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Separate Property
1. Property owned or claimed by either spouse before marriage

2. Property acquired during marriage by gift, will (devise), or inheritance (descent)

3. SP can be produced by a written partition or exchange of CP

4. Property purchased with separate funds is SP (tracing/mutation principle)

5. Tort recovery for personal injury (disfigurement, pain and suffering, loss of consortium, etc.) is SP
--BUT, recovery for lost earnings and wages, as well as reimbursement for medical expenses that were the responsibility of the community, are CP
--Lost of future earnings after the parties divorce, though, is SP
Community Property
Property, other than SP, acquired by either spouse during marriage.

Examples:
1. Salary and wages of either spouse
2. Income from community assets

NOTE: A bonus earned before marriage but not paid until after marriage is still SP

The income from SP is CP, unless:
--The spouses agree in writing that such income shall be that spouse's SP
--Gift from one spouse to the other spouse: income from the donated property is presumptively the donee spouse's SP
Community Presumption
All assets on hand whenever the issued is raised (e.g., divorce, death, creditor's claim, etc.) are presumptively CP.
--Accordingly, all assets acquired during marriage are presumptively CP

All assets acquired on credit during the marriage are presumptively acquired on community credit

Burden on proving an asset is SP is on party contending, and must do so by clear and convincing evidence.

REMEMBER TO PUT ON TEST: In one case, the court held that the statutory definition of a personal injury recovery as separate property gives rise to a presumption of separate property. But all others have held that a spouse claiming separate property character of a personal injury recovery must do so by clear and convincing evidence.
Inception of Title
The character of an asset is determined at the time the asset is acquired (i.e., if right to property incepted before marriage, SP; if after, CP).

Subsequent event or expenditures cannot change the character of the property, but can give rise to a claim for reimbursement (if divorce filed or death occurred after September 1, 2009).

Inception of title rule applied in all cases, except:
--Employee retirement benefits
--Stock options
Reimbursement for Community Funds Expended on One Spouse's SP
Where community funds are expended to (1) reduce secured debt or (2) make capital improvements on one spouse's SP, the community has a claim for reimbursement (but if death or divorce happens before September 1, 2009, the claim is for economic contribution).
--As far as reducing debt, taxes and interest are not considered, just principal.

RULE FOR DEBT: For reducing secured debt, value of a reimbursement claim is in the trial court's discretion.

Upon death: Once the trial court determines how much the reimbursement claim is worth, the claim will be divided 50/50 to the community (half to each spouse).

Upon divorce: Reimbursement claim division is in trial court's discretion--a "just and right division."

RULE FOR IMPROVEMENTS: Reimbursement for funds expended by marital estate for improvements to another marital estate is measured by the enhancement in value to the benefited marital estate.

RULE: Benefits for the use and enjoyment of property may be offset against a claim for reimbursement for expenditures to benefit a marital estate.
--EXCEPT: A spouse's separate estate may not claim an offset for the use and enjoyment of a primary or secondary residence owned wholly or partly by the separate estate against contributions made by community to the separate estate.

A trial court resolves a claim for reimbursement by using equitable principles, including the principle that claims for reimbursement may be offset against each other if the court determines it to be appropriate.
--In using equitable principles, claims for reimbursement are not a claim of right.

RULE: A reimbursement claim does not yield an ownership in the benefited property.
--On dissolution of a marriage, the court may impose an equitable lien on the property benefited to secure the claim for reimbursement.
--On death, a court may, on application for reimbursement brought by the surviving spouse or personal representative, impose an equitable lien...
Reimbursement for Separate Funds Expended on One Spouse's Separate Property
Claim for reimbursement same as above (for funds expended from CP), except that the entire claim becomes the spouse's SP.

RULE: Statutorily, reimbursement is not allowed for:
--Payment of child support, alimony or spousal maintenance
--Living expenses of a spouse or child of a spouse
--Contributions of property of a nominal value
--Payments of a liability of a nominal amount
--Student loan owed by a spouse

NOTE: No equitable claim for reimbursement when CP funds are expended for benefit of CP.
--Be aware, this does turn up on the bar as a trick.
Property Brought to Texas From Another State
Where no divorce is pending:
--Apply inception of title rule (note that in CL state, how title is held determines ownership)
--Where something is purchased with both money and a loan, the money might be SP but the loan CP, resulting in mixex ownership

Where there is a divorce:
--Property acquired in another state, which would have been CP if acquired while domiciled in TX is treated the same as CP, and is subject to just and right equitable division

But the above rule has not been applied upon death dissolutions. Upon death, property is characterized according to the situs of acquisition.

NOTE: Because of the CP system, TX does not have an elective share statute, nor does it recognize tenancy by the entireties.
Community Credit Presumption
For property acquired on credit, during the marriage, it is presumed that the credit is community; accordingly, the property acquired will be presumed community.

To overcome the presumption of community credit, the creditor must agree to look solely to the separate credit of the borrowing spouse (something in loan must limit the creditor to spouse's SP which was pledged property to satisfy the debt) or spouse has to sign non-recourse note (on which there is no personal liability).
--One spouse can presumptively sign on behalf of the community
Effect of How Title Is Taken
General rule: How title is held does not determine characterization. Rather, under the inception of title rule it's the time and circumstances of the acquisition that determine character.
--There are, however, exceptions

1. When a spouse acquires property with separate funds but puts it entirely in the other spouse's name, a gift is presumed unless rebutted (e.g., H purchases G with proceeds from a gift from his uncle and places title in W's name without any recitals)

2. When a spouse acquires property with separate funds and puts it in both his and his wife's name without any recitals, it's presumed that it was a gift of an undivided half to both spouses.

3. When a spouse participates in the transaction and there is a significant recital, absent fraud or mistake, the parol evidence rule bars a spouse's testimony offered to contradict the deed.
"Inception of Title" and Adverse Possession Cases
For a rightful claim, title by adverse possession relates back to the first entry, and thus can be SP if possession began before marriage.

For a naked trespasser claim, adverse possessor has no right, equitable or otherwise, to the property until he completes the adverse possession period. Thus, title is determined by whether he was married when the adverse possession period finally runs.
Life Insurance Policies
First premium payment determines SP or CP character of life insurance policy.

For policies that are SP, community has an equitable claim for reimbursement for the community funds used to pay the premiums.

For a SP policy, if the beneficiary is not the community, one spouse is making a gift of community property. Other spouse could challenge it under the fraud on the spouse doctrine.
Employee Retirement Benefits
Employee retirement benefits accumulated during marraige are CP (whether or not vested at time of divorce). This is because retirement was earned during the marriage.

For DEFINED BENEFIT RETIREMENT PLANS:

Where participation in the plan began before marriage, value of the CP component is reduced by the following fraction:
Years Married and Employed /
Total Years Employed

If eligible to retire on the date of divorce, community gets entire portion.

If not eligible to retire on date of divorce, court has 2 options:
1. "If, as, and when received" language--spouse gets her share (based on just and right division) when other spouse finally retires. But note that the community property portion is frozen as of that point in time, even if the benefits increase in the future.
2. Cash a spouse out--award assets of equal value (future retirement award reduced to present day value)

FEDERAL LAW: If the nonparticipant spouse in a qualified pension or retirement plan divorces the participant spouse, her CP interest in a qualified plan is recognized; under federal law the NPS can get a QDRO, and receive payments from the plan.
--However, the NPS does not have a devisable intersest in a qualified plan if she predeceases the participant spouse.
--Also NOTE: spouses of military personnel do have CP rights in a military retirement plan.
----BUT, military disability retirement pay is not CP, and thus other spouse has no claim to it. But, one spouse cannot "elect" to defeat another spouse's CP interest by choosing a retirement form that is not divided.

For DEFINED CONTRIBUTION PLANS:

Use tracing rules to characterize the SP and CP components in a defined contribution plan.

The SP component would be the assets in the account as of marriage, including appreciation in value thereon.

The CP component is the (a) additional contributions to the account during marriage plus (b) interest and dividend income on the account (income from SP is CP).

DISABILITY OR INJURY PAYMENTS: CP to the extent it is intended to replace earnings lost while the disabled or injured person is married. SP to the extent that it is meant to replace earnings while person is not married.
Stock Options
If option is awarded during marriage but does not vest until after the marital community has ended, a proration formula is used to determine what portion is CP and what is SP.

Formula:
Years from Date Options Awarded to Date of Divorce /
Years from Date Options Awarded to Date Exercisable
Business Interests
Stock in closely held corporation is SP if owned before marriage. Court has rejected "community ownership" theory of other CP states as inconsistent with inception of title rule.

Spouse, however, does have an equitable claim for reimbursement for value of time, toil and talent expended by other spouse to enhance his separate property estate, beyond that reasonably necessary to maintain and preserve his separate estate, and reduced by remuneration received for H's time and effort in the form of salary, bonus, etc.

Formula:
Value of Time/Toil/Talent -
Actual Compensation/Remuneration =
Amount of Reimbursement Claim

A partnership interest can be either SP or CP depending on when obtained.
--All distributions to a partner during marriage, whether salary or distribution of profits, are CP (because it is income from SP)
Commingled Bank Accounts
"Community out first rule":

When SP and CP funds are commingled in a bank account, it is presumed that CP fund are withdrawn first.

The value of SP left is determined by the lowest intermediate balance. The SP funds "sink to the bottom."
Division of Property on Divorce: Just and Right Division
There can be no gifts to the community. Anything acquired by gift (even by both spouses) is SP, with each having a one-half interest.

Any award of SP to the other spouse is considered a divestiture and is not allowed under TX Constitution.
--The court's only power over one spouse's SP: Can be set aside for support of minor children of the marriage (e.g., to secure payment of child support)
--"Just and right" equitable division power applies only to CP and quasi-CP.

Factors for trial court to consider in making division:
1. Age
2. Relative physical condition of the parties
3. Abilities
4. Earning power and business opportunities
5. Education
6. Need for future support
7. Size of the community estate
8. Size of each party's separate estate
9. Length of the marriage
10. Children of the marriage
11. Child care responsibilities
12. Benefits (innocent) spouse would have received from continuation of marriage
13. Fault in the breakup of the marriage
14. Court can also consider reimbursement
15. Under statute, court can make tax considerations into account as to specific assets
16. Court can consider (and divide) debt/community liabilities

A trial court division can be reversed only if division is so disproportionate as to be manifestly unjust and an abuse of discretion.
--The only time a division is automatically reversed is when there is a divestiture of SP
--But appeals court cannot render judgment; it can only reverse and remand

Can courts consider fault in making division in a no-fault divorce?
--Argue both ways. Courts have come out both ways.

Later discovered property:
--CP not partitioned at divorce is subject to a just and right division in a separate action
--S.O.L.: 2 years after other party (the one in possession or control of the assets) repudiated claim of community ownership (NOT 2 years after divorce)
Spousal Maintenance Award
No alimony in TX--just spousal maintenance.

To be eligibile:
1. Couple must be married for 10 years, unless other spouse convicted of family violence in last 2 years
2. Spoust must lack sufficient property to provide for her minimum reasonably needs, and
3. Spouse seeking maintenance must either
--(1) be unable to support herself because of a disability, or
--(2) be custodian of a disabled minor or adult child, or
--(3) lack employment skills adequate to provide for her minimum reasonable needs.

Maximum award is lesser of (1) $2500 per month, or (2) 20% of spouse's average monthly gross income.

Payment are to be limited to the shortest period that will enable spouse to obtain appropriate employment or develop an employable skill.
--Cannot be longer than 36 months (unless spouse was disabled at time of divorce or custodian of child of any age who has a physical or mental disability)

Factors to consider in making award:
--Property given to spouse under property division
--Lack of employment and employment skills
--Physical and mental condition
--Contributions as homemaker
--Contributions to spouse's earning ability
--Ability to meet personal needs and child support obligations

Modification of award:
--Can only be modified downward upon showing that circumstances of either party have materially and substantially changed

Terminates:
--Death of either party
--If spouse receiving it remarries or cohabits conjugally (need not be of opposite sex)

Exceptions to no alimony in TX:
1. Temporary support until a final decree is entered
2. Contractual alimony (from a property settlement)
--But not enforceable by contempt, only as a K
3. Periodic payments if in reference to property not easily divided
Other Divorce Division Issues
Divorce terminates former spouse's rights as beneficiary of life insurance proceeds (but not relatives of former spouse).
--Read policy as though spouse predeceased the insured
--UNLESS:
----(1) H renames W as beneficiary after divorce
----(2) Divorce decree names W as beneficiary
----(3) W is designated to receive the proceeds in trust for, or on behalf of, or for the benefit of, a child or dependent of either former spouse

Divorce does not revoke spouse's ability to receive from pension plan governed by ERISA

Good will of a professional practice is not property; must be separate and apart from the person and have commercial value to be divided (e.g., stock in professional corporation)

An educational degree is not property that can be divided.
--W can not get contribution for helping H get degree/education. (Remember, spouse can not get reimbursement for paying off other spouse's student loans.)

Putative spouse doctrine:
--If second spouse is not aware of spouse's previous marriage, considered a putative spouse, and the putative marriage is characterized in the nature of a partnership.
--Putative spouse gets 1/2 on death.
--BUT, if spouse knows of previous marriage, considered meretricious and she gets nothing.
--If bigamous spouse divorces first spouse, the putative spouse is now considered married (if they continue living together, etc.). All future acquisitions would be CP.
Trust Income Interests
Income interest on a trust is a gift, and thus SP to the spouse receiving it.

But, if the spouse has the unrestricted power to withdraw the principal at some point and doesn't, all the income thereafter is CP.
Mineral Interests
Of all the regularly encountered mineral lease distributions, the only one that falls under the rule that "the income from SP is CP" is delay rentals, which are CP.

All remaining payments are considered piecemeal sales of the corpus, and accordingly, SP.

An oil and gas lease is treated as a sale of the underlying minerals.
Corporate Distributions
Of all of the regularly encountered corporate distributions, the only one that falls under the rule "income from SP is CP" is: cash dividends.

Stock dividends, stocks splits, and capital gains from SP remain SP.

ALL proceeds of sale of a separate asset are SP, including any capital gain.
Increase from Animals
Offspring of SP livestock, dogs, etc. is considered CP.
Premarital Agreements
1. Must comport with TX Constitution

2. Must be in writing and signed by both parties

3. No consideration for the agreement is required

4. Future spouses (and spouses) may partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse...
--Can agree that income from SP shall be SP
--Can also agree before (and during marriage) that certain CP shall be SP (but not the other way around)

5. Agreement can govern the disposition of property on separation, divorce or death, including the making of a will or trust and the disposition of life insurance policies

6. Agreement can waive right to homestead, exempt personal property, family allowance, and can deal with any other matter including their personal rights and obligations.

7. Parties can agree that after marriage each party's salary and wages shall be SP (but this is properly considered an exchange)

8. Only married spouses (not future spouses) can convert SP to CP
--Must be married at the time it is done

9. Can agree to waive right to spousal maintenance or support

10. Cannot limit either party's obligation to furnish child support

RULE: In a premarital agreement the parties can contract on anything, except to (a) limit either party's child support obligations, or (b) agree that, after they marry, one spouse's SP shall be CP
--Can convert SP into CP after they marry, but not in premarital agreement

To set aside premarital agreement, must show that agreement:
(1) was not signed voluntarily, or
(2) was "unconscionable when made" AND
--(a) there was no fair disclosure of future spouse's financial obligations,
--(b) the right to disclosure was not waived in writing, AND
--(c) spouse had no adequate knowledge of future spouse's property or financial obligations

Unconscionability is a matter of law for the court
Marital Agreements
Spouses can agree in writing (signed by both spouses) to convert SP into CP

Disadvantages of a conversion agreement:
1. If parties develop marital problems, property will be on the table for a just and right division
2. Some protection against creditors' claims will be lost
3. Spouse loses power of disposition over half the property

NOTE: If spouse uses SP to purchase something and put it in the name of both spouses "as community property," that is not a valid conversion agreement (because not signed) and property remains half SP for both parties (because it was presumed a gift)

Spouses can make an unequal partition of CP.

Agreement are valid against preexisting unsecured creditors unless made with intent to defraud.
Community Property Survivorship Agreements
Spouses may agree in writing that all or part of their CP becomes the property of the surviving spouse on the death of a spouse.

Requirements:
1. Must be in writing and signed by both spouses
2. Either spouse may revoke by written notice to other spouse
3. Survivorship agreement effective without adjudication.
--Statute authorizes a court proceeding in which, upon proof of a valid agreement and that agreement was not revoked, the court enters an order adjudging the agreement valid
Palimony Agreements
Must be in writing and signed by the party sought to be charged.

"On consideration of nonmarital conjugal cohabitation"
Fraud on the Spouse's Community Share
One spouse can make reasonable gifts of CP, so long as such gifts are not so disproportionate as to be "in fraud of the spouse's community rights." (Also referred to as constructive fraud.)

Factors to consider:

1. Relationship of donor to donee.
--A gift to an unrelated party is presumptively fraudulent.
--Absent special circumstances that can justify the gift (which no TX court has ever found), the gift can be set aside in its entirety if challenged during donor spouse's lifetime, or as to one-half after donor spouse's death
--If the gift is to a relative, this tends to support the gift against challenge

2. Amount of gift in relation to community estate
--If small amount, no constructive fraud

3. Whether spouse is adequately provided for out of remaining community estate. If there remains plenty of property to maintain the spouse, then there is no constructive fraud.

LIFE INSURANCE:
--Same fraud on the spouse test applies to a CP life insurance policy if H, the insured, names someone other than W as beneficiary.
--W can seek to set aside the beneficiary designation as to her 1/2 of the CP
Effect of Divorce on Preexisting Creditors
Divorce does not affect the rights of preexisting creditors
--So have to look at the creditor's rights in relation to each party

If spouse did not sign the note, cannot be personally liable unless it can be proved that the other spouse acted as the other's agent.

If spouse personally signs the note, creditor can come after person personally.

Creditor cannot enforce its judgment lien on CP assets set aside to other spouse.
--Judgment lien is valid only against the judgment debtor

But creditor can bring an in rem action seeking to have a constructive trust imposed on the property. The action must be in rem against the property because a personal action is not available.
Classification of Marital Property for Management Purposes
1. W's SP

2. W's sole management community (W's salary, income from W's separate property)

3. Joint management community

4. H's sole management community

5. H's separate property

RULE: Property titled in one spouse's name (or one spouse's possession, if asset is not subject to documentary evidence of title) is presumptively subject to the possessing spouse's sole management and control
--Purpose is to protect BFPs
Liability for Torts
If a tort is committed during marriage, all CP is liable.
--This is everything except the one spouse's SP

If the tort was committed before marriage, can only go after:
--W's SP
--W's sole management CP
--Joint management CP
Liability on Contracts
Each spouse is personally liable for the other spouse's contracts for necessaries (e.g., hospital bills)
--This includes liability of other spouse's SP

For contracts that isn't for necessaries, creditor can only reach assets over which contacting spouse had management powers.

For real property:
--Property under a spouse's sole management control (e.g., one spouse alone is named grantee), spouse can mortgage the property without joinder, so long as it is not homestead property
--Joinder is required for homestead property, even if it is one party's SP
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