Rebutting the Community Property Presumption

February 6, 2008

Often times a party in a divorce wishes to have the court affirm the separate nature of a particular piece of property.  They must therefore overcome the presumption set up by the Texas Family Code that all property in a marriage is of a community nature.

     “Clear and Convincing Evidence” must be presented to rebut the community property presumption.  (TFC 3.003).  see McKinley v. McKinley 496 SW2d 540, 543 (Tex. 1973).  The standard requires that “a reasonable trier of fact could have formed a firm belief or conviction that its finding was true.”  Stavinoha v. Stanivoha, 126 SW3d 604.  To prevail in court, a party generally must produce not only testimony, but also documentary evidence of the separate nature of community property.  See Boyd v. Boyd, 131 SW3d 605. 

     The evidence to rebut the community property presumption should establish the time and manner it was acquired.  This is known as the “inception of title”.  The evidence should also any mutations that may have happened to the property during the marriage.  This is known as “tracing”.  In tracing, small gaps in establishing a property’s nature through time will not necessarily prevent a party from proving the separate nature. See Faram v. Gervitz-Faram 895 SW2d 839.  In that case, evidence was found to be sufficient to establish the separate nature even though the records on the investment account were incomplete.  The party must show enough evidence to convince the trier of fact to form a firm belief or conviction of the separate nature.


Property III: Mutations

November 9, 2006

Changes in the form of an asset are referred to as “mutations”.

For example, let’s say that Mary owns a house prior to marriage. She then marries John. As we have discussed, the house is clearly the separate property of Mary.

Now assume that after the marriage she sells the house and purchases two giant atomic ants. She then sells THEM to a circus sideshow and with the proceeds, buys stock in Atomic Widgets Inc.

We say that the house “mutated” into Atomic stock by the subsequent transactions of Mary.

The interesting thing about mutations is that under Texas law, the characterization, does not change. The fact that the property is the separate property of Mary is not changed by the fact that the property changes in type over time and through various sales. As long as the proceeds from the sale of separate property are used to purchase other property, the new property retains the separate property character. Of course, as we have previously mentioned , the spouse trying to prove the separate nature of the property has the burden of proving that it is not community. However, this can be done if there are records to trace the assets.

Another interesting thing about mutations is that even if the value of the mutated asset goes up, it still retains it’s character. So in our example, if the Atomic Widgets stock goes up and are not other wise sold during the marriage, then the increased value of the stock is still all the separate property of Mary.

Although any dividends or other payouts from the stock are considered community, (because such payouts are much like “income” from the stock), the stock themselves (and their increased price) are still Mary’s separate property.

Property I: My Stuff, Your Stuff, Our Stuff

August 26, 2006

One of the and most contentious issues in many divorces is how the parties will separate the assets they have accumulated during the marriage. With this entry, we’ll begin a long section on the topic of property division in divorce.

It is natural for a person going through the dramatic (and sometimes tragic) experience of divorce to feel embattled. When a person is in “battle mode” they tend to put on their emotional armor. The helmet they put on may feel protective, but it actually leaves them more vulnerable because it blocks the field of vision. Mainly, they can see only what is immediately in front of them- that is, the hard fought battle of a temporary hearing or mediation. They tend not to have a clear view of what lies ahead. Without this clear view, they cannot see that the real victory lies well down the road, not in the minor skirmishes. Meanwhile, they spend all their energy fighting only what is in front of their faces.

It is vitally important that when a person is embattled in a divorce to keep in mind that although they have every right to fight for a fair division of the property, that in the end, it is just stuff. One should not sacrifice one’s peace of mind and sanity over material things. In addition, there are so many tales of married couples who exhaust all their resources fighting a legal battle over worthless trinkets that the story has almost become a cliche. Remember that movie, the War of the Roses? In it, a divorcing couple fought so much over who would get the marital home, that they invested their whole lives and fortunes in a pitched battle that had an ironic and tragic end. It may seem like that movie was a farcical exaggeration, but the dirty truth is, is that this Hollywood made fiction is not always that far from many people’s actual experience. You have to be smart when it comes to your finances, and you have to know when to cut your losses and move on.

One of the most important things to know about property in Texas divorces is the definition of the terms community property and separate property. If you are married and are seeking a divorce in Texas, then everything you have is considered community property no matter whose “name it is in”. This is what we lawyers call a “rebuttable presumption”, meaning that the court assumes everything is community property, unless you can convince the court that it is your own separate property.

TFC 3.001, carves out the legal definition of separate property. A spouse’s separate property is- (1) Property owned or claimed by the spouse before marriage; (2) Property acquired by the spouse during marriage by gift, devise or descent; and (3) The recovery for personal injuries sustained by the spouse during the marriage, except recovery for loss of earning capacity during marriage.

In addition, the following are also considered separate property: (1) Gifts between spouses (but you must meet very specific requirements to constitute a “gift”); (2) Written property agreements between spouses (by virtual of a 1999 constitutional amendment- but there must be an agreement in writing); and (3) Property obtained with the funds from separate property (a complex process called “tracing” must be used to prove this).

Again, these are the exceptions to the rule that everything obtained during the marriage is community. To call a piece of property one party’s separate requires strict proof which must be properly presented to the court.

As we begin to explore property division, we will get into more detail about what constitutes sufficient proof and the certain rules such as “the community out first” rule, and the “inception of title” rule that govern the determination of property division. For now, it is enough to learn and remember that property battles should not be fought with our heads down, blindly hacking away at small issues. Our visors should be up and our eyes on the the whole field, and you need to be wise enough to know when it is time to boldly charge forward, and when it is time to cut your losses and retreat. You need to determine early on how much financial resource and emotional energy you want to spend on a fight over property, and have the courage and discipline to expend no more than what makes sense. Remember, stuff can be replaced. Your sanity and peace of mind are much more valuable.