Alex Hunt:
Welcome back to the Texas Family Lawyer Podcast. My name is Alex Hunt. I'm the managing attorney at Hunt Law Firm and I'm joined today by attorney at Hunt Law Firm, David Teasdale. Welcome.
David Teasdale:
Hi. Happy to be here.
Alex Hunt:
So today, David and I are going to discuss a little bit about community property versus separate property, and we're going to give a bit of a rundown of some of the things we talk about in our initial consultations with clients, but it's incredibly important to know the difference between community property and separate property, especially in Texas. Texas is a community property state. We're going to get into what that means. Other states are not. And let's just dig right in. David, tell us a little bit about community property versus separate property. What is community property?
David Teasdale:
Community property is anything acquired during the marriage. So this is going to be you get married, you bought a house during the marriage, you opened up a checking account, your income is going into there, it's your money, it's your debts, your liabilities, your stuff. That's what is going to be part of the marital assets. Separate property is anything that is owned prior to the marriage or during the marriage, you inherited something or you're gifted something. Those are your separate properties. Now, a court is only going to divide the community assets, so things you acquire, those spouses acquired during the marriage. A court is not going to divide separate assets, so it's really important to know what is community property versus what is separate property, because that can affect the overall division.
Alex Hunt:
And for clients that we have that are more visual learners, like I am, I like to envision it as having three buckets. So you've got this big community property asset bucket and it doesn't matter if the husband is the breadwinner, the wife is a breadwinner, both of them are breadwinners, doesn't matter whose name is on the bank account, doesn't matter whose name is on the check that's coming in. If they've got money that is coming in as income into that estate, it's going into this middle bucket that's called community property. And then each of the spouses will have their own separate property bucket. And that separate property bucket is going to hold, like you mentioned, any gifts, even if it's a gift from the other spouse. So that engagement ring that the wife got when they were getting married, that's a gift. They're getting that. Or they got some sort of Christmas gift or their parents gave them a gift. If it's a gift, it's going into their separate property depending on which spouse it is.
Alex Hunt:
And then there are some other ones like inheritances, like you mentioned, personal injury settlements. That's another one. That's one that is not typical, but sometimes you'll have personal injury settlements, and sometimes it can get a little bit difficult because if you say you get a gift from somebody, maybe you put that into a bank account that's mixed in with your income and that's where it can get a little bit jumbled and that's where the property is what we call mixed character.
Alex Hunt:
So tell me a little bit about what is the process then? What do we need to do, if you've got a divorce case and you've got a bank account that's got a little bit of separate property gift money, you've got a little bit of income in there, you've got a little bit of inheritance in there. Is it all just lost and it's all just community property or is this something we can do?
David Teasdale:
There's something we can do. Now, the starting point for any judge is it's community property. If you're trying to say that you have a commingled account that your separate property was put in, but now there's community property in there, it's your burden to prove that it is separate property, it is mixed character and how much is that your separate property? What we do in those situations is really bank statements. You have to prove it by what's called clear and convincing evidence. So you need to show the judge at the date of marriage, this was what the account was. Since then, this every monthly statement, this is what we have today. And that can be really difficult because these financial institutions, these banks don't always keep years worth of statements. I think what we go back five to seven years depending on the bank, so if you're dealing with a 10-year marriage, a 15-year marriage, it can be very difficult to go back that far.
David Teasdale:
So I would encourage people to go ahead and start collecting bank statements. Now in case you just don't know if you have separate property, especially if you have money owned prior to the marriage or have inheritance and you put your family money into a joint checking account or into a checking account that you had other assets in there. It's really important that we show the court that is your separate property and the only way to do that is through tracing and bank statements.
Alex Hunt:
And that tracing process often happens in coordination with a forensic accountant, and you think about you're already paying a lawyer, your spouse is already paying a lawyer for a divorce and now you've injected another professional into the mix that's going to charge you potentially thousands of dollars to do this what we call tracing. They're literally tracing where the money went from the inheritance or the gift throughout that account and when they trace it, they need to have a clear chain, every month they need to show so that no money went in, no money went out. And as you talked about that burden, there's a presumption that everything that a husband and wife owned is community property, clear and convincing evidence is not typically a burden that we deal with. We usually deal with preponderance of the evidence, which is 50.1% more likely than not.
David Teasdale:
More likely than not.
Alex Hunt:
And clear and convincing evidence is a pretty high burden. It's just a notch below beyond a reasonable doubt, which is the highest burden that you can have that's using criminal [inaudible 00:06:28] standard. So there really is a presumption that something's going to be community property and you've got to have your T's crossed and your I's dotted to make sure you can get a separate property claim established. So that's why, as you mentioned, incredibly important, save your bank statements. I know people aren't saving their bank statements thinking, "Well, I might get divorced in 10 years," but just good record keeping is going to help you establish an inheritance or a gift, especially of a large amount is going to be documented, should something happen and you get divorced. So it's important to figure out how to get that evidence. That's something that we help our clients with. What type of evidence would somebody need to establish a separate property claim in a divorce case?
David Teasdale:
It depends on the asset. So if we're dealing with a house, that one's pretty straightforward. We're going to go to the real property records, we're going to get the warranty deed. It's going to show when the house was transferred into that spouse's name. When you're dealing with retirement, the question is was that 401k started before the marriage or after the marriage? If it was before the marriage, then part of it is going to be separate property and part of it is going to be community property.
David Teasdale:
If you're dealing with, like we said, checking accounts, brokerage accounts, any of those assets, the monthly statements are key. You have to show the court that. You can't just go to court and say, "I had $100,000 in my checking account." I mean, you can testify to that, but you got to show the judge the proof.
Alex Hunt:
And if it's very complex, it's possible that the court is not going to accept you just taking the bank statements and explaining it yourself. They're going to expect a professional. Remember, the lawyers in these case, we deal with this stuff all the time, so we have some experience dealing with financial records and we know how to make our way around them, but we are not accountants, and judges are just family lawyers that have been elected to the bench or pointed to the bench, and so they don't have any type of specialized accounting knowledge themselves and they're going to depend on the professionals in order to show them that something can be established by clear and convincing evidence. Let's talk a little bit about how we would then take all of that evidence to prove a separate property claim and build an inventory. What is an inventory? Because that's something that folks that are involved in a divorce where there's property issues are going to hear a lot.
David Teasdale:
Yeah, it's required in every divorce case. An inventory is where we take a list of all your assets, everything you own with any financial institution, checking, account savings, account brokerage, retirement, IRAs, life insurance policies, real property vehicles. We just put a list of all of your assets on a spreadsheet, basically, and you're going to swear under oath that this is everything that you know have and it's going to list all your liabilities as well. Your spouse is going to do the same thing. We're going to have backup to support every value, whether we need an appraisal, whether we need a current statement, we're going to have backup attached to that. It's going to be filed with the court, we're going to exchange it, give it to the other side. They're going to give us ours, it's theirs, it's required.
David Teasdale:
And then at trial we're going to walk you through your testimony of, "I own this, I own this, I own this. This is the community property. These are the liabilities, but this is my separate property," if you have any of those. And then that's when we may need the experts to come in and walk them through the individual separate property that we're trying to claim.
Alex Hunt:
And I can't stress the importance of the sworn aspect of an inventory more, because folks will come to us and they'll say, "I think that my husband, I think that my wife might be hiding something," and your inventory is your first line of defense to make sure that they're going to expose something that maybe they're hiding. The reason why as an inventory has language that they are swearing under penalty of perjury that everything that is in that list of assets and debts is accurate and complete. Now, people still lie when they sign something under penalty of perjury, so it's our first line of defense and our last line of defense.
Alex Hunt:
We can still request bank records. We review those, we see if there's any accounts that we don't have statements for, we ask for those. We then will subpoena additional documents directly from the bank or from the institution. There's a lot of stuff we can do there, but the inventory-
David Teasdale:
[inaudible 00:11:25].
Alex Hunt:
... their employer, the inventory is the starting point. And we use it quite often when we're trying to negotiate a final settlement. Because in the end, when you are dividing your property, you are simply figuring out what assets and what debts are going to which party.
Alex Hunt:
And so, you've got this spreadsheet of all the assets and the debts, and then you'll literally have a column that says community property to spouse, number 1, community property to spouse number 2. Separate property spouse number 1, separate property spouse number 2. And if you're living in the house, you want to keep the house, then that will go into your column for purposes of negotiation and then you have to make up the value of that somewhere else, so you don't have a completely lopsided final agreement. And especially in mediation, especially in the final trial, if you're unable to reach an agreement, that's going to guide the discussion of what a property division is going to look like.
David Teasdale:
Right. A lot of my... There's a misconception. I see this all the time with a lot of my clients are in consults. People just say, "Is she going to get half my retirement or are we going to just divide everything in half? "And no, that's not what we're going to do. Like you said, we are going to-
Alex Hunt:
You can
David Teasdale:
But that would be so burdensome to literally divide every checking account in half. What we typically do is we look at the bottom line of the community portion. We're going to put, like you said, Alex, if you're going to get the house, we'll put that in your column and if there's a mortgage, we'll put that in your column, and then we're going to just award everything that's in their names to themselves and see what the bottom line is. Typically, if we're trying to get close to a 50/50, there are factors that in negotiations that would, maybe one spouse may need more of the estate than the other, but typically 50/50 is a good starting point. Once we assign every asset that each spouse may take, we look at the bottom line and see how far apart we are, and then we can use one of the larger assets. It's normally the house, the equity in the home or it's normally a retirement to equalize the bottom line, basically.
Alex Hunt:
And not every case is going to have a 50/50 split. And so, that is another myth that I think a lot of people think, "Well, of course we're going to do 50/50." That's not always the case. However, other people will come to us and say, "He cheated," or she has some bad fact on her side. And so, it should be a 75/25 split. And generally, unless there are horrendous facts, courts in Texas and especially around the greater Houston area, are not going to skew the division that much. The only time, and there have been a handful of times where I have gotten an extraordinarily large division, I have gotten cases where it has been 70 to 80% for my client where there has been really egregious things that have happened, massively wasting money, spending things on things that the other spouse didn't consent to and that were just a total waste.
David Teasdale:
Inappropriate gifts.
Alex Hunt:
And those are things that we can certainly look into and that could skew it, but really the only thing that the court is required to do is a just and right division. And so, that's the gray area where family lawyers earn our fee is just and right. What does that mean? It can mean anything to anybody. And so, that's where we do our work to show the judge whether something is in fact just and right for our client and for the other side. So if the judge is taking 50/50 as a starting point, what does it look like? What needs to happen in order for the judge to say, "Maybe I'm going to go 55/45"?
David Teasdale:
So there's a couple things to look at. First, needs-based grounds versus fault-based. So your fault-based is like you said, adultery, cheating. Cruel treatment would be another one. So name-calling, it has to be pretty intense, though. Always belittling, putting down, there's a lot that goes into cruel treatment. But if you get those fault-based, the court could on those grounds award a disproportionate division on its own.
Alex Hunt:
And that is something that you need to know at the outset that you're going for. You need to let the other side know, "I'm going for a disproportionate share of the community estate," and so let's go down each of those factors, fault-based factors. Somebody did something wrong in the divorce and they're the reason that it's going to be 55/45, 60/40. The first one would be grounds. And so, typically we see most divorces granted on the basis of insupportability, which is people might have seen on TV or in other states, irreconcilable differences.
David Teasdale:
No fault
Alex Hunt:
That just we grew apart. There's no fault. We're not going to get back together. It is what it is. No fault. But there are fault-based grounds, one of which is adultery, one of which is cruelty. Tell me a little bit about those two.
David Teasdale:
So with adultery, you need to show that an affair has happened, that there's been a sexual relationship with someone outside the marriage and you didn't consent to it or anything like that. You need to prove to the judge that this person has stepped outside of the marriage and cheated on you.
Alex Hunt:
What about Facebook messaging somebody and talking with them? Would that count?
David Teasdale:
No, it doesn't. Now, you and I would agree, that's probably not, but is that adultery under Texas law? No, it's not. You need to show the sexual relationship.
Alex Hunt:
Yeah, emotional affairs, while certainly not great, don't qualify as adultery in a Texas court. Tell me a little bit about cruelty, because again, that is this amorphous term that can have a lot of different meanings to different people.
David Teasdale:
It just basically means that you are so insufferable that the person can't live with you anymore, that you really treated them like they're garbage. And that's a different threshold for a lot of people, so it is a very fact intensive question, but it's again, what I said earlier, name-calling, belittling arguing... But more than arguing, just screaming at each other, shouting, all of those comes in the play. Just because you had an argument and you all shouted at each other, doesn't mean it's cruel treatment. But given one case, it could be. It's just a very fact intense question.
Alex Hunt:
And it's really tough to get, absent any type of severe emotional abuse or family violence. If there's physical violence against the children or the spouse, that would most likely qualify to at least be considered as cruelty. Yelling at each other. A lot of times when people are getting divorced, there's some yelling at some point in the process. And so, if that were the criteria, then everybody would have a cruelty grant. But the other thing to consider is that a lot of times, I would say probably 80 to 90% of time, a case is going to be resolved in mediation. And if there is a mediated agreement or negotiated agreement, 99% of the time, there's going to be an agreement we're going to do a non-fault ground. Because you can have the same property settlement, but most people don't want to have in a public record that they were adulterous or that they were cruel.
David Teasdale:
There isn't any sense, especially if we're having two people come to an agreement.
Alex Hunt:
Yeah. So let's talk about, because I think this is likely a bigger area where people are going to seek a disproportionate share. Those were the fault based grounds. These are the need-based grounds, and the first one is income and earning capacity of the spouses. Tell me a bit about that.
David Teasdale:
So maybe you're dealing with, I don't know, a situation where you have a stay at home mom who's taking care of the kids the entire time, and they're in the traditional roles. The husband has been the bread winner and earner throughout the marriage, and he has made the income and she has stayed home and raised the kids. Now, if they all are getting a divorce, she doesn't have any job prospects, really. She's been out of the workforce for 20 years and he's continued to be in the workforce. Now, they agreed to those roles, but that is a huge income disparity there.
Alex Hunt:
Certainly. And say you've got $500,000 estate and one party is looking to do 250, 250, the judge might say, "I'm going to make it maybe 275, 225 or 300, 200 because one of the spouses simply doesn't have the training and the ability to go and make what the other spouse is making," especially if they're making a really good salary. And so, it compensates for the fact that they're going to be able to move on from this divorce and make up for whatever they're losing from their checking account or their retirement fairly quickly. The other person is not.
Alex Hunt:
And so, it is not going to mean that the judge is going to give you a hundred percent of everything for some of my clients. I wish that were the case because they need it, but that's just not the way Texas law is set up. In a similar vein, education and training would be another need-based ground. The judge is going to look at who has the ability to immediately go and make a larger income. If one party has a JD, they're a lawyer, and one party has a high school education and no applicable training where they can go and get a job right away, they might look at that.
Alex Hunt:
The court might also look at if one spouse is going through a job training program and they know that they'll be able to get a good job with a good salary in the future, but they need six months, maybe the judge will account for that a little bit and say, "Let's get them through this next six months by having a little bit more of a disproportionate share." The next one, this is the third one, the age and health of the spouses. Tell me about that.
David Teasdale:
Well, so say y'all are nearing retirement age and you're not going to have a job where probably you're about to retire, the court can consider that and dividing an estate. What if one of the spouses is disabled? There are other mechanisms that we're not going to get into here. Texas's version of alimony, spousal maintenance that may be appropriate. But when dividing an estate, a court can look at is a spouse has a disability, are they able to work in dividing an estate?
Alex Hunt:
Yeah, and you mentioned spousal maintenance. We're not discussing that in depth in this podcast, but that is another possibility, that if one party does have a disability or they are a little bit older and they don't have the ability to meet their minimum reasonable needs, which is the criteria under Texas law, then the court could order the other spouse to pay them a certain amount of money every month for a certain limited period of time, unless the disability is such that person's never going to be able to work again, in which case the judge could order it for a longer period. But that is a possibility and that is a way that that person can make sure that they can make ends meet. But for purposes of today, we're just talking about community and separate property, but that is a possibility and something that and your lawyer should discuss.
David Teasdale:
Yeah. And the court can also just consider not to award the spousal and just give them more of the estate, more of the just vision.
Alex Hunt:
And I have found that to be the case most of the time, judges, if you have a large estate, if you have say a $2 million estate, there is enough money there that somebody... It would be the judge is going to give you a little bit more money versus having the other person pay you a monthly amount, nearly every time. Which if I'm the lawyer for the person that needs that extra money, I'm going to take that all day because I would rather have the money up front for my client and know that they're going to get it. Versus every month, you're wondering if your ex-spouse is going to put the check in the mail to pay you.
David Teasdale:
Right. And that's when we also meet with certified divorced financial analysts to figure out which assets we need to go after in the just and right. Maybe if you have a spouse who isn't working, maybe we need to go for more liquidity versus retirement assets that they're not going to be able to touch for years without taking a huge penalty. So those are things that we discuss with our clients regularly.
Alex Hunt:
So the next fault, a need-based factor would be the benefits that would've been derived from the marriage, had it continued. What does that mean?
David Teasdale:
Really, I believe that that means that, so if the marriage had continued, maybe your spouse has access to specific benefits or maybe there's a reason that if you had stayed together, you would've gotten something, you would be staying in the marriage and this thing would have continued.
Alex Hunt:
Maybe you would've gotten health insurance continued. Maybe you owned a business together and now you're missing out on the income from that business because you have given the business to the other person. So if you had stayed married, you probably would've gotten certain benefits. You're not getting them, now, the court can consider that.
David Teasdale:
The court consider that and giving you more of the estate. Yes.
Alex Hunt:
The next one is business opportunities. We talked about that, and then there's a number of other factors. The last one that we're going to talk about today is the size of the separate property award that you got.
David Teasdale:
The court can consider, if the community estate is $500,000 and you're sitting on an inheritance of a million dollars, your family literally left you the farm. A court can consider that in dividing the estate, because the court can't divide the farm. It can't divide the separate property. It's going to confirm that as your separate property. So you're walking away with a $1 million asset and the other spouse, and then you're also getting half of the community. So it doesn't always happen, but a court does have the authority to look at this party's separate property when dividing the community estate.
Alex Hunt:
And so, disproportionate share is one thing that can affect the typical property division. We would be remiss if we didn't talk about two other things that can affect it. The first one is a premarital agreement. The second one is a post-marital agreement. Tell me, folks might have heard prenup, prenuptial agreement, premarital agreement. Tell me a bit about how that can affect the outcome.
David Teasdale:
Yeah, it can greatly affect the outcome. In our premarital agreements and our post-marital agreements, they're called partition or exchange agreements, you are contracting to change Texas law, basically. You are entering it into a contract with your spouse or a future spouse in a premarital agreement to say, "We understand Texas law is a community property state, but in this prenup we're going to say there is no community property. Everything is separate property. If I have the house in my name, that's going to be my separate property. If we have any accounts or retirements in my name, that's going to be my separate property. A court can't divide that."
David Teasdale:
So you have to be very careful when entering into these agreements. Talk with your lawyer. We will sit down with you and go over and help draft these things for you. But these things can heavily affect Texas law. And a judge, if it's a valid premarital agreement, the judge is going to follow that contract. And not if you said no community property, it's only separate property. Typically, the starting point for our courts is everything's community property, but you have a valid prenuptial agreement or post-marital agreement, the judge is going to divide the estate the way you contracted to be divided.
Alex Hunt:
And a premarital agreement would come before the marriage. I completely agree with you, that you should consult with a lawyer when you're either drafting it or you are considering signing it. And just to give an example of one of the ways it can change Texas law is, say for example, you've got a bank, you've got a brokerage account, you've got stocks that are worth about $100,000 and that's your separate property because you owned it before the marriage. If you got paid dividends on that, those would typically be income, which would then be community property.
Alex Hunt:
And it can make it difficult to divide it up, because then you've got this mixed character asset and you've got commingled community property and separate property in one account, and you've got to go get a forensic accountant and all that. But a good premarital agreement can say any dividends, any income is going to be separate property. It really simplifies matters.
Alex Hunt:
The other thing you can do is you can say specific accounts and you can say, "These are my accounts. This is my business, this is my house. This is going to remain my separate property, no matter what happens in our marriage." And then that post-marital agreement essentially does the same thing, but it's just after you're married. And you can change what the default provisions would be. Sometimes we see people do post-marital agreements where there's just a change in circumstances in terms of business asset or something like that.
Alex Hunt:
Sometimes people will go down the road of divorce, they decide they want to stay together. They've gotten far in the divorce process, and then they say, "Look, we're going to try this out. We're going to try to make this work, but in the event that we can't work it out, let's work out the details of what our divorce is going to look like property wise now and put it in an agreement and sign off on it. And then if it ends up not working out, we don't have to go through the hassle and the financial costs and the drama of going through the divorce process again." It just simplifies things.
David Teasdale:
You can be married and not worry about the what ifs, because you've already taken care of it.
Alex Hunt:
And so, it's important to note this is just for Texas community property versus separate property. Other states, particularly those in the Northeast, have a different way of doing things. They're not community property states. A lot of the southern and western states are community property states and have a similar setup. But it's important to know these differences and these nuances because the decisions that you make while you're married, like the record keeping, and if you get an inheritance, I tell people, "Put that in a separate account. Don't put that into your joint account. You never know what's going to happen in the future. Keep it in a separate account. Don't put any community property in there. Just protect yourself for the future." But understanding a little bit about this community property versus separate property is that can help people both during the divorce process and even before, because they might make different decisions.
David Teasdale:
Right, absolutely.
Alex Hunt:
Well, David, thank you so much for helping to explain this very important topic, and if you wanted to do a consultation with myself or with David, you can come visit us at either our Katie office, Cypress, Sugarland, or League City at Hunt Law Firm. You can find us at FamilyLawyerKaty.com and at FamilyLawyerKaty.com we not only have information on how to get in touch with us, but also a lot of resources including articles and resources on community versus separate property and just property division in general. You can also call our office at 832-315-5495. Thanks again, David.
David Teasdale:
Thanks for having me.
Alex Hunt:
All right. Until next time, everybody.