Separate vs. Joint Property in Texas
As a community property state, any property acquired by a married couple during their marriage is owned jointly by the couple. This means they have an equal share in all marital property, and when they divorce, this property must be divided equally.
Examples of joint property:
- The family home
- Shared bank accounts
- Shared credit accounts
- Income earned during the marriage
Meanwhile, separate property is that which remains individually owned, despite the marriage. There are several types of individual property, including the contents of retirement accounts accumulated before marriage, real estate owned prior to the marriage, or purchased with separate assets and/or the income from separate assets.
Other examples of separate property:
- Student loans
- Property owned prior to the marriage
- Income from property owned before marriage
Recovery for personal injury settlements is also considered separate property, apart from any damages recovered for loss of earnings during the marriage.
What About Inheritance?
In Texas, inheritances are considered separate property, including any income earned from inheritances. For example, if you inherited a rental property, the rental property and any income earned from renting that property will remain separate.
What About Commingled Property?
In a perfect world, all individually owned property will be kept totally separate from marital property. However, we do not live in an ideal world, and many married couples end up commingling their assets. Commingled property occurs when separate assets are used to support the marital household or when marital assets are used to maintain or in service of separate assets.
Examples of commingled assets:
- Marital funds are used to maintain an inherited rental property
- Income from an investment account identified as separate property is used to support the marital household
- Marital funds are used to contribute to a separate investment account
- Marital funds are used to pay off student loans acquired by one individual prior to the marriage
- Money from an inheritance is used to pay off the married couple’s shared credit card
Commingled assets can make property division very difficult. For example, suppose you inherited money from your grandmother before you were married and used that money to start an investment account. After you were married, you and your new spouse continued contributing to that investment account. You then decide to divorce. How do you deal with that investment account?
In this case, the investment account contains both separate and joint property. The original inheritance and income earned from that inheritance before and after the marriage are likely to be considered separate property and, therefore, not subject to property division. However, the money you and your spouse contributed after marriage and the earnings from those contributions will be considered joint, marital property.
Disentangling this investment account during the property division process will be a challenge. Couples who find themselves in these situations often have to hire forensic accountants or other professionals to help them.
How To Keep Property Separate After Marriage
No one plans to divorce, so a couple may not see the importance of keeping their separate assets apart from their marital ones. However, if you have significant property or debts before marriage or receive an inheritance after marriage, you are best served by keeping these separate from your shared marital estate. This makes accounting for them less complicated and can help smooth the property division process should you divorce.
Prenuptial vs. Postnuptial Agreements & Divorce
Another way to keep individual property separate from your marital property is by itemizing it and denoting it as separate in a prenuptial agreement. For example, if you have a retirement account you set up before marriage, and you’d like it and its earnings to be protected from a divorce, you and your future spouse can agree to keep it separate in a prenuptial agreement.
Similarly, suppose you have property that traditionally would be kept separate in a divorce, and you want to ensure that your future spouse gets a share of it in the event of a divorce. In that case, you can also note this in your prenuptial agreement.
But what do you do if you are already married, or if your financial situation changes post-marriage and you want to itemize your separate property now? You and your spouse can work together to make a postnuptial marital agreement. These are very similar to prenups and can serve a very similar purpose.
When getting a prenuptial or postnuptial agreement, it is important that you consult with an experienced attorney. A valid marital agreement should be mutually beneficial and should not overwhelmingly disadvantage one spouse. Working with an attorney is the best way to ensure that your agreement is sound and increases the likelihood that the courts will recognize it.
Want more information on property division laws in Texas? Contact the Law Firm of Johnson & Gaskill, PLLC. Our law firm has extensive experience handling all types of divorces, and we can help you understand the nuance of your own situation and what a divorce will mean for your finances.