Accounting for Divorce: Steps to Dividing Property in a Texas Divorce

If you are going through a divorce, the division of property may be one of the most important concerns, second only to matters pertaining to children from the marriage. By understanding how assets are divided in a Texas divorce, you will be better prepared to ensure a more efficient and equitable outcome.

Texas divorce courts do not simply divide community property 50-50. Instead, Texas law provides that community property be divided in a manner that is “just and right.” In other words, division of property must be fair and equitable, and Texas courts may consider many factors in their decision. 

Texas is a community property state, so in a Texas divorce, property is classified into one of two categories: community or separate. The court divides community property, while awarding separate property exclusively to its owner. Community property refers to assets or debts that are the property of the marriage, or the “community.” There is a presumption that property possessed by either spouse during or on dissolution of marriage is community property unless proven otherwise.

If a spouse makes a claim of separate property, he or she has to prove this position through “clear and convincing evidence,” showing when and how the property was acquired. While this can sometimes be simple, the length of marriage, type of asset, and number of times the property has changed form during a marriage can all be complicating factors. In those situations, a forensic accountant can help demonstrate the existence of separate property and serve as an expert witness at trial.

Sometimes assets can have characteristics of both community and separate property. For example, this can happen when community assets are used to pay debts on, or make improvements to, separate property. The court must take additional steps to determine how these assets should be classified and whether they are divisible. 

Before property is divided by the court, you should do the following:

1. Identify all property owned by you or your spouse

• Is there a bank account you don’t know about? Did your spouse take out a loan and not tell you about it?

2. Characterize the property as either community or separate property

• Is your spouse’s 401K account his or her separate property or can it be divided? What about your spouse’s pre-marital home that was titled in your name during the marriage?

3. Determine if there are claims for reimbursement relative to the separate or community property assets

• Have you and your spouse been paying the mortgage on your spouse’s pre-marital investment property? Did you use some of your settlement from a previous marriage to make capital improvements to your current marital home?

4. Determine the value of community property

• How do you value your stock options that will vest after the divorce is finalized? Or the family business that you started together during the marriage?

The next post in the Accounting for Divorce series will provide information about the identification of assets for division in a divorce. It will discuss common challenges spouses face in identifying the universe of community property to be divided.

For information and assistance with topics presented in this series, contact us. We are here to help.

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