During a divorce proceeding, the parties, by settlement or a court ruling after trial, will divide all existing property and debts. While the parties may, by agreement, make any type of division they want (e.g., give husband certain separate property belonging to wife, agree to alimony, etc.), during litigation, a court does not have such flexibility and is bound by the rules of law.
Basically, a court will award each party his/her separate property and separate debts, and will divide the community property and debts in a manner the court deems to be “just and right.” This may be an approximate 50/50 division of the net community estate, or a division which gives one of the spouses a disproportionately large share of the community property (e.g., 60% to Spouse A, 40% to Spouse B). Contrary to popular belief, the courts are not required to divide property 50/50.
The division of property refers to the net community estate.
How do you calculate that, you ask?
|3 Cars||2 Car Liens|
|2 Retirements||3 Credit Cards|
|5 Bank Accounts||1 Loan|
ASSETS – DEBTS = NET COMMUNITY ESTATE
According to the example provided, the net community estate is $25,000 ($100,000 – $75,000). If the court awards the parties the following debts and assets:
Husband’s Award = 70% of Assets ($70,000) + 80% of Debts (-$60,000)
Wife’s Award = 30% of Assets ($30,000) + 20% of Debts (-$15,000)
Then, wife will receive 60% of Assets ($15,000), and husband will receive 40% ($10,000).
This is only a very simple example. Courts may enter almost any kind of order to effectuate what the court finds to be a “just and right division,” such as requiring the parties to sell the marital home and divide the proceeds in a certain manner, award certain community property to be held by both parties (and let them decide later to sell it or not to sell it), etc.
As a general rule of thumb, in order to reach a “just and right” division of the community estate, the court generally begins by presuming that a 50/50 division would be equitable, then varies from there based upon a number of factors, including but not limited to:
- length of marriage;
- a disparity in the earning capacity of the parties caused by the marriage (e.g., husband worked for 25 years while wife stayed home to care for their minor children);
- whether there are minor or adult children being taken care of by a spouse; and/or
- “fault” in the breakup of the marriage.
The very nature of divorce cases makes it difficult to predict, in advance, with any degree of certainty, exactly how a court will divide the community property in a given case on a given day.
“Community Property” is any property acquired by either or both spouses during marriage, but excludes anything received as a gift or inheritance. This includes virtually everything purchased during marriage. It is important to remember that a marriage legally endures even after separation; therefore, anything earned, purchased, or even merely contracted for, during your separation (whether before or after the divorce petition has been filed) will be characterized as community property.
All property which exists in whole or in part in the name of either spouse at the time of divorce is presumed by law to be community property. This is referred to as the “community property presumption.” Therefore, if you have any separate property, or if you are in possession of property which does not belong to either you or your spouse, you must point these out to your attorney.
In Texas, earnings from separate property are community property. For example, if husband has $5,000 in a bank account on the date of marriage, the $5,000 remains his separate property, but all interest earned on the $5,000 becomes community property.
Unlike separate property, a court has the authority to divide community property in any manner that it deems to be “just and right.”
“Separate Property” is property either (1) owned or acquired by a spouse before marriage or (2) acquired by a spouse during marriage by either (a) gift or (b) inheritance.
A gift includes, for example, any Christmas or birthday gifts from one spouse to another during marriage (even if purchased with community funds). If a gift or inheritance goes to both spouses (e.g., wedding gifts), then each spouse has an undivided fifty percent interest in that one piece of separate property.
Separate property can change forms without changing its character as separate property (this is often referred to as a “mutation”). For example, if wife has $5,000 in cash which is her separate property and uses that $5,000 cash alone to purchase a $5,000 boat, then the boat would likewise be her separate property.
A court has no authority to take a spouse’s separate property from him or her at the time of divorce.
Caution: Any property owned by either spouse at the time of divorce is, by law, presumed to be “community property” unless otherwise proved to be separate property; therefore, a spouse must (1) specifically plead and (2) prove by clear and convincing evidence each item of real or personal property claimed to be his/her separate property.
Title to property can be both separate property and community property in character. For example, suppose a car is bought during marriage for a total of $10,000 in cash; $6,000 of that was from husbands’ separate property account which he had prior to marriage, while $4,000 of it was from a bank account established during marriage and containing the community property earnings of the parties. In such event, title to the automobile would be sixty percent husband’s separate property and forty percent community property.
Pursuant to the rules aforementioned, there may, at the time of divorce, exist three different “estates”:
- husband’s separate property estate;
- wife’s separate property estate; and
- the community estate.
Each of these estates may have a “claim for reimbursement” against the other estate or estates. For example, if husband owned a car as well as a note on that car before marriage, then, at the time of the divorce, that car will belong to husband’s separate estate, but the community estate would have a right to ask a court to order the husband (i.e., his separate estate) to “reimburse” the community estate for community funds used to pay off his separate property car. This is one very simple example of the doctrine of “reimbursement.” Again, reimbursement can be by, against, and between any of the three estates.
It should be noted, however, that to prove reimbursement, it often requires a great deal of time, accounting, “tracing” of funds and expense to prove the claim. Whether reimbursement should be sought is a decision you and your attorney will make after weighing all of the factors.
To determine title to property as being separate property and/or community property, and to determine rights to reimbursement between the different marital estates, an accounting method referred to as “tracing” is often employed in divorce cases. For example, one bank account may contain funds which consists of both separate property and community property. Or, community property funds may be used to pay off a balance of a separate property debt. Tracing is used to determine the title to property or the amount of reimbursement.
Doctrine of commingling: If funds in an account contain both separate property funds and community property funds and these funds have been so commingled as to defy a clear divorce-time segregation by means of tracing, then the entire account will be characterized as community property (because of the “community property presumption” discussed above). This is referred to as the doctrine of “commingling.”