Separate Property 101
By default, if you are married in Texas all property acquired during the marriage is community property, meaning it is owned jointly by both parties. However, there is a way around this by creating a marital property agreement, which can be done either before or after marriage. The marital property agreement outlines who owns what and what assets each party intends to keep as their separate property. Separate property is property owned and controlled by only one spouse.
Without an agreement signed by both parties, there are three ways to keep assets acquired during the marriage separate:
* First, any gift received during the marriage, whether received by a spouse or someone other than your spouse will be characterized (i.e. classified) as separate property;
* Second, any inheritance received during the marriage will be characterized as separate property; and
* Third and lastly, any lawsuit settlement received resulting from a personal injury claim, excepting lost wages during the marriage, will also be characterized as separate property.
It is a common mistake to deposit these separate funds into a joint account or “co-mingling” funds. Once the separate assets are in a joint account they become community property and will often require a forensic accountant to trace the origins of the funds to prove the separate property nature of the funds. It is wise to preserve separate assets in an account that does not contain community assets. By way of example, if you put your inheritance in your joint account and use it to pay joint bills your inheritance will likely be considered a gift of support to the community estate. Separate property expended on ordinary living expenses is rarely recoverable or reimbursable.
There are tracing methods that may save you. For instance, if your inheritance has been deposited into an account that also contains community property, then you may be able to claim that, historically, the lowest balance on that account is separate property and only the amount above the lowest balance is community property. There are other tracing methods lawyers can use to trace separate property that has been commingled with community property, but it is always a good practice to keep separate property separate.
Traditionally, any property that a spouse owns prior to the marriage is characterized as separate property. However, be aware of sweat equity claims. If you own a property prior to marriage, even if your spouse never contributes a dime to the maintenance of the property, your spouse may be able to claim equity if non-monetary contributions were made by your spouse. For example, if a spouse worked on the property or spent time managing the property (or the business) and received no or nominal compensation then they may have a claim for equity in the property, even if all financial contributions came from pre-marital dollars!
The moral of the story – if you intend to preserve the separate property character of your assets, either get it in writing or keep it separate from any community property.