When you divorce, the court (or you and your spouse, if you can agree) will divide your property. Texas is a community property state, which means that most property acquired during marriage belongs to both spouses and must be divided at divorce. In contrast, each spouse gets to keep his or her separate property when the marriage ends.
As you can see, whether property is characterized as community or separate is very important when you divorce. Below, we answer some common questions about Texas community property law. For more information on Texas family law, see our Texas Divorce and Family Law page. You can find all of our articles on property division in our Divorce and Property area.
Texas law defines community property as all of the property that either spouse acquires during the marriage, except separate property. Separate property is anything one spouse owned prior to marriage, property inherited by only one spouse, property received as a gift by only one spouse, and recoveries for personal injuries sustained by only one spouse, except for the portion of the award intended to compensate for lost earnings during the marriage.
All property is presumed to be community property, unless and until the party claiming that it is separate property can prove it by a preponderance of the evidence.
When a couple divorces, Texas law requires that their property be divided in a manner that is "just and right." This means that the division of property must be equitable, under the circumstances. There are many circumstances that the court can consider in determining what is "equitable", including fault in the breakup of the marriage, disparity of earning power between the spouses, each spouse's health, which spouse has custody of the child(ren), each spouse's education and future employability of the spouses, and more.
To the extent that a married person accumulates an interest in a pension, retirement, profit sharing, or other employee benefit plan during the marriage, it is community property and subject to division upon divorce. If a court awards a portion of one spouse's retirement benefits to the other spouse, the attorneys will prepare a Qualified Domestic Relations Order (QDRO) to be sent to the employer, who will be ordered to distribute benefits to each spouse in accordance with the court's order.
In the case of a cash account, such as a 401(k), the employer will usually disburse the funds in 30 to 90 days. In the case of benefits to be paid upon retirement, such as a pension plan, the employer will be given a calculation of a percentage to be applied when payments begin, and the employer will be ordered to send the appropriate amounts to the other spouse in accordance with the court's order.
Like other community property assets, retirement and pension accounts do not have to be divided exactly equally between the spouses. If each spouse has a separate retirement account or pension for his or her own job, for example, the court might simply award each spouse his or her own account, particularly if the amounts in each are relatively similar or the award of other community property makes up the difference.
Like any other asset, a business or professional practice must be considered in the valuation and division of community property. To the extent that a business or practice has been developed during the marriage, there is a community property interest that must be dealt with in the divorce.
The most difficult and time-consuming aspect of determining the value of a business or professional practice is in valuing "goodwill." This is the intangible value that most businesses have based on their established name or reputation. Even a business or practice that could not be sold on the open market has a goodwill value, which must be ascertained when the couple divorces.
Certified public accountant and business appraisers are often hired to determine the value of a business or professional practice. The accountant or appraiser will review the books and records of the business or practice and prepare a written report.