USA – TEXAS Law and Practice Contributed by: Perrin Clark, Ytterberg Deery Knull LLP
tion of their sole management community property. A spouse’s sole management community property is liable for their debts and any tort liability of the other spouse arising during the marriage, but generally it is exempt from the other spouse’s contractual debts. Joint management community property Joint management community property of the spouses consists of all the community property that is not sole management community property of either spouse. Such property is subject to both spouses’ joint con - trol over management and disposition. Additionally, joint management community property is liable for the debts of either spouse. It is also subject to the tort liability of either spouse. Separate property of a spouse Separate property of a spouse is subject to only that spouse’s control over management and disposition. As a general rule, a spouse’s separate property is not subject to the debts of the other spouse. The spouses’ homestead and certain other types of property (such as retirement accounts and certain insurance products) are generally exempt from the debts of both spouses, regardless of their character. Status of property in an irrevocable trust Generally, if an irrevocable trust has been settled by a third party (either before or after marriage) for the benefit of a married individual, trust property should belong to the trustee and therefore, should be neither community nor separate in character while held within the trust. However, once property is distributed to the beneficiary spouse, the property should be character - ised as separate property of the beneficiary spouse. Subsequently, the typical rules governing separate and community property should apply. However, this understanding of trust-owned property has not been decided by the Texas Supreme Court, and the lower courts have sometimes characterised trust-owned property and distributions of trust-owned property, particularly distributions of income, differently. Some case law in Texas suggests that, depending on the specific facts, trust property may be characterised as the separate property of the beneficiary spouse, and trust distributions, particularly distributions of trust income, may be characterised as community prop -
erty. Texas courts have weighted several factors when determining whether distributions from a trust should be considered community property, including whether
the beneficiary: • is the trustee;
• relies on trust distributions for support; • has a remainder interest in the trust; • has received or can compel distributions of trust principal; • has a general power of appointment; and • can assign trust property. Marital property agreements The Texas Constitution provides for marital prop - erty agreements, including premarital agreements. It provides that “persons about to marry and spouses, without the intention to defraud pre-existing creditors, may by written instrument from time to time partition between themselves all or part of their property, then existing or to be acquired, or exchange between them - selves the community interest of one spouse or future spouse in any property for the community interest of the other spouse or future spouse in other community property then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property and estate of such spouse or future spouse; spouses also may from time to time, by written instrument, agree between themselves that the income or property from all or part of the separate property then owned or which thereafter might be acquired by only one of them, shall be the separate property of that spouse...” Accordingly, in Texas, marital property agreements are permitted to alter the character of any interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earn - ings, of the spouses from the default characterisation under Texas law. In order to be valid, a marital property agreement must be in writing and signed by the parties. A marital prop - erty agreement may be amended only by a written agreement signed by the parties. A marital property agreement is presumed enforce - able under Texas law; provided, a spouse seeking to avoid it may overcome the presumption by demon -
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