property – Your Austin divorce attorney will tell you that courts prefer that the parties to an Austin divorce negotiate a division of the marital property. However, in situations where the parties simply cannot agree, the court will make what it believes is a fair and equitable division of the marital property taking into consideration the rights of the parties and any children of the marriage.

Texas is a community property state. This means that any property, either real or personal, acquired by either spouse during the marriage is owned by both spouses. Any property owned or claimed by a spouse before the marriage, property acquired by a spouse during the marriage as a gift, as the result of an inheritance, or as a recovery for personal injuries sustained during the marriage, except for a recovery for lost earnings, is considered the separate property of that spouse to which the other spouse has no claim.

Texas presumes that all property owned by either spouse is community property. This presumption may be overcome by clear and convincing evidence. The best way to overcome the presumption is to have your Austin divorce lawyer trace the ownership of the property back to its date of acquisition. This is called the inception of title rule. With real estate, this would be fairly simple. With cash, it may be more difficult, especially if it's been placed in a joint account or in an account with other monies, such as salary, which are considered community property.

Under Texas law, the income from separate property is considered community property. However, appreciation of or the increase in value of separate property remains separate property. For example, if a spouse owned a rental property prior to marriage, the property itself and any appreciation in the value of that property is considered that spouse's separate property. However, the rents derived from the property are considered community property.

Under certain circumstances, the concept of economic contribution may come into play. This concept allows one spouse to share in the increase in value of the other spouse's separate property if the first spouse can show that his or her economic contribution played a role in increasing the value of the other spouse's separate property.

If community property has been used to enhance the value of one spouse's separate property, a claim for reimbursement can be made. In other words, if the spouses use money from a joint account to renovate the rental property (separate property) of one spouse, the other spouse may be entitled to be reimbursed for a portion of increase in value to the property that resulted from the renovation.

The Texas Family Code authorizes a judge to divide property equally or to take into consideration other factors such as:

  • The earning capacity of each spouse
  • The educational background of each spouse
  • Who has primary responsibility for raising children
  • The age and health of each spouse
  • Who was at fault in the break-up of the marriage
  • Whether the property is subject to taxation and, if so, when the taxes will become due and payable

With regard to retirement, employment benefits, and other benefits, including insurance plans, the Texas Family Code gives the court the power to determine the rights of each spouse to those benefits. There are complicated formulas which the courts use to determine how these types of benefits should be divided. Once a judge enters an order dividing a 401k or other pension or retirement plan between spouses, he must also sign a Qualified Domestic Relations Order (“QDRO”) which the plan administrator must also approve. The QDRO gives the plan administrator specific instructions about how the 401k or pension or retirement plan should be divided.

Another important factor that comes into play in divorces is the division of debt. If a couple designates a piece of real estate as their homestead, regardless of whether it is community or separate property, it is exempt exempt from the claims of creditors.

Moreover, Texas law fully exempts retirement plans and the cash surrender value and proceeds of insurance policies from the claims of creditors. Like homestead property, retirement plans and insurance policies are exempt from creditors' claims regardless of whether they are separate or community property.

If, for example, the husband has a debt, his non-exempt, separate property may be had by the creditor to satisfy the debt. However, the wife's separate property generally is not available to satisfy the debts of her husband. The only time the wife's separate property would be vulnerable to a creditor of her husband would be if the contract between the husband and the creditor was for the provision of necessaries. For instance, if a husband used a department store credit card to purchase clothing or owed money for medical services, the wife's separate property could be seized and liquidated by the creditor to satisfy the husband's debt. This is possible because Texas law imposes a duty on spouses to support one another.

Whether a creditor can get at community property depends on whether that property is under the sole control of one spouse or the joint control of both spouses and whether the debt accrued prior to or after the marriage. If a spouse would have sole management of and control over property if they were single, it is considered “sole management community property”. An example of sole management community property is income. If a person were single, he or she would have sole management of and control over his or her income. Therefore, one spouse's creditors cannot get at the sole management community property of the other spouse in order to satisfy the first spouse's debts. However, debts arising out of the tortious (wrongful) acts of a spouse committed during the marriage may be satisfied by seizing and liquidating the sole management community property of the other spouse. Here's an example:

  • The wife had an auto accident, before the marriage, which caused bodily injury and property damage to the driver of the other car. The driver of the other car sues the wife and is awarded a judgment in the amount of $100,000. The driver of the other car cannot go after the sole management community property of the husband to satisfy the judgment against the wife because the accident occurred before the marriage. However, if the accident had occurred after the marriage, the other driver could seize and liquidate the husband's sole management community property to satisfy the wife's debt.

Unlike sole management community property, joint management community property is available to all creditors of either spouse regardless of whether the liability arose prior to or after the marriage. In other words, if the couple in the above example has a joint checking account, the driver of the car could seize the money in the checking account to satisfy the judgment, regardless of whether the accident occurred before or after the couple married.

There are many complicated and emotional issues involved in a divorce. Not only do the spouses experience the turmoil caused by divorce, the children, grandparents, and extended family are effected as well. Having an experienced attorney will alleviate some of the stress caused by the process itself. The attorney's role is to implement a strategy to achieve the best possible outcome under the circumstances and to handle the procedural and technical processes of your case in order to comply with state laws and local court rules.

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