To explain the difference between community property and separate property it is best to start off by identifying the property of the spouses pre-marriage. Before two people become married, the property owned by each individual is that person’s individual property. When the two become married, all the property owned individually remains its individual identification as separate property.
Property acquired during the marriage typically becomes community property. This includes real property, personal property, income, investments, interests in businesses, etc. An important point to note is that all forms of income during the marriage are community property. That includes wages, retirement benefits, dividends and capital gains on investments, etc. Even if the investment is separate property, the income earned during the marriage is community property. Even if one spouse has his or her paycheck go into a bank account that the other spouse cannot access, these funds are community property. It is not necessary to have a joint account; the wages are community property the second they are owed to the employee.
As I said before, property acquired during marriage typically becomes community property. There are some exceptions. If separate property is used in whole or in part to purchase new property during the marriage, the new property can still be partially separate property. For example, if a married couple decides to buy a house and the husband uses $10,000 of separate property (savings from before the marriage) as the down payment, then the husband retains part of the value of the house as separate property while the rest of the house is community property. Additionally, any property received by a spouse by gift, descent or devise is separate property. “Descent” refers to an inheritance through the intestacy laws in which the spouse inherits property from his or her family not by a will, but by the state’s rules of succession. On the other hand, “devise” refers to obtaining property distributed in accordance with a will. The exception is that a gift or devise, through a will, can create community property if it is clear the recipient and intended owners are both spouses. So a Christmas gift given to the couple would be community property but a birthday gift to the wife would probably be separate property.
Also, the spouses can make various agreements to change the property status before or during the marriage. Before marriage, the two future spouses can sign a prenuptial agreement (also known as an ante-nuptial agreement) that can address whether separate property will be converted to community property or how property acquired during the marriage should be categorized. For example, a prenuptial agreement might state that all income earned from separate property will remain separate property. During the marriage, spouses can agree to a postnuptial agreement, which is an agreement made during the marriage. A postnuptial agreement may change the status of property from one to the other. For example, the spouses could agree to transform all separate property into community property or to convert community property into separate property. Spouses can also create various forms of joint ownership over property. This may include a partnership (as in a business partnership, not an amorous partnership), joint tenancy with rights of survivorship (JTWROS), or a tenancy in common. JTWROS accounts are common for bank accounts, investment accounts and other accounts where both spouses desire not only access to use the account but to share ownership. Separate property put into some sort of joint ownership under these relationships and accounts are not treated like community property for family or probate purposes because the ownership is changed by contract under property laws and courts typically will not disturb an agreement between spouses.
The status of marital property as separate or community property is important not only for divorce purposes. It is incredibly important for distributing assets when a spouse dies, especially since many people in Texas die without a will. It is important for financial planning, financing a family business or self-employment, retirement planning and planning for your children’s future. Many people think that because they have few assets most of these planning areas do not apply to them. However, this is not necessarily true. Unless you have figured how to avoid aging, you likely would benefit from some retirement planning, at least to figure out how to maximize what assets you have and how to deal with future health care costs, living expenses, etc. even if you still have to work in your later years. Additionally, without a will or other plan in place to property transfer your assets, your spouse may end up losing some of the assets you have or your family may argue over who gets family heirlooms, pictures and other property of sentimental value. You probably do not want your final memories to your spouse to be leaving him or her struggling financially or for your family to fall apart over who can take what personal property.