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The Difference Between Separate Property and Community Property

When dividing assets, it’s important to understand how property is legally classified. Texas courts classify marital property as either “community property” or “separate property.” Let’s look at these in greater detail.

Community property includes all property, debt, and assets that were acquired from the date of the marriage until the marriage cut-off date. After both spouses have agreed upon how property will be divided, both parties must sign the Marital Settlement Agreement. In a small number of cases, the property award is ordered and decreed by the District Court in the Decree of Divorce. Property division does not necessarily mean a physical division. Instead, you can award each spouse a percentage of the total value of the property. Each spouse will receive items that add up to his total percentage. During the divorce process, neither spouse is allowed to hide assets in order to protect them from property division. Hiding assets is illegal and can have serious consequences.

It’s important to understand the difference between community and separate property. Community property includes all earnings during the marriage and all property acquired from those earnings. All debts acquired during the marriage are also considered community property. Separate property, on the other hand, includes gifts and inheritances given to only one spouse. It also includes funds from a pension that vested before the marriage, and personal injury awards. A business owned by one spouse before the marriage remains separate property – unless the business increased in value during the marriage, or both spouses worked for the business. In practice, separate property mixed together with community property usually becomes community property.

Community property includes dividends from stocks and mutual funds, income from employee benefits acquired during the marriage (pension, 401K funds), and funds from secondary property (i.e. income from a rental house). It also includes crops grown on separate property, livestock born during the marriage, medical bills, disability payments, and workers’ compensation benefits.

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