Tom and Jane are getting divorced after a 20-year marriage. Tom purchased their home the year before they married. Fifteen years ago, Jane inherited $100,000.00 in stock, which has paid $10,000 in dividends. About ten years ago, Jane sold $25,000.00 worth of the stock to redo their kitchen.  Tom gets oil and gas monthly royalty checks of $1,000.00 from an interest his uncle gave him. Jane has a defined-benefits plan with the employer she has worked for throughout the marriage. Tom has a defined contribution plan with the company that hired him out of college four years before he met Jane. Their wages are automatically deposited into their separate bank accounts.

Consequence of Property Characterization in Divorce

All property in Texas is characterized as either separate, owned solely by one spouseor community, owned jointly by the couple. In a divorce, the couple either reaches an agreement as to the division of property or the court divides it.

Court Ordered Division of Property in Divorce

The divorce court cannot award one spouse’s separate property to the other spouse. However, the court may make a just and right divisionof the community property, taking into account all the obligations and resources, including separate property, of both spouses.  

Characterization of Tom and Jane’s Properties

Texas follows the inception of title rule with real estate. The house Tom bought before marriage is his separate property.  Jane’s contribution to improvements doesn’t change it into community property but does entitle her to reimbursement for this offering. The $100,000 in stock with any value increase is Jane’s separate property by inheritance, even though received after marriage. However, the $10,000 from dividends is community property as equivalent to income.  The royalties follow the characterization of the real property it comes from, so they are Tom’s separate propertyby inheritance. The community interest in Jane’s defined benefits plan is calculated by dividing the number of months she and Tom were married by the total number of months Jane was employed at the time of retirement. Since Tom is not yet eligible to retire, the community interest in his defined contribution plan is calculated by dividing the number of months Tom and Jane were married by the total number of months Tom was employed at the time of divorce. All the funds in the bank accounts deposited from their salaries are community property, regardless of the name on the account.  

Lesson Learned

Characterization in divorce is complicated. In order to reach a fair and equitable split of their property, divorcing couples should consult separate attorneys knowledgeable in community property characterization, even if they believe they can reach an agreement between themselves. 

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives and practices in beautiful Somervell County, near Chalk Mountain.