Property Division in Divorce – Ten Important Facts to Know
Property division is among the most important aspects of the divorce process. It is also among the most complicated. When dividing community property during a divorce, both spouses need to have a clear understanding of all pertinent legal, financial and tax considerations, and they need to ensure that they are making informed decisions with their long-term best interests in mind.
What Divorcing Spouses in Texas Need to Know about Property Division
If you are preparing to go through a divorce, how can you make sure you are making informed decisions about property division? Here are 10 important facts to keep in mind:
- Not All Property Is Subject to Division in a Divorce
The first important fact you need to know is that not all property is subject to division in a divorce. In Texas, spouses’ “community property” is subject to division, while their respective “separate property” is not.
Generally speaking, the date of marriage is the dividing line for identifying separate and community property. Property owned prior to the date of marriage is known as “separate property,” while property acquired during the marriage is “community property” But there are several notable exceptions, and determining if any of these exceptions apply is a key early step in the divorce process.
- Texas is a “Community Property” State
When dividing their community property, divorcing spouses must adhere to Texas’s “community property” law (unless they have an enforceable prenuptial or postnuptial agreement that says otherwise). As a general rule, this law requires a “just and right” division—which may or not mean a 50-50 split. When deciding what is “just and right,” a court will consider several factors, including each spouse’s post-divorce earning capacities. For example, if the wife stayed home during the marriage to raise children, her earning capacity is likely less than her husband’s earning capacity assuming he was earning income during the marriage.
- Divorcing Spouses Must Address All Community Property During Their Divorce
To avoid unnecessary post-divorce complications, divorcing spouses must address all of their community property during the divorce process. High-net-worth couples will need to carefully identify and address all of the property in their community estate, but even divorces involving relatively modest property can present challenges with identifying all of the property that is on the table. As you begin to navigate the divorce process, it will be important to work closely with your divorce attorney to make sure you do not leave ownership of any community property unresolved which can include assets such as retirement accounts, restricted stock, stock options, earning benefit units, and unpaid bonuses.
- There Are Several Ways to Divide Community Property
When it comes to dividing community property, divorcing spouses in Texas have options available, depending on the type of property they own. Once again, the key is to be thorough and to ensure that both spouses have a clear understanding of their respective rights at the end of the process. Whether addressing property individually or in collections or groups, two of the primary options are:
- Selling property and dividing the proceeds (after paying off any related debts); and,
- Each spouse gives up their rights in certain community property in exchange for the exclusive right to others.
Each of these options (along with the various alternatives) may make more or less sense in different scenarios. For example, if neither spouse wants to stay in the family home, then selling the home during their divorce may be the best solution. Alternatively, if one spouse wants to remain in the family home, then that spouse will most likely need to give up other property of substantially equal value (taking any outstanding mortgage obligations into account) in exchange for exclusive ownership.
- There Are Several Ways to Come to Terms Regarding Property Division
Divorcing spouses also have several ways to come to terms regarding property division without going to court. For example, one option that is becoming increasingly popular is the collaborative divorce process. In a collaborative divorce, the spouses commit to resolving their differences in good faith, and they work with their attorneys and other advisors as necessary to address property-related issues and find mutually agreeable solutions that they might not have otherwise found on their own or that a court would order.
- Debts Also Require Careful Consideration
Along with dividing their community property, divorcing spouses in Texas must also divide their community debts. This, too, can present some unique challenges—particularly when both spouses’ names are on a loan, and they wish to transfer the obligation to a single spouse as part of the divorce process. While not impossible, this requires a proactive and tax-conscious approach.
- . . . And So Do Taxes
Speaking of taxes, tax liability can be an important factor when dividing spouses’ community property as well. Tax planning is often a key component of the divorce process, and when given the attention it deserves, it can result in substantial savings for both spouses.
- Identifying Separate and Community Property Can Lead to Some Surprises
While the default rule is that all property acquired during the marriage is community property and subject to division, under the law, a spouse is allowed to claim certain property as his/her separate property if he/she can prove that the separate property was acquired before marriage or acquired as a gift during the marriage. Some property can also have “separate” and “community” components, further adding complexity to the property division process.
- Some Property Will Need to Be Valued
To determine what constitutes a “just and right” division of spouses’ community property, some property may need to be valued. Real estate holdings, rare automobiles, and art collections are a few examples. To obtain a valuation, the spouses can agree on a third-party valuation expert, or if they cannot agree, they can each choose experts and then negotiate values based on their respective experts’ opinions.
- Overlooking Issues Now Can Lead to Problems in the Future
The final point to keep in mind is that overlooking property-related issues during the divorce process can lead to problems in the future. As a result, it is strongly in both spouses’ best interests to commit the necessary time and effort to the process. By putting in the work up front, spouses can avoid unnecessary disputes after their divorce, and they can avoid incurring the additional costs of pursuing a post-divorce resolution.
Discuss Your Options with Divorce Attorney Christine K. Lincoln
Are you contemplating a divorce in Texas? If so, we invite you to get in touch. To schedule a confidential consultation with divorce attorney Christin K. Lincoln, please call 281-970-9005 or contact us online today.Share This