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Texas Property Division
Property Distribution Laws in Texas

In Texas the courts generally accept a fair and reasonable property division the parties agree to, but if the parties cannot agree, the property is divided by the District Court within the Judgment of Divorce.

Texas is a community property state. It is a dual classification state, and the appreciation of separate property is separate.

Texas defines community property as all property and debt acquired or earned from the date of marriage until the marital cut-off date that isnt separate property. The court starts with a presumption that all property held by either spouse during marriage is community property.

To keep an asset free from division, a spouse must prove by clear and convincing evidence that the asset is his or her separate property. Separate property includes anything that belongs to one spouse before marriage and kept separate throughout the marriage. It could also include property that was given only to one spouse during the marriage - for example, a gift or an inheritance to one spouse alone.

If one spouse receives money from a lawsuit or settlement because of personal injuries, that money remains the separate property of the victim spouse, unless it includes money that is intended to compensate for loss of wages during marriage. In other words, money to compensate someone for injuries is that persons separate property; money to compensate him or her for lost wages is community property and subject to division.

The division of marital property in Texas is different from those of other community property states. The court divides the community in a just and right fashion that means whatever the judge thinks is fair under the circumstances, so the 50-50 division routine that prevails in other community property states does not apply in Texas.

An unequal division is common in cases involving children. Courts justify a lopsided division because of:

  • disparity in the earning capacities of the parties,
  • differences in educational backgrounds,
  • primary responsibility for raising the children,
  • differences in age and/or health of the parties,
  • needs of the spouse and children after the divorce.

In a divorce in Texas all marital property is "up for grabs."

Factors in Property Distribution

While some judges punish a party for adultery, psychological abuse of the spouse, or other morally improper conduct, their number is declining. Unless the conduct was intended to harm the other party, the conduct of the spouses does not affect property division.

On the other hand, judges frown on economic misconduct - dissipation, fraud, squandering money, spending money for the benefit of a paramour - are usually punished by a lopsided division of property.

The length of the marriage may result in a disproportionate division of the marital estate, but the real reasons are more economic or financial in nature. Differences in earning capacity become more significant as the ages of the parties advance. For example, it is far less likely that a middle-aged housewife with stale job skills can find gainful employment than her 50year-old powerhouse corporate executive husband. Likewise, the physically impaired spouse may incur significant ongoing expenses for therapy that the physically fit spouse does not.

Generally speaking, in assigning property, realistic assessments about the future are more important factors than the length of the marriage.

Marital Property vs. Separate Property

The distinction between separate property and community property is important because separate property cannot be divided or awarded to the other party in a divorce case.

Usually, separate property is:

  • owned prior to the marriage,
  • acquired as a gift, or
  • acquired by inheritance.

There are other categories of separate property, but they are less frequently encountered.

The court assumes that everything the parties own at the time of divorce is community property and, therefore, can be divided. If either party claims something as separate property, he or she must identify the item and prove that it falls within one of the definitions of separate property.

Property Defined

Property is either marital or separate, and it includes assets and liabilities. The most common types of property divided at divorce are real property, such as the marital home, personal property, such as jewelry and clothing, and intangible property, such as income, dividends, and benefits. All the community assets and community liabilities must be divided between the spouses when the marriage ends. Once a spouse proves that an asset is separate property, it remains his or hers, and the court cannot award it to the other spouse.

Valuing and Dividing Property

First, the court classifies assets and liabilities, property and debt, as marital or separate. Then it assigns a monetary value to the marital property and debt. Finally, it distributes the marital assets between the two parties.

The Marital Home

There are no special rules for the division of the marital hone, but courts usually leave the children in their home. That being the case, the parent with primary possession of the children can expect the judge to award him/her the marital home if it is financially feasible to do so.

The Texas homestead laws are very strong, but creditors, rather than the property allocation in a divorce case, relate issues related to protection of the marital home to claims.

In Texas, as in many jurisdictions, the equity in the marital home is often one of the biggest assets the spouses divide. The equity is the market value of the house, less any debts or liens against it. Equity is established by determining what the current market value of the home is at the time of separation. Once the spouses agree to a current market value, any debts associated with the property (mortgage, taxes, home equity loans, etc.) are deducted from the market value to arrive at the equity to be divided. Normally, making this calculation requires a paid real estate appraisal or a real estate agent can prepare a market analysis for free.

From there, couples choose one of three options to divide the equity:

  • The spouses sell the home and divide the proceeds.
  • One of the parties may refinance the home and buy out the other party.
  • One spouse (usually the custodial parent) remains in the home with the exclusive use and possession for a certain period of time (for example, until the youngest child graduates from high school), then either buys out the other spouse or sells the home and divides the proceeds.

Pensions and Retirement Accounts

In Texas vested pensions are marital property.

Usually the court divides retirement plans equally between the parties.

A number of factors can affect the value of a retirement plan (income taxes, penalties for withdrawal, etc.) and dividing the plans down the middle avoids those issues. On the other hand, the judge always approves an agreement of the parties whether it involves an equal division of the plans or not.

A pension vests when all the requirements to receive the pension have been met. Unvested pensions are also marital property. Until the pension has vested, the person under whom the pension is maintained has only an expectancy of interest in the pension.

Several different methods of valuation are used in determining how much a marital asset is worth, depending upon the asset to be valued and the level of agreement between the parties. Courts generally accept the value when the spouses mutually agree on a value of a particular asset. Experts may be retained by the parties or by the courts to determine the value of marital assets if the parties cannot agree. Such experts may include accountants, real estate or business appraisers, or pension valuators. The use of experts adds to the cost of the divorce.

In Texas the court may include the retirement benefits and plans earned by both spouses as marital assets available for division. Retirement benefits vary greatly but can generally be divided into two groups:

  • Defined Contribution Plans: A defined amount of money belonging to the employee. The employee and/or the employer make defined contributions. The balance of the plan is constantly changing, but its value is definable at any given point. 401(k)s, 403(b)s and profit sharing plans fall into this category.
  • Defined Benefit Plans: A retirement benefit where an employer promises to pay a benefit to an employee sometime in the future, based upon some type of formula. Normally, this formula is based on the employees salary near the end of his or her career and the number of years he or she worked for the employer before retirement. Defined benefit plans are much more complicated to value and often require the professional evaluation of an actuary to determine exact values.

In Texas if spouses share in each others retirement or pension plan, a Qualified Domestic Relations Order must be completed. A QDRO is a written set of instructions that explains to a plan administrator that two parties are dividing pension benefits. The instructions set forth the terms and conditions of the distribution - how much of the benefits are to be paid to each party, when such benefits can be paid, how such benefits should be paid, etc.

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