USA – TEXAS Law and Practice Contributed by: Perrin Clark and Meredith McIver, Ytterberg Deery Knull LLP
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 - 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. to division in a divorce. Control over property
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;
836 CHAMBERS.COM
Powered by FlippingBook