Family Law Advisor®

Property in a marriage in Texas generally comes in two basic categories or "characters." These are "separate property" and "community property." The court, upon a divorce, determines what "character" each item of property has. If an item of property is found to be "separate property," the court has no authority to do anything with the property but to award it to the person who owns it. If the property is found to be "community property" -- which all property is presumed to be -- the court divides the property in a "just and right manner" between the parties.

Since all property is presumed to be community property (and subject to division upon divorce), a party who seeks to claim an item of property as separate property, must bear the burden of proof to prove such character by "clear and convincing evidence." This standard of proof is greater than the normal civil burden "by a preponderance of the evidence," but less than the criminal standard of proof "beyond a reasonable doubt." It practically means the person must prove the property is separate property by such evidence as leaves little doubt in the judge's mind.

In so doing, the person must prove the property is:

1. property owned prior to the time of the marriage;

2. property given to the party during the time of the marriage;

3. property inherited during the time of the marriage;

4. property received in compensation of personal injuries sustained at anytime [except anything received in compensation for wages lost because of the personal injuries which would have been earned during the time of the marriage are community property]; or,

5. any property which has been gained by the sale or exchange (mutation) of property which meets the requirements of items 1, 2, 3 or 4.

The latter category of separate property is best understood as once an item is separate property -- as defined at its inception of ownership -- it will always remain separate property if it can be "traced" back to its inception of ownership. Its character as separate property is established at the time the party first acquires the property.

For example if a person owns a home prior to the time of the marriage, and then during the time of the marriage the person sells the home and purchases a large stock portfolio, and then during the marriage the person sells some of the shares and places the funds into a bank account, upon divorce, if the person can prove the events by "tracing" the transactions and the flow of the value of the original home, the funds in the bank account and the remaining shares in the stock portfolio remain separate property and are awarded to the party upon divorce. The court may not divest that party of either the funds or the shares of stock since such are separate property.

This is by definition "tracing" the "character" of the separate property.

Often people employ experts to assist their efforts in establishing or contesting the character of the separate property, as well as the amount of increase or decrease in such claimed amounts. While a party can testify, and often it is necessary to do so, accountants, business appraisers, forensic consultants, banking examiners, stock brokers and tax accountants are sometimes used to establish the parties' respective positions. Normally such tracing of transactions is a document intensive exercise, especially if the parties have been married for any length of time, and the estates are substantial. However, even if the marriage is relatively short in duration and the estates relatively small, the cost of proving such may be money well spent if the facts can be proven.

The methods employed in conducting such tracings are relatively straight forward. One method is known as a "net accounting" method. This simply takes the value of the separate property at the time of the marriage, the value of the entire estate of the parties at the time of the divorce, and subtracts the value of the separate property. This is an extremely over simplified method which normally does not pass the test of scientific certainty in its methodology and is generally not widely accepted.

Another method is referred to as "item tracing." This is a method by which real estate transactions are often traced. It is a process by which a single item is traced through its various mutations during the time of the marriage. It works best when a large item is being traced and documents are readily available to prove the mutation of the separate property.

Another method is referred to as "value tracing." This is a method by which things with a face value -- such a money, bond coupons, secured receivables, etc. -- have an established value which is readily discernable and virtually incapable of commingling. For example a bank account which contains both separate funds and community funds normally can be categorized and the relative separate and community funds identified and segregated. Using this example, the general rule of "first in - first out" as to community property normally applies. This means funds withdrawn during the marriage from such an account are presumed to be community funds; however, the person seeking to increase the amount of community funds in the account may have their role reversed and accept the burden of proving -- if at all possible -- the funds were separate property.

The simple fact of the matter is often these methods as well as other accepted methods -- which may even be created for the particular case -- are employed to either prove or rebut the proof certain property at the time of the divorce is separate property.

The key to remember is everything is always presumed to be community property, and the person seeking to establish the claim such is separate property must do so by clear and convincing evidence -- normally by tracing the property to the inception of the party's ownership of the property so as to prove its character as separate property.

-- The Law Offices of Steven E. Rogers