Property issues can be very complex, and this post is designed to give a brief overview of separate and community property in Texas and what is required to prove separate property.
Understanding of Community Property and Separate Property
The Texas Family Code provides all property owned during the marriage is presumed to be the community property of the parties, and subject to division upon divorce. However, this presumption is rebuttable by showing evidence that certain assets are the separate property of one of the spouses. Separate property is property that was owned by a spouse prior to the marriage or received by gift, devise or descent. Community property gets divided, whereas separate property is “off the table” for division, and therefore remains with the party who owns it.
Burden of Proof as to Separate Property
The spouse claiming property as separate has the burden to prove its separate nature. Otherwise, the property will be deemed to be community and will be subject to a just and right division. Defining an asset as community or separate property is called characterization.
The standard for proving an asset is separate property is clear and convincing evidence. It is not a preponderance of the evidence, where one side must tip the scales of evidence just slightly in their favor. It is also not proof beyond a reasonable doubt, like one might expect in a criminal trial. It is however, a heightened subjective standard.
Necessity of Documentation
The key to proving separate property is documentation and showing a paper trail to trace your separate property. Tracing is the method used when your original separate property has changed form, been exchanged, or sold during your marriage, resulting in you owning different property at the time of divorce. The idea of tracing is fairly simple. Basically, you are connecting the dots, starting with your original separate property, then through each and every transaction, up until you acquired the property on hand at divorce. By identifying each transaction, you can show that the property on hand was acquired by your original separate property.
In order to prove the characterization of separate property assets when they have been commingled with community funds, a tracing report can be prepared to outline the inflows, outflows, and transfers of funds, and to trace any withdrawals to purchase other assets, to determine each of the community and separate property estates through to the present date. Tracing schedules such as these are commonly used by family law attorneys and forensic CPAs.
Some Cases Require a Tracing Expert
Although the idea of tracing is fairly simple, the tracing process can be complex depending on a variety of factors such as the number of exchanges, type of exchanges, length of marriage, available documentary evidence, the commingling of separate and community property, and the type of asset. There are also different methods employed by practitioners used to trace assets. Depending on the property at issue, it can be necessary to employ a forensic CPA who can trace the property, create a tracing report, and testify at trial, if necessary.
Hire a Competent Attorney Proficient in Property Issues
If you are facing separate property issues in a divorce, hire an attorney who focuses on the property aspects in a divorce and has expertise in characterizing, valuing, and tracing property. Without the guidance and assistance of a skilled attorney, your separate property can be lost, in whole or in part, to your spouse in the divorce.
Separate and community property issues can be complicated and far exceed what can be put into a single post. It is important to have an attorney who not only understands the concepts, but who will also help you understand the cost benefit analysis of trying to prove separate property. Is it worth it to spend dollars on a forensic accountant to trace the money in an account? Maybe. It depends on the amount of separate property to be traced.