Property Division

Dividing Property During A Divorce: Procedures And Rules 

When it’s time to divide property, a divorce can get contentious quickly. Just because you bought something doesn’t mean you keep it–there are laws and rules that define property ownership beyond just who holds the receipt. 

It’s All About Two Key Terms: Defining Property and Community

First, property is a broad definition that spans from owning a house to the shirt on your back. Anything that the couple owns falls into the property bucket. This bucket gets called Community Property, as in the community of two, the union formed by the marriage; in Texas and about 20 other states, the law presumes that everything starts as Community. So, at first, the court recognizes that you and your spouse both own everything. 

Property Battles Happen When Both Claim Separate Ownership

Now, if you want to claim that something is Separate,belonging to just one member of the union (you), then the onus is on you to prove individual ownership. Proving separate ownership begets contention when both lay claim to the property. For example, if someone helps you buy something, do they get rights to it? Imagine if you loaned someone a dollar to buy a lottery ticket and she won .. . Should you get something too? The courts must determine if property truly belongs to one person (separate) or if both should be considered (community). It’s not always easy to prove separate vs community.

Rules Exist To Identify Separate Property

To decide, the court follows some rules that define certain pieces of property as clearly separate, such as a gift or inheritance. However, since everything begins in the Community bucket, you will have to prove that one of these rules applies. Your lawyer will need to provide evidence that shows you received the property as a gift or inheritance. – Flag on the field! — This must be an accurate accounting; finagling the books may get you into trouble!

Circumventing The System Brings Severe Penalties

People have tried and failed to manipulate these exception rules to the community presumption so that their property appears to be gifted or inherited. If this backfires, then you are subject to other rules that relate to equity, i.e. fairness. If the court recognizes that you’re not a fair person, then these other rules might be applied; the court may decide against you based on your deceptive behavior. 

Also, people who hide property tend to lose during Discovery, the phase when lawyers can leverage three tools to pinpoint all property: 1) interrogatories, an inventory list of property; 2) request for production, producing all documents that might reveal hidden property, and 3) depositions, face-time before the judge delivering sworn statements. If you lie at any time during Discovery, you are committing perjury! There are severe penalties for perjury within the justice system. 

Amicable Agreements Might Supersede Court Procedures

Now, an amicable divorce without kids may work differently. If a couple creates their own agreement to divide property, the court might uphold it, particularly if nothing violates policy. Just remember that if you go this route, the property decision is final. Some agreements may allow you to adjust in the future, like custody, but the property agreement may not. 

Dividing Titled Property Between Divorcing Spouses Without Children

When you buy a shirt from the Gap, they don’t give you a property title for it; titles generally come with valuable, big-ticket items like a house, car, boat, etc. A title may indicate ownership, but in divorce proceedings, there are special rules and circumstances that affect even titled property.

When Inception of Title Matters

Titled property purchased before the marriage may be claimed as Separate instead of Community property. The inception of title rule establishes the property as Separate because you owned the item before the marriage. Now, you can make a case that Community property doesn’t apply here and that you should solely possess the property when the union dissolves since it was yours beforehand. 

No Clear-Cut Outcome Even With Titled Property

Unfortunately, as common sense as this may seem, there are some muddy waters surrounding your argument. Inception of title may not work if you and your spouse gained a benefit from marriage because she contributed to payments or added her name for a better interest rate. Indeed, she has some skin in the game and could challenge your claim, establishing her own claim for Separate property despite the title with your name on it.

Protecting Yourself From Liability

Scary truth is that one spouse may win property in a divorce settlement for which the other spouse holds the title. For example, your name appears on the car title, but she’s driving the car after the divorce. Here’s the scary part— courts rule on who takes it home, not who pays the bank;in our example,you’re responsible for the car payment but she gets to keep the car. 

In these situations, you may need to be careful because the owner of the title is still liable for the debt. The divorce decree does not trump the bank note. The title represents your contract with the bank for payment on the note, and the court cannot interfere with this arrangement. Therefore, the bank will hold the person named on the note accountable regardless of whom the divorce decree names as the owner. 

Also, if you refinanced a title into both your names, you may be affected by her actions towards the note. The court may grant you the item as Separate property, but if she fails to pay, then you may become fully responsible for the debt. 

Bottom line, if the court assigns property to your spouse for which you hold a title, then you may need additional protection from liability and to secure these details before the divorce proceedings end.

Community Property Rule May Override A Title 

Another titled property that both parties may want to claim as Separate from Community property is a house. However, in some cases, the Community property rule may protect you. If you moved out of the house, this does not surrender your rights to the property—remember, everything is Community property. You’ll still have the chance to claim the house, but act quickly; after too much time has passed, she may claim the house as her Separate property because she solely lived in and maintained the home for so long. 

Dividing Retirement Funds During A Divorce 

You may not view money as property, but divorce proceedings recognize all finances as Community property. Again, property is anything that the couple owns, from the shirt on your back to the money in the bank accounts. 

How The Court Views Income

The court recognizes that each spouse has an obligation to support each other and the community, no matter who earns more. For example, if your spouse worked but you stayed home to raise children, then you still contributed to the communal good of the household. Everybody worked together, everybody contributed to this good, and now everybody’s going to be able to extract from that good. 

Retirement Funds Treated As Community Property          

Retirement accounts may be set up by the individual, but both parties are entitled to the money during a divorce. This may be difficult to accept, but the principle in the background is always the following:  if the community worked for the gain of that thing then the community should get the gain from that thing. Therefore, retirement funds are eligible for division between the community members.

Same Principle Applies To Interest Accrued

Interest on an investment also falls into the Community Property bucket. If your spouse gets an inheritance, puts the money into an account, and the account gains interest during the course of the marriage, then that gain benefits the community. 

Similar Rules For Military Retirement Benefits

Another type of financial property is military benefits. If the timeline of service spans any portion of the marriage, then income or benefits from those years fall into Community property. Again, the principle stands that the money received for the work (the military service) was benefiting the community (the family). 

Avoiding The Rule of Community Property for Finances

You might feel that your spouse’s contributions were not enough to warrant an equal split. While it’s possible to claim your money is not Community Property, it’s extremely arduous to prove and may require a forensic accountant to show with amazing specificity that nothing was mixed together. Once you comingle finances, it’s just not practical or worthwhile to fight against the Community Property statute. 

Accessing Retirement Funds Before Finalizing the Divorce 

Before a divorce is final, you may request access to community retirement funds for special circumstances such as covering attorney’s fees or living expenses. When divorce proceedings begin, a standing order stops anyone from closing an account. Then, you may request a temporary order to access the funds.

Procedure To Withdraw Money From Retirement Funds 

Whether you move money out of a retirement account for attorney fees or as part of the settlement, you’ll need to file an order associated with tax shelter vehicles that penalize for early withdrawals. Retirement funds accept pre-tax dollars and therefore apply penalties for withdrawing money before retirement. To avoid penalties, you can request the court to order a transfer called a QDRO (referred to as “Quadro”), Qualified Domestic Relations Order. The Quadro moves money out of the account and avoid penalties.

Random Other Statutes That Affect Property During A Divorce 

From finances to debt, statutes exist that divide property between you and your spouse. During a divorce, you may be surprised by these rules that determine Community property.

Community Property From Comingled Finances 

No one plans to get divorced, so it’s unlikely that either party kept finances strictly separate in preparation for a split. Instead, your separate property benefited the community and comingled, making it available as Community property during a divorce. To extract your property from Community, you would need to provide receipts for every transaction, an implausible feat. 

Benefits From An Insurance Contract

Another surprise to divorcing couples is the statute that removes a divorced spouse as the beneficiary of an insurance policy. Since insurance benefits are granted by a contract, they are not a right guaranteed by law. If you want your ex to have the benefits for the sake of the kids, then you would need to reaffirm this after the divorce.

Common Law Marriage And Community Property

For some, the Common Law statute applies when it comes to Community property. This statute recognizes marriage for couples who live together and designate themselves as married, either by opening a joint credit card application or listing married status for an apartment lease. These actions count as evidence to support a Common Law marriage even without a ceremony.

In these cases, and even if a ceremonial marriage follows, the court recognizes the union formed to gain benefits of marriage must also bear the cost of the marriage. Unless you can prove that there was no intent to be married before having a ceremonial marriage which nullifies the designation of Common Law, then you may be held to Community property rules for a Common Law marriage. 

No Such Thing As Community Debt

Something that does not fall into Community property is debt. Debts incurred during the marriage continue to belong to whomever formed the contract. For example, a student loan is a contract between the borrower and the bank, so whereas community property is a default created by rules, debt must by law default to the contract relationship. The court cannot intervene between the bank and the borrower. Though, read the contract for joint and several liability which means the lender can go after either of you for the repayment, even if the loan belongs to your spouse!

Forming A Private Agreement To Manage Debt 

To manage debt, you and your spouse could form an agreement privately. For example, if you and your spouse keep the house so she can live there with the kids, then maybe you’d receive a payment from her to offset your loss of equity in the house. However, be careful because these private agreements are not enforceable. 

Best Course of Action Is To Get Out Clean

If you’re going to divorce and end the marriage, then end any property ownership as well. Try to get your names off titles or loans and sell any property that is borrowed. Work to try and divide everything, but don’t stay in business with your spouse! Meaning, sever any ties except if you have kids who will keep you connected by virtue of parenthood.