It looks like my spouse and I will soon be separating, and possibly divorcing. As Texas residents, will the assets that each of us acquire after we separate, but before our divorce is final, be considered community property?
Texas, as you correctly point out, refers to its form of marital property law as being of the “community property” variety. Notwithstanding the “community property” label, the Texas system of marital property law is not a true form of community property law. That, however, is a subject for a different time.
All community property jurisdictions agree that property acquired both prior to and after marriage are separate property. The legal issue, as you astutely have observed, is at what point in time a marriage is deemed to have terminated for the purpose of acquisition of community property.
Some community property states, for example, California, consider “separation” to be the event that determines whether newly-acquired assets will be separate property. Texas, on the other hand, considers entry of a decree of divorce to be the relevant event.
There are advantages and disadvantages to both methods.
In jurisdictions where separation is the triggering event, there often is significant (e.g., expensive) litigation on the issue of whether and when the parties “separated.” Living apart may not always be legally sufficient. Furthermore, in cases where the parties reside in the same residence during divorce – albeit in different areas thereof – the date-of-separation can be much harder to establish. However, assuming an undisputed date-of-separation, parties in this type of jurisdiction can live apart for years and never get divorced, all the time acquiring separate property.
In jurisdictions such as Texas, where entry of a decree of divorce is the triggering event, there is usually much less, if any, incentive for parties to litigate the date-of-separation issue. However, if there is a significant disparity in the amount of actual post-separation earnings of the parties, that fact alone might be sufficient reason to promptly obtain a divorce.
Consider an example: Husband and wife separate. Husband earns $150,000 per year, while wife earns only $50,000 per year. The couple delays divorcing for five years.
In a date-of-separation jurisdiction, everything each of the parties earned post-separation is the separate property of the party who earned it. Litigate the date of separation issue and this aspect of the property division issue pretty much resolves itself. In our example, the only community property to divide would be that which was acquired prior to separation. The post-separation earnings would be the separate property of the spouse who earned them.
In a divorce decree jurisdiction such as Texas, each party in our example would effectively have earned $100,000 per year during the separation ([$150,000 per year + $50,000 per year] / 2). Assuming, for the sake of illustration, that husband saved every dollar of post-separation earnings, husband would owe wife $250,000 ($50,000 per year x 5 years) to equalize the division of community property. Naturally, the husband in our example will likely have consumed some of his post-separation earnings on day-to-day living expenses, which would have the effect of reducing the amount of the equalizing payment.
However, to the extent that a portion of either spouse’s post-separation earnings were saved or invested – in either traditional investments or in retirement accounts – those savings or investments would be community property. Likewise for any real property that either spouse may have purchased during separation (e.g., a replacement residence), but prior to entry of a decree of divorce.
As is readily apparent, it is important to properly and adequately address legal issues without delay, especially where, as in the situation of separation-divorce, the failure to take prompt and effective legal action could be very costly.
For more information on this topic, click here to: Contact Lapin Law Offices
Lapin Law Offices, P.C.
5001 Spring Valley Road, Suite 400 East
Post Office Box 802234
Dallas, Texas 75380
Disclaimer: The information contained in this publication is provided by Lapin Law Offices, P.C., for informational purposes only and, shall not constitute legal advice or create an attorney-client relationship. The laws and interpretation of laws discussed herein may not accurately reflect the law in the reader’s jurisdiction and/or may not reflect current law. Do not rely on the information contained in this publication for any purpose. If you have a specific legal question, please consult with an attorney in your jurisdiction who is competent to assist you.