Texas is a community-property state, meaning that all marital property is characterized as “separate,” “community,” or “mixed.” Under Texas law, a spouse’s separate property consists of the property “owned or claimed by the spouse before marriage; acquired by the spouse during marriage by gift, devise, or descent; and the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.” Tex. Fam. Code § 3.001. Simply put, each spouse’s separate property is property in which its existence is not attributable to the existence of the marriage itself. Accordingly, community property is defined as consisting of “the property, other than separate property, acquired by either spouse during marriage.” Tex. Fam. Code § 3.002.
During marriage, this characterization of property determines:
- each spouse’s ownership interest in the property;
- controls which spouse has the right to sell, convey, or encumber the property; and
- dictates what property can be reached by creditors to satisfy any claims they may have.
Upon dissolution of a marriage, the characterization of the property determines what property the court can divide between the spouses (community property), and what property the court must attribute to each spouse individually (separate property).
Key points for the characterization of your own marital and separate property:
- Property purchased using a spouse’s separate property but titled in the name of both spouses is presumed to be a gift. In Texas, when one spouse purchases property and takes title to that property in the name of both spouses, a presumption arises that the purchasing spouse intended to give the other spouse a separate one-half interest in the property as a gift. Commonly applied to purchases of real property, this means that the non-purchasing spouse is legally entitled to a one-half interest in that property, and this presumption can be rebutted only by clearly establishing the contrary.
- “Derivative” separate property has an intrinsic-separate-property source and is characterized as separate property. Property that is acquired in exchange for separate property, acquired with separate funds, and/or acquired on separate credit is considered that spouse’s separate property.
- If both separate and community funds are used to purchase property, then that property has a “mixed” character. The property is considered to have a mixed character in proportion to the amount paid with the separate funds and the community funds.
Even if you are not going through a divorce, annulment, or other form of marriage dissolution, it is important to think about how each piece of property you own is characterized under Texas law as you continue to make such purchases–separately or together with your spouse.