Community Property in Texas
This is part 3 of our Blog series, titled Death Without a Will or Trust.
Note: This article is written based upon current Texas law. Other States have similar provisions, but the details may vary slightly from State to State. Check with a local attorney specializing in Wills, Trusts, and Estates for your specific State laws.
Continuing our series on what happens in Texas if someone dies without a Will or Trust; it is important that you understand the issues with community property. Previously, we discussed what happened when a single person, that was never married, died without a Will or Trust. Next, we discussed the widowed person that died. Our next scenario is what happens when someone who is married dies without a Will or Trust.
Before we get into the discussion of John, who dies without a Will, and Mary, his wife; we want to discuss marital property ownership in Texas. Because Texas is a “community property state,” property owned at death by either spouse is considered either community property or separate property.
What Exactly Is Community Property?
Community property is a classification of property ownership. Community property is recognized in 9 states, mostly in the West, and includes Texas. It is derived from a concept in Spanish law that recognizes both spouses as theoretically contributing equally to the marriage, therefore both spouses jointly own property acquired during the marriage.
In Texas and other community property states, the general rule is that property acquired during marriage is presumed to be community property (jointly owned) unless you can prove that it is separate property (individually owned).
Examples of community property include: salaries of both spouses and whatever is bought with the salaries; a house bought during marriage; or a bank account holding salaries. A bank account holding community property funds is usually still community property in Texas even if just one spouse’s name is on it!
So, Then What Is Separate Property?
For the most part, separate property is property owned individually by one spouse. Generally, it is property that a spouse owned before marriage, property that was inherited, or property that was given to one spouse. Examples include: a house owned before marriage; stock inherited from parents; a car given to a spouse by a friend; a bank account holding inherited funds, or the proceeds from a life insurance policy. (You must be careful, though, because it is not that simple. In Texas, interest income from the separate propertyinherited funds or life insurance proceeds are actually community property! – That means that the account may be partially separate property and partially community property.)
How Do You Prove Something Is Separate Property?
To prove separate property you must be able to demonstrate that the funds used to set up an account or purchase something came from separate property funds. If you can “trace” the funds used to set up a bank account by a check from the executor of the parents’ estate, for example, then that is a strong argument that it is separate property.
However, if five years after setting up the bank account you have periodically deposited earnings, withdrawn money, or earned income on the investments; your account may be so “commingled” that it may now be considered community property. Establishing whether something is community property or separate property or a mix of both could require an expensive tracing process by an accountant.
Why Does It Matter?
You may be wondering, why does it matter? The answer is that when a spouse dies, the recipient of the property can depend on whether the property is community property orseparate property. Be sure and watch for our next blog, where we see where John’s and Mary’s property goes when John dies without a Will.
BEWARE: In this simplified discussion, we cannot address all of the nuances and peculiarities of Texas community property law. Check with a qualified lawyer if you have any questions about property ownership.