Are Any Assets Protected From Divorce Property Division?
During a marriage, one or both spouses build assets. During a divorce, a court will split these assets. As you might imagine, disputes often arise over who gets what. Since Texas is one of the nine community property states, many people believe a court will split assets on a strict 50/50 basis. The truth is more complicated.
Community property vs. separate property
Community property belongs to the marital estate — both spouses. The general principle is that a court should split community property. Not all property, however, is community property. In almost every marriage, at least some property is separate — it belongs solely to one spouse or another. A rough generalization is that:
- Community property consists of assets acquired during the marriage.
- Separate property consists of whatever assets the respective spouses brought into the marriage or received as a gift or inheritance.
Examples of separate property
Below are some examples of various types of separate property:
- An automobile owned by one spouse before the marriage
- A ranch inherited by one spouse
- Cash inherited by one spouse
- In a personal injury settlement, certain damages like lost wages may be part of the estate, while compensation for pain and suffering or medical expenses paid from separate funds may be separate property.
The burden of proof is on the spouse claiming separate property. In other words, all property is community property unless a spouse proves otherwise.
Commingling of assets
Commingling of assets occurs when you mix separate property and community property so thoroughly that it is impossible to tell which is which. Cash is particularly easy to commingle, for example. If you commingle your separate property with community property, you risk forfeiting your separate property to the marital estate, which is only half yours. Here are some examples of commingling:
- Using an inheritance to buy a shared home
- Depositing separate funds into a joint account shared with your spouse
- Using your inheritance to pay off a joint mortgage
- Using separate funds to improve a jointly-owned home
- Retitling property in both spouse’s names
- Transferring separate stocks into a joint brokerage account
Even if you did commingle some of your separate assets, all is not necessarily lost. You can use tracing to prove which parts of a commingled asset are still yours. There is more than one way to trace an asset.
Tracing methods
If you deposited your separate $1,000 into a joint bank account, for example, you might be able to withdraw exactly the same amount to preserve its character as separate property. Tracing includes methods such as the minimum balance method, the pro rata method, and the community-out-first method. You might need the assistance of a forensic accountant.
Legal tools to protect assets
Texas law provides certain tools that you can use to protect your assets in the event of a divorce.
Prenuptial agreements
Be aware that lawyers like to refer to prenuptial agreements as “antenuptial agreements.” They are the same thing. Subject to limited certain restrictions, courts will enforce terms of prenuptial agreements that would otherwise violate Texas family law.
Income generated by separate property, for example, normally becomes community property. A prenuptial agreement can specify otherwise. On the other hand, a court might refuse to enforce a waiver of alimony if enforcing it would result in the other spouse needing public assistance.
Postnuptial agreements
A postnuptial agreement is the same as a prenuptial agreement, except that it doesn’t go into effect until after the wedding date. People often enter into postnuptial agreements due to unexpected changes in circumstances. You can also resort to a postnuptial agreement if you neglected to execute a prenuptial agreement before you got married.
A postnuptial agreement can also protect one spouse against subsequent calculated behavior by the other spouse. One spouse might use community property to buy assets in their own name, for example, thereby obscuring the character of the assets. A well-drafted postnuptial agreement can prevent this strategy from working.
Irrevocable trusts
An irrevocable trust, if structured properly, can protect your separate property from being commingled with community assets, preserve the separate character of income and appreciation, and shield assets from future marital claims. This is especially useful for gifts, inheritances, or premarital assets you wish to isolate from the marital estate.
Misconceptions about asset protection in divorce
Many people do not understand how Texas law works when it comes to asset protection in divorce. Following are some common myths:
“If it’s in my name, it’s mine”
Not necessarily. Texas community property law overrides titling rules. The Texas Family Code presumes that all property you acquired during the marriage is community property unless you prove otherwise by clear and convincing evidence. Clear and convincing evidence is a difficult standard to meet.
“Retirement accounts are always split”
Only the community property portion of a retirement account gets split. The contributions and growth that occurred before the marriage are the separate property of the spouse who made the contributions.
“My spouse can’t touch my inheritance”
Again, not necessarily so. Yes, your inheritance starts out as your separate property. But your inheritance can turn into community property if you commingle it with community property.
It can also turn into community property if, for example, you inherit a house and then use community funds to improve it. The same reasoning applies if your spouse contributes labor to the improvement of your home. Finally, any income generated by your inheritance (rent, for example) becomes community property unless you protect it using a pre/postnuptial agreement or a trust.
Contact a lawyer today
If your assets are substantial, the disposition of your property can easily become contentious. It is likely that not all of your assets will be subject to division if you divorce. You will need extensive knowledge and documentation, however, to fully protect your rights. Seek legal guidance early — not just when you are in divorce court.
At Grimshaw Divorce and Child Custody Lawyers, we understand what you are up against. We are a San Antonio family law firm that has been fighting for the rights of our clients for over two decades now. Contact us today and let us help safeguard your future.