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What is Separate Property?

What is Separate PropertyFundamentally, separate property refers to assets that courts are required to award to one spouse during a divorce. While community property is subject to a “just and right division” at a court’s discretion, separate assets are awarded in entirety to their respective owners. In Texas, all assets are presumed to be community property. To claim separate property, a party must demonstrate one of the following through “clear and convincing evidence”: 

  • The asset was acquired prior to marriage 
  • The asset was a gift
  • The asset is an inheritance 
  • The asset is a recovery from a personal injury 

Following are four scenarios exploring each basis for separate property claims. 

Acquired Prior to the Marriage

Dan worked as an engineer for SeeShell, a large oil and gas corporation, for 22 years before retirement. After retiring, Dan met Wanda while vacationing in Hong Kong. After extending his vacation for three weeks, Dan asked for Wanda’s hand in marriage. Wanda accepted his proposal under one condition; she wanted help moving to the United States. Happy to help, Dan used some of his retirement to fund Wanda’s immigration. Unfortunately, after two years, Dan began to seriously question his relationship; he suspected that Wanda had been having an affair. After confirming his fears, he wondered if his retirement would be considered separate property in a divorce. Thankfully, since Dan owned the account in question prior to marriage, a court would likely award the entire account to him.

Gifts

In the heat of an argument, Dan demands that Wanda return the wedding ring that he purchased for her. However, Wanda refuses to return the ring. Will a court allow her to keep it in the event of a divorce? Most likely, yes. Under Texas law, a gift is an item given voluntarily and without consideration (without an expectation of a return or exchange for the item). As such, Wanda’s ring will most likely be characterized as a gift.

Acquired Through Devise or Descent (Inheritances)

Devise refers to acquisitions by way of a last will and testament. Descent refers to acquisitions by way of an inheritance through bloodline. Wanda inherited money from her Aunt Susie last year who, lacking children of her own, had awarded several large assets to Wanda. Even if Wanda spent a portion of her inheritance on community assets, a court would characterize the remainder as separate property in the event of a divorce.

Recovery for Personal Injuries

One afternoon shortly after immigrating to the United States, Wanda’s vehicle was struck by a cement truck. Following discharge from an extended hospitalization, she hired an attorney to file a suit against the vehicle’s associated construction company. Wanda was awarded damages for medical expenses as well as a loss of earning capacity. In the event of a divorce, awards for damages sustained to her vehicle and for medical expenses would be characterized as separate property. However, compensation for loss of earning capacity would be characterized as community property. 

Now that you understand Separate Property, learn more about Community Property and how it could affect your business.

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