COMMUNITY AND SEPARATE PROPERTY IN TEXAS: OWNERSHIP AND CONTROL
Texas law characterizes property acquired by spouses either community or separate property when property is acquired, and this characterization has tremendous consequences.
w defines a spouse’s “separate property” as: (1) property owned or claimed by the spouse before marriage; (2) property acquired during the marriage by gift, devise or inheritance; (3) certain recoveries for personal injuries sustained by the spouse; (4) all income or property arising from a gift of property from one spouse to the other; and (5) assets acquired during marriage with separate funds, or with the proceeds of the sale of separate assets. An increase in the value of separate property is still separate property.
The Texas law defines “community property” to be all property acquired during marriage that is not “separate property.” Some examples of community property: (1) During marriage, the income of either spouse derived from either separate or community property is community property, and all income acquired by either spouse as compensation for services; and (2) Cash dividends, interest, or other income from separate property. In Texas, all assets possessed by either spouse during or at dissolution of the marriage (i.e., upon divorce, upon the death of one of the spouses, etc.) are presumed to be community property.
A spouse has the authority to manage and dispose of his or her separate property without the consent of the other spouse. However, community property may be qualified as “sole management” or “joint management” property. Each spouse has the sole right to control, manage and dispose of the community property that he or she would have owned if single, including, but not limited to, personal earnings, separate property income, recoveries for personal injuries and income from sole management community property (subject to certain exceptions). Joint management community property is all other community property other than the sole management community property. Such property is subject to the joint management and disposition decisions of the spouses. Property of one character, if combined with property of another character, may become so commingled that it is difficult to separate in the event of death or divorce.
The characterization of spouses’ property has special relevance to estate planning. Upon the death of a spouse, his or her separate property and 1/2 of community property passes either by a Will, or if no Will, then by the laws of descent and distribution, or by specific beneficiary designation or other contractual arrangement (i.e. life insurance and retirement accounts).
Important takeaways for Texans:
- Consider a marital agreement before or after marriage to characterize your property as you and your spouse want, instead of relying on Texas’ default rules;
- Consult an experienced estate planning attorney to advise you and your spouse on community and separate property when undertaking estate planning; and
- Ensure you and your spouse have an estate planning in place, and are not relying on the default rules of descent and distribution to transfer title of your assets at your death.
Contact The Strong Firm P.C. today to discuss setting up a plan for your family’s estate.
