Property Division in Divorce

Texas follows community property laws when dividing assets in a divorce, but this doesn’t automatically mean everything gets split 50/50. Let’s break down what you need to know about property division in Texas.

Property division can complicate the divorce process. Complications arise in determining whether or not the property owned by either one of the parties is actually community property. The goal of any property division is to make sure the parties’ community estate is divided in a “just and right” manner. To that end, one must figure out what the community estate consists of. In most cases, a marital estate consists of a marital home that the husband and wife live in, as well as their retirement accounts.

Watch: In this video by family law attorney Turner Thornton, we explain the difference between community and separate property in this video – and how it applies to equity in a pre-marital home in which both spouses paid down the mortgage.

Types of Property in Divorce

In Texas, property generally falls into two categories:

Separate Property

Separate property is property acquired before your marriage or given to you personally through gift, devise, or descent. Devise or descent is property you inherit from someone.

Separate property belongs solely to one spouse and includes:

Assets owned before marriage
Inheritances received during marriage
Gifts given specifically to one spouse
Personal injury settlements (excluding lost wages portion)

Community Property

Community property includes assets acquired during the marriage, regardless of whose name is on the title. This encompasses wages, real estate purchased during marriage, retirement benefits earned during marriage, and business interests developed after marriage. Income generated from separate property can actually be viewed as community property, and generally is viewed that way.

Mixed Property

Very often, property is not clearly community property or separate property. Separate property is property owned prior to marriage by one of the spouses or gifted to one of the spouses or inherited by one of the spouses.

Dividing Mixed Property

Property that is purchased with a mixture of community money and separate money is considered mixed property. Dividing mixed property is a complicated process. For instance, if there’s a business one has to determine whether or not the business was established before the marriage or after the marriage, and even if the business was established after the marriage, from what funds was it created? Was it created from a separate property source or was it created from community income?

Oftentimes a marital business has to be evaluated to determine what the value of it is so that the community estate can be properly divided. That’s often done with the help of a forensic accountant. If there are multiple businesses as well as multiple parcels of real estate and other investment assets, the community estate will require a lot of assessment to determine the proper division.

Learn more about how a divorce can affect business owners.

The “Just and Right” Standard for Property Division

Texas courts aim for a “just and right” division of community property, which may not always mean an equal split. Judges consider various factors when determining a fair division:

Each spouse’s earning capacity
Physical and mental health conditions
Educational background and employment skills
Size of separate estates
Child custody arrangements
Fault in the marriage’s end
Tax implications
Length of marriage

Listen: Property Division in a Texas Divorce

Complex Assets and Special Considerations in Asset Division

Some assets require special attention during division:

Business Interests: When a business is involved, proper valuation becomes crucial. Courts consider both enterprise value (the business itself) and personal goodwill (value tied to an individual’s skills). Only enterprise goodwill is considered community property for division purposes.

Retirement Accounts: Dividing retirement benefits often requires a Qualified Domestic Relations Order (QDRO). This specialized court order ensures proper division of pension plans, 401(k)s, and other retirement accounts.

Mixed Property: When separate and community property have been combined, tracing becomes important. The spouse claiming separate property must provide clear evidence tracking the asset’s history from its original separate status through any changes.

Real Estate: Property division becomes particularly complex with real estate. Important considerations include:

Mortgage obligations
Property tax responsibilities
Refinancing requirements
Need for special warranty deeds

Protecting Your Interests

Protecting your interests during property division requires careful preparation and attention to detail. The foundation of a fair division starts with thorough documentation of your separate property claims, supported by comprehensive financial records that clearly show the origin and history of your assets. This documentation becomes particularly crucial when dealing with complex assets, which often benefit from professional valuations to ensure accurate assessment of their worth.

It’s essential to understand that certain financial obligations, particularly mortgages, continue beyond the divorce decree. Even if your divorce agreement assigns the mortgage to your former spouse, lenders may still hold you responsible if your name remains on the loan. Additionally, property transfers and divisions can trigger significant tax consequences that should be carefully considered when negotiating settlements. Taking these factors into account early in the process can help you avoid unexpected financial complications after the divorce is finalized.

Getting Divorced? Contact Us

If you are facing a divorce involving complex property division, call us at (817) 900-3220.