USA – TEXAS Law and Practice Contributed by: Perrin Clark, Ytterberg Deery Knull LLP
and the United States as a whole, while maintaining meaningful ties to their countries of origin. 2.3 Forced Heirship Laws Forced heirship laws generally do not exist in the United States. Individuals generally have testamen - tary freedom to dispose of their assets as they wish. Similarly, Texas has no forced heirship laws. See 2.4 Marital Property . Texas is a community property jurisdiction, meaning that a community estate arises during marriage, in which each spouse generally has an equal interest. The Texas community property regime was estab - lished by the Texas Constitution, which provides “[a]ll property, both real and personal, of a spouse owned or claimed before marriage, and that acquired after - ward by gift, devise or descent, shall be the separate property of that spouse...” The Texas Family Code also characterises recoveries from personal injury as a spouse’s separate property. The Texas Family Code defines community property by exclusion, providing that “[c]ommunity property consists of the proper - ty, other than separate property, acquired by either spouse during marriage”. 2.4 Marital Property Community Property Importantly, income earned during marriage, includ - ing income arising from a spouse’s separate prop - erty, is characterised as community property. Interest, dividends and rentals are also typically considered income and therefore community property. Capital gains are typically considered return on principal and therefore separate property. However, distributions from partnerships, other than liquidating distributions, are considered to be income and therefore community property. Separate Property The separate or community character of property is generally maintained as property changes form, for example, when property is sold, the resulting pro - ceeds maintain the same character as the former property. In order to determine the character of prop - erty, it may be necessary to trace the property back through subsequent mutations to its origin. Separate property that is commingled with community prop -
erty is presumed to be community property unless the source of the separate property can be traced. If the source is traceable to separate property, the separate property portion of the commingled funds is separate property and the remainder is commu - nity property. Such tracing is often necessary where a separate property account earns income that is then reinvested in the account. The original funds are sepa - rate, but, because income from separate property is community property, funds in the account will become commingled and presumed to consist entirely of com - munity property, unless the original separate property portion can be traced. Community and Separate Property In death and divorce At death, Texas law presumes all property owned by a spouse to be community property. A party may over - come this presumption by providing clear and con - vincing evidence that the property was the decedent’s separate property. In the event of a divorce, community property is divid - ed evenly between the spouses; provided the divi - sion is subject to an equitable adjustment by the court depending on the circumstances. Separate property belongs to the respective spouse and is not subject The separate or community character of property also impacts the amount of control each spouse has over such property and whether such property is available to each spouse’s creditors. There are three characteri - sations of property for these purposes: • sole management community property; • joint management community property; and • separate property. Sole management community property A spouse’s sole management community property is community property that they would own if they were single. This class of property includes personal earn - ings and income from separate property. Assets titled solely in one spouse’s name are presumed to be their sole management community property. Each spouse has sole control over the management and disposi - to division in a divorce. Control over property
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