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separate property

Separate property is generally property that a spouse acquired before marriage—or acquired by gift or inheritance during marriage—and is not subject to division upon divorce. In contrast, marital property is generally property that is acquired during marriage, is jointly owned by the spouses, and is subject to division upon divorce—whether the spouses reside in (1) an equitable distribution or common law property state or (2) in a community property state.

Community property states generally include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, divorce courts generally start with the presumption that the marital property is owned equally by the spouses and will be divided equally upon divorce.

In other states—so-called equitable distribution or common law property states—the divorce court attempts to divide the spouses’ assets equitably (fairly) and may consider a spouse’s separate property in deciding to make an unequal division of the spouses’ marital property. In practice, the difference between the division of assets in community property states and in equitable distribution states is sometimes not as great as it may seem, as the court in a community property state may have the discretion to divide the spouses’ community property on a 60-40, 70-30, or other unequal basis.

In Texas, which is a community property state, the law presumes that all property acquired by spouses during their marriage is community property and is owned equally by both spouses. This property is subject to equal division upon divorce. Separate property, on the other hand, includes assets acquired before the marriage or received as a gift or inheritance during the marriage, and it is not subject to division in a divorce. While the starting point for division of assets in Texas is a 50-50 split, courts may consider factors such as fault in the breakup of the marriage, disparity of earning power, health, and future employability to adjust the division. However, separate property remains with the spouse who owns it, unless it has been commingled with community property in a way that loses its separate character.

Texas Statutes & Rules

Texas Family Code, Section 3.001 - Separate Property
This statute defines what constitutes separate property in the state of Texas, which is a community property state.

In Texas, separate property is defined as anything that a spouse owned before marriage, any property acquired by gift, devise, or descent (inheritance), and the recovery for personal injuries sustained by the spouse during marriage, except for any recovery for loss of earning capacity during marriage. Separate property is not subject to division upon divorce and remains the property of the spouse who owns it.

Texas Family Code, Section 3.002 - Community Property
This statute defines community property, which is subject to division upon divorce in Texas.

Community property includes property, other than separate property, acquired by either spouse during marriage. This includes income from separate property, unless it is attributable to the personal effort of a spouse. In Texas, there is a presumption that all property possessed by either spouse during or on dissolution of marriage is community property. It is up to the spouse claiming otherwise to prove that any property is separate.

Texas Family Code, Section 7.001 - General Rule of Property Division
This statute outlines the general rule for division of property upon divorce in Texas.

Upon divorce, the court is mandated to order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage. This typically starts with the presumption of an equal division of community property, but the court has the discretion to order an unequal division based on a variety of factors.

Texas Family Code, Section 7.002 - Division and Disposition of Property Under Special Circumstances
This statute provides guidance on how the court may handle property division when special circumstances are present.

The court may divide the estate of the parties in a way that the court deems appropriate under the circumstances of the case. This can include awarding a disproportionate share of the community estate to one party, which may be based on factors such as fault in the breakup of the marriage, benefits the innocent spouse may have derived from continuation of the marriage, disparity of earning power, health and age of the parties, and the nature of the property.

Texas Family Code, Section 7.003 - Fraud on the Community
This statute addresses the issue of fraud against the community estate by one spouse.

If a spouse has committed fraud against the community estate, the court may reconstitute the community estate to include the value of any property that was disposed of by the fraudulent act. The court may also calculate the value by which the community estate was diminished as a result of the fraud and award that amount to the wronged spouse as a 'judgment' against the spouse who committed the fraud.

Federal Statutes & Rules

Internal Revenue Code (IRC) - 26 U.S.C. § 1041
This federal statute is relevant to the topic because it addresses the tax implications of property transfers between spouses or incident to divorce, which is a common occurrence when dealing with separate and marital property during divorce proceedings.

Under 26 U.S.C. § 1041, transfers of property between spouses or former spouses are generally non-taxable events if they are related to the end of a marriage. This includes transfers that are made under a divorce or separation instrument and occur within one year after the date on which the marriage ceases, or are related to the cessation of the marriage. The basis of the transferred property in the hands of the transferee is the same as it would be in the hands of the transferor, meaning that the recipient takes on the original cost basis of the property for tax purposes. This provision applies to both separate and marital property and is important for divorcing couples to understand as it affects the financial outcomes of property division.

Defense of Marriage Act (DOMA) - 1 U.S.C. § 7 (Struck down by United States v. Windsor, 570 U.S. 744)
Although the Defense of Marriage Act (DOMA) was struck down by the Supreme Court, it historically impacted the federal recognition of marriages, which could affect the determination of marital property for federal purposes.

The Defense of Marriage Act (DOMA) defined marriage for federal purposes as the union between one man and one woman and allowed states to refuse to recognize same-sex marriages granted under the laws of other states. However, the key provision of DOMA was found unconstitutional in United States v. Windsor in 2013. This decision has had significant implications for the recognition of same-sex marriages in terms of federal benefits and obligations, including those related to taxes and property division upon divorce. Since the Windsor decision, same-sex marriages are recognized for federal purposes, and the same rules that apply to opposite-sex marriages regarding the division of property and tax implications now also apply to same-sex marriages.

Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) - 11 U.S.C. § 523(a)(15)
This statute is relevant because it addresses the non-dischargeability of certain debts in bankruptcy, which may include obligations to a spouse, former spouse, or child incurred in the course of a divorce, separation, or in connection with a separation agreement, divorce decree, or other order of a court of record.

Under 11 U.S.C. § 523(a)(15), certain debts to a spouse, former spouse, or child are not dischargeable in bankruptcy. This includes debts incurred by an individual debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree, or other order of a court of record. The non-dischargeability of these debts ensures that individuals cannot escape their obligations related to the division of marital property or to provide support to a spouse or child by filing for bankruptcy. This provision is particularly relevant when one spouse is responsible for marital debts or is required to make payments to the other spouse as part of the property division process.