As you have learned from reading our blogs, you know that property is not automatically divided 50-50 in a Texas divorce. The divorce court is instructed by statute to divide the property in a "just and right" manner. That means the court is supposed to put fairness front and center. A tool for doing that has evolved over the years is something called reimbursement claim. In most cases, there are three pools of assets presented at time of divorce: the community property; your separate property, and your spouse's separate property. Typically, a lot of mixing and stirring of those pools will have taken place during marriage. Maybe you used your inheritance from Aunt Minnie on a big family vacation, or a wedding, or anything where there is nothing tangible now in existence for the court to deal with. Maybe you used some money you owned before marriage to pay off credit card debt your spouse ran up. Maybe a big chunk of your income earned during marriage went to pay off your spouse's student loans incurred before you married. None of those examples rises to the level of a reimbursement claim. Sure, money you inherit is your separate property, but if you spend it and have nothing to show for it later but some pictures and nice memories, then it's gone and it's not coming back. You are trading your separate property for those pictures and memories, so make sure you enjoy yourself! You can't take an equal amount of money out of the community estate, put it in an account in your name and claim that stands for the money you inherited from Aunt Minnie. You can never be reimbursed for money spent paying back your spouse's student loans. Maybe that isn't fair, but it's the law, written in black in white in the statutes. Ideally, paying off your spouse's credit card debt gave you some peace of mind, maybe even some joy in your marriage, because that's all you will get for doing that. Okay, so what would be a viable reimbursement claim to your separate estate? First of all, you have to be ready to prove it was your separate property money - your exact separate property money - used to enhance the value of something of owned by either the community estate or your spouse's separate estate now that you are getting divorced. And, you have to prove that your money did actually enhance the value of the asset. It's not enough to be able to prove that you spent your inheritance redoing the kitchen in the house owned by either the community estate or your spouse's separate estate, you have to prove what the house is worth today with and without the kitchen redo, and that difference might be reimbursed to you. Years ago the Texas Supreme Court issued an opinion standing for the principle that reimbursement is not just a balancing of the ledgers, your dollar here, spouse's dollar there, community dollar someplace else. It all depends on how those dollars have impacted the property in existence on the day you get divorced. It is all based on the concept of fairness, to avoid unjustly enriching one of those three estates (the two separate estates and the community estate) at the expense of another. As you might imagine, it's a very long and winding road to get from here to there, and most people are not prepared with the evidence needed to make that trip. If you think of reimbursement as a tool for achieving equity, keep in mind it spends most of its time in the toolbox.
Lately, we've been getting more questions from current clients about home ownership during a divorce. Not every circumstance is the same but there are certain similarities to every case. Maybe this scenario describes your situation. You and your significant other - your SO, for short - have decided to get married and buy a house, but not necessarily in that order. Let's say your SO is the one making the most money or who has plenty of money. You are the one putting in all the sweat equity of driving around looking at houses, dealing with the realtors, and all the hard work of finding a place to buy and getting settled in the new house. Your SO writes a check for the down payment and takes out a mortgage to fund the rest of the purchase price. Maybe all this happens shortly before your planned wedding. You get married, live happily together in the house for some number of years, raise kids there, pay the monthly mortgage, taxes and insurance on the house, replace the water heater when it wears out, pull out the carpeting and put down expensive marble and wood flooring (maybe even paying for that with your year-end bonus), and on and on. Who owns the house? Your former SO who is now your spouse! Do you have any titled interest in it? No! Does that seem fair? No!
Your residential homestead, assuming it is not owned by a third party, can be owned 1) by you as your separate property; 2) by your spouse as your spouse's separate property; 3) by the community estate of you and your spouse; or 4) a combination of some or all of the three estates, which is called "mixed title." The title to the property is fixed at the time it is purchased, based on marital status at the time of purchase or, if married, based on the money used for the purchase. Here's how determining the "character" of the house works. It's your separate property if you bought it before marriage using only your money and/or a mortgage only you signed, or at least just you and somebody other than your spouse (maybe a parent or a prior spouse of yours). Those same rules would apply to make it your spouse's separate property. It's community property if it was purchased during marriage with money belonging to the community estate, such as earnings received during marriage, and/or a mortgage entered into during marriage. Typically such a mortgage would be signed by both you and your spouse, but the same rules would apply even if it is just signed by one of you, unless the lender agreed in writing to look only to your separate property for repayment of the mortgage. It's mixed title if, say, you came into the marriage with money in the bank which you used for a down payment and the rest of the purchase price was paid by a mortgage and the house was bought during marriage. Let's say for simplicity the house cost $100,000 and you paid $10,000 of your premarital money as the down payment and you and your spouse borrowed the other $90,000 via a mortgage. That house would be 10% your separate property, and the other 90% would be owned by the community estate, since the community estate is liable for repayment of the mortgage. That same outcome would result if you, let's say, inherited $10,000 from your rich uncle and used that money as the down payment and you and your spouse borrowed the rest of the purchase money. The "inception of title" rule applies in determining whether your house is community property, your separate property, your spouse's separate property, or mixed title. That means the character of the house is fixed at the moment somebody acquires the right to title, based on the character of the money used to acquire the right to title. For more information, please be sure to contact one of our family law attorneys by calling 972-569-3166 today.
Who is Liable for What?
It is important for you to understand the concept of personal liability on debts, which is almost certain to be important in the resolution of your divorce. Your goal will be to put yourself into the most protected position possible with regard to unpaid liabilities existing as of the time of your divorce. You are personally liable for every promissory note which you signed, even if the loan proceeds were received by another person or a business entity. You are personally liable for all charges made on a credit card account you established, even if all the charges on the card were made by your spouse or some other person for entity. You are personally liable for all unpaid income taxes associated with tax returns you have filed. You are personally liable for the outstanding mortgage on your residence (assuming you signed the mortgage note), even if your spouse if awarded the residence. You are personally liable for all charges incurred at your country club, even if they were made by other people. You are personally liable for the debt outstanding on the car awarded to your spouse, if you signed the car note or the car lease. The bottom line of personal liability is that if you have it, you need to address it at time of divorce. Even though there is not such a thing, per se, as community debt, either you owe the money, or your spouse owes the money, or you are both personally liable on the debt. The court will take the outstanding debts incurred during marriage into consideration in the division of the community property. Your best option is to assume all the debts for which you are personally liable, as you may receive off-setting assets to cover the negative amount of the debt. That way, you will be in control of payment, so you can protect your credit. It might feel good to think you can stick your spouse with that big Mastercard bill, but unless your spouse pays it, Mastercard will sue you - not your spouse - for the money. To use a simple example, let's say you have $50,000 in a checking account and $10,000 is owed on your Mastercard bill. If the property is divided 50-50, you would receive $35,000 of the cash in the checking account and the obligation to pay the amount due to Mastercard. You and your spouse would thus end up with a net of $15,000 each, and you would be in control of when to pay the Mastercard bill.