Tag Archives: community property

Top 3 Things People Don’t Know about Community Property

file0001248906240I got a question from a colleague who works as a financial planner: he wanted to know if a 403(b) retirement account was subject to division in divorce. The short answer to this question is probably yes. Many people don’t realize that in the absence of a premarital agreement, all assets obtained during divorce (with very few exceptions) are considered community property in a Texas divorce. Most people realize that a court may determine the division of their house, vehicles, and tangible assets, but there are some subtle nuances to the presumption of community property that could dramatically affect their odds for a positive outcome in divorce. It is always preferable for spouses to agree on the division of their property, but sometimes agreement is simply impossible, so I wanted to shed some light on the three most surprising aspects of community property division in divorce.

1. Inheritance is off the table.

If a relative passes away and leaves you a large sum of money, that inheritance is not subject to division as community property in your divorce. The money you receive in an inheritance is your separate property. However, if you mingle that money with your community funds (perhaps by using it to purchase other assets with your spouse), it could become a part of the community estate. This phenomenon is known as co-mingling. If you’re married and are on the verge of receiving an inheritance, it is a good idea to meet with a family law attorney to ensure your inheritance is definitively separate property.

2. Retirement accounts are subject to division.

As previously mentioned, retirement accounts (including IRAs, pensions, defined benefit plans, defined contribution plans, 401ks, and 403(b)s) are part of your community estate once you marry your spouse. If you’ve worked for decades at the same company,  you’ve likely acquired a substantial nest egg in your retirement plan. Most people believe if they work hard and obtain retirement benefits, they’re entitled to enjoy the fruits of their labor when they retire. However, once you marry, your contributions to your retirement plans become community property, and as the value of the plan increases over time, the balance of the plan from the date of your marriage becomes subject to division in divorce.

No one wants to lose their inheritance or their retirement. So what are couples to do if they want to avoid these outcomes? Thankfully, the presumption of community property can be overcome.

3. Couples can agree to define their assets as separate or community at any time.

Premarital agreements allow future spouses to decide what assets they want to keep as their separate property and which assets will be their jointly owned community property. Ideally, each party will have his or her own attorney to review the documents and advise as to the consequences of the agreement. This is a great opportunity for them to discuss their finances at their very onset of their marriage and establish clear boundaries about how their assets will be treated if they divorce. If you do not have a premarital agreement, do not despair. You and your spouse can create what’s known as a postnuptial agreement after you marry.

Unfortunately, finances are one of the primary motivating factors for divorce, so the sooner you and your partner get on the same page about the money in your relationship, the better off you will be as a couple. For more information about community property or to discuss your financial circumstances, feel free to give me a call at (713) 574-8626 to schedule a consultation.

Talking Money Before Marriage Part 1

If you’re like most people, the idea of talking about finances or existing debt with your partner is not at the top of your list. Many people find discussions about money to be rude, at best, and a turn-off or red flag at worst. This doesn’t mean it’s an issue to be avoided. Some people come into their relationships and pending nuptials with property that they’ve inherited from family or acquired on their own or through a business. Other people are business owners who have assets associated with their careers and have financial ties to business partners, creditors, etc. Another category of folks are going into a new marriage with children from a previous relationship, and attendant financial obligations such as alimony payments, child support, or pre-existing debt due to a divorce. Of these three categories of people, all of them should consider a prenuptial agreement before saying, “I do.” There are many reasons for this, but today let’s consider the first of three.

The first issue in this three part blog series about prenuptial agreements is this: Texas is a community property state. It’s one of nine community property states in the country, and that is important because once two individuals get married, the property they acquire, the income they create, the retirement benefits that acrue, and any other asset that should come their way during the marriage becomes community property (50% his and 50% hers).  If you’re a business owner, your spouse could lay claim to half of the assets associated with your business while you were married if the two of you divorce, even if you started the business before you were ever married. Does this seem fair?

Although no one wants to anticipate the end of a marriage, its important to remember that marriage is not only about two people becoming one, but it’s also the moment at which two people’s finances become one. If you are serious about spending your life with someone, you’re going to have to face the reality of discussing finances with him or her. If you have questions or concerns and would like to know more about what is involved in the creation of a prenuptial agreement, call 713-574-8626. Our office would be glad to give you more information or schedule a consultation.

Next week, the discussion of premarital agreements continues, and we will face the reality of marriage as a financial decision.

 

 

Getting Married? Here’s What You Should Know

You’re in love. You’re ready to spend the rest of your life with the man or woman of your dreams, but you also know the terrible divorce rate in the U.S. and you’d sure hate to be in the category of the 49-51% of couples who end up divorced. The statistics, unfortunately, are simply not on your side. As unromantic as it may be, divorce is an incredibly common occurrence, and if you have property or children from a previous relationship, it is a good idea to consider a premarital agreement.

Texas is one of nine community property states. The one thing you need to remember about community property is that what you acquire during marriage (whether it’s income, equity, or interest) becomes community property or belongs to both you and your spouse 50-50. This means that if you and your beloved call it quits, it is very likely you’ll end up with only half of your stuff when the divorce is over. Most people assume this risk and get married anyway. Other people have taken a different route and decided to discuss this issue with their intended before saying “I do.” I strongly recommend the latter tactic. A premarital or prenuptial agreement is a contract that explains what you have decided to do with your property, finances, and debt as a couple during your marriage. It is drafted before the marriage and is binding throughout, unless it is revoked in writing.

Some people enter into a marriage and then decide that for some reason it would be best to partition or separate some of their community property and designate it as separate. Other times they may decide to separate some of their separate property and convert it into community. There are all kinds of reasons that couples decide to do this, but usually there are tax implications underlying these decisions. In this case, the couple contacts a lawyer who recommends a postmarital or postnuptial agreement. It has the same effect as a prenuptial agreement, but it is drafted during the marriage rather than before.

If you are considering marriage or are currently married and want to know more about community property laws and how they affect many aspects of a marital relationship, please contact this office. We’d be happy to discuss your rights and answer your questions.