Property

Determining how marital property will be divided during a divorce can be confusing and contentious. The first step in distributing property acquired during a marriage is determining which estate owns the property. Texas is a community property state, and accordingly, Texas Family Code § 3.003(a) establishes that “property possessed by either spouse during or on dissolution of marriage is presumed to be community property.” It is important to note that there are the two categories that fall within the broader term of property: real property, which is real estate, and personal property, which is everything else, including money.

Community vs. Separate Property in Texas

In Texas, property acquired during a marriage is presumed to be owned by the community estate, with some exceptions. All property will fall within the community estate or the separate estate of one of the spouses. The community estate is a legal distinction for property that is acquired during marriage and therefore is owned by the spouses and subject to division in a divorce. Each spouse will also have a separate estate, as defined in Texas Family Code § 300.1, consisting of property acquired prior to marriage, property acquired during the marriage by gift, devise, or descent (inheritance), or recovery for personal injury lawsuits other than recovery for lost wages.

In order to determine which estate property belongs to, it must be characterized. Key factors to consider are when and how property was acquired as well as the value or liability of property at the time of marriage.

Though there is a presumption that property acquired during the marriage is owned by the community estate, a spouse may rebut this presumption by establishing by clear and convincing evidence that the disputed property is separate property.

Even when the parties agree about the characterization of the property, one of the estates may owe a reimbursement. For example, a house purchased before a marriage is separate property. Still, the community estate may be entitled to a reimbursement for the decrease of the principal amount owed on the separate property throughout the marriage.

Texas courts are not required to divide the community estate equally between the spouses. Texas Family Code § 7.001 states that a court “shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.” The court may consider many factors, including fault in the breakup of the marriage, custody of children, and disparate earning power of the spouses. Similarly, a court is not required to equally divide debts acquired during a marriage. A skillful lawyer can advise you on the characterization of property, proof to support your claim, and protection of your assets.

Mixed Character Real Property

A mixed character asset is property that is owned in part by both the community estate and one or both separate estates of the spouses. Mixed character real property is common when a house is bought during the marriage using both separate property funds of one spouse and community funds. The house is community property but with a separate property interest for the spouse who contributed separate property funds. The percentage of the home acquired by the separate property investment will determine the percentage of the home which is owned by the community estate. This principle is all outlined in the landmark Texas case Gleich v. Bongio, 128 Tex. 606 (1937). This case, in its most relevant part, states the following key points: 

1. Property acquired during the marriage is presumed to be community property. 
2. The presumption of community property does not divest a spouse of the possible separate property claims they may have in that community property. 
3. Purchasing community property with separate property funds does not divest the community estate of interest in the property but rather creates a separate property interest in the property.

Example: Bandit and Chili are married in 2005. Real Austin Property House was acquired in 2004 by Bandit before the marriage. Bandit never changed the title of the home and has exclusively been the owner of the Real Austin Property House since its purchase in 2004. Chili was never added to the title of the home. Bandit sold Real Austin Property House in 2015. As such, Bandit owned 100% of Real Austin Property House at the time of purchase and at the time of sale. The proceeds from the sale of the home were never co-mingled in any community accounts. The proceeds from the sale of the Real Austin Property House were transferred from his Chase Savings and used to purchase the marital residence at Bandit and Chili Austin Home. The gross purchase price was $490,657.45. $72,369.44 of Bandit’s separate property funds were used to purchase Bandit and Chili Austin Home. Thus, the community portion of the interest in the home is $418,288.01, and Bandit’s separate property interest is the $72,369.44 amount of separate property used for the purchase.

Spousal Fiduciary Duty and Breach

A fiduciary relationship exists between spouses as to the portion of community property controlled by each party. A duty exists when one party trusts and relies on the other, such as an attorney/client relationship. Marriage relies on trust and confidence between each other and inherently gives each spouse agency to act on behalf of the other. This can leave a spouse vulnerable as one spouse acts on the other’s behalf, creating legal and financial implications for both spouses. As with other fiduciary duty relationships, spouses are held to a duty of “utmost good faith.” The unique relationship created by a marriage, however, affects the understanding of that duty. The conduct of a spouse affecting the property rights of the other spouse can be constructive fraud even if the exact same facts in a non-spousal fiduciary relationship would not be fraudulent.

The breach of a legal or equitable duty that violates the fiduciary relationship existing between spouses is “fraud on the community,” a judicially created concept based on the theory of “constructive fraud.” Though fraud on the community may not actually be fraudulent, it “has all the consequences and legal effects of actual fraud in that such conduct tends to deceive the other spouse or violate confidences that exist as a result of the marriage.” Constructive fraud occurs when one spouse exercises power over the community estate in an excessive, capricious, or arbitrary manner. It is not necessary in a fraud on the community case to plead and prove intent, as in common law fraud or actual fraud.

A presumption of fraud on the community arises when one spouse unfairly or wrongfully disposes of the other spouse’s interest in community property. It is further presumed that constructive fraud exists where one spouse disposes of the other spouse’s interest in community property without the other’s knowledge or consent. Once fraud on the community is alleged by the complainant, the responding party must rebut the presumption by proving the fairness of the transaction or gift.

Example: Bandit and Chili are married in 2005. Bandit and Chili start Bluey, LLC together as partners. Bluey, LLC owns interest in several houses around town. Some of these houses are rented to members of Bandit’s family members. Chili files for divorce in 2023. Chili finds out during the course of the divorce that Bandit had sold some of the real property to his family members in 2020 without her knowledge or consent. Bandit sold his family Lake Travis Lakefront Property for $20. Chili is angry. Chili can include a claim of breach of fiduciary duty in her divorce pleadings.