Texas is a community property state, which means that there is a presumption that assets are community property, not separate property of a spouse. To overcome this presumption, one must be able to definitively show to a court that an asset was acquired before the marriage and has maintained its characterization as separate property. The key to maintaining the character of your property as separate is to avoid commingling the property with community property.
If you sell or liquidate a separate property asset and purchase another asset, that subsequent asset remains separate property. Commingling proceeds from a separate property asset with a community asset can be problematic when attempting to divide assets in a divorce. The best method to maintaining an asset’s characterization as separate property is to keep the asset apart from any community accounts or assets.
It’s important to remember that while an asset may be without a doubt your separate property, any interests, dividends or capital gains resulting from that asset is considered community property. So while an investment account may initially be separate property, it may be accumulating community interest during the marriage. This is where tracing and forensic accounting becomes important.
Tracing is a tool used to prove with clear and convincing evidence that an asset is separate property. The burden is on you to “trace” where money or an asset came from and when it was acquired to overcome the presumption that it is community property. Tracing can be accomplished through financial records.
If you are contemplating a divorce and would like to discuss your concerns about separate and community property, please contact the Ramos Law Firm so that we can answer any questions or concerns.