Most Texans know that they live in a community property state. The problem for many, however, is that they have no idea what that means. Even worse, many believe one or more of the common misconceptions about community property, and because of their misunderstanding, they may make decisions that cause them huge financial harm.
Here are the top six things you need to understand about Texas community property laws.
Number 1: You may not get half of the estate.
The most common misunderstanding is the belief that community property means each party in a divorce gets 50 percent of the property that is being divided. That’s simply not true. Both parties own an undivided interest that is susceptible to division by the Court in whatever proportion the court thinks is fair.
Number 2: Your name on an item does not make it your separate property.
Many people believe that if the account, vehicle title, etc. has only their name on it, the item or account must be theirs and theirs alone. That thought is completely wrong. The presumption of the court is that everything acquired during the marriage is subject to division by the court.
Number 3: Not everything is community property.
Many people believe that when the marriage occurs, everything that either party owns becomes part of the community estate. Not true. Your separate estate, if any, survives your marriage ceremony and exists during your marriage. Separate property includes, generally speaking, anything owned prior to marriage and anything acquired by gift or inheritance. Additionally, certain parts of personal injury claims and anything traceable to separate property is separate property.
Number 4: Income from separate property is community property.
The important corollary to this is that interest and dividends are income. That means that the interest on a bank account owned prior to marriage is community property. While that may not mean much if the marriage only lasts a few months, it can mean a great deal if the marriage lasts 10+ years.
Number 5: Paying for a piece of property does not turn it into community property.
Many people believe that if the mortgage on a piece of property or a vehicle is paid with community funds, the property becomes community property. That is not the case. Once the character – Separate or Community – of the property has been set, it generally requires a gift or formal written agreement to change it.
Number 6: There are exceptions to the rules.
If any of the above stated rules cause you stress, don’t give up hope. Keep in mind that this is just the tip of the iceberg. There are many exceptions to the rules, and many strategies for achieving a division that is fair. For example, although payments on a mortgage do not change the character of the property, they may give rise to a claim of reimbursement.
Remember, understanding the community property system is harder than it appears at first glance. Unfortunately, marriage licenses do not have warning labels. With respect to community property, it’s probably best to know what you know, and find an attorney that knows what you don’t know.