By Tamara Hensarling Paul
The following is provided for informational purposes only and is not, nor should it be construed as legal advice.
If you are a married person living in the State of Texas, your property may be classified one of two ways, either as (1) separate property or (2) community property. Characterization of property is not only important when a couple is divorced, but it can be just as important when a spouse dies.
Separate property is all property owned prior to marriage or property acquired during marriage by gift or inheritance. Under Texas law, certain personal injury settlements are also deemed separate property. The date of acquisition of the property or the source from which the property is acquired is the controlling factor in determining whether the property is separate property or community property.
Separate property can also change forms without changing its characterization as separate property. For example, if one spouse received real property as an inheritance, but later sold the real property, the cash received from the sale remains that spouse’s separate property. When a separate property asset is converted from one form to another form, the spouse that owns the separate property needs to keep accurate records to reflect the change. Additionally, the spouse should not comingle the separate property funds with the community property funds. By doing so, this could cause problems in tracing the separate property from the community property.
Community property is all property acquired by either spouse or both spouses during marriage, except that property acquired by gift or inheritance. The general rule is all assets acquired during marriage are presumed to be community property. In addition, all income earned from separate property is community property. If one spouse owns a separate property rental house, the rental income is presumed to be community property.
The characterization of assets is not only important in a divorce, but it is also important when a spouse dies. If a spouse dies without a Will, then the State of Texas has laws that control the distribution of the deceased spouse’s property. The deceased spouse’s property is passed to the deceased spouse’s heirs in a certain manner depending on the characterization of the asset. Many times married couples are under the assumption that if one spouse should die without a Will, then the deceased spouse’s property shall pass to the surviving spouse. That may not be the case and the characterization of the property plays an important role in the determination to whom an asset will pass when a person dies without a Will.
One situation seen many times when a spouse dies without a Will and has children from outside of the marriage is the principal residence of the deceased spouse and surviving spouse. Many spouses presume their interest in the home will pass to their spouse. However, if there are children of the deceased spouse that are not of the marriage, then the deceased spouse’s interest in the house will pass to the deceased spouse’s children and not to the surviving spouse. This holds true if the Texas real estate is the deceased spouse’s separate property or community property.
At times, this distribution can cause major issues in the distribution and finalization of the deceased spouse’s estate as well as problems for the surviving spouse. What if the surviving spouse does not get along with the deceased spouse’s children? If the property was community property, the surviving spouse now owns the home with the deceased spouse’s children. If the home is the separate property of the deceased spouse, the deceased spouse’s children will own the home, subject to a life estate in a third interest retained by the surviving spouse. What if the deceased spouse’s children are minors? How are the debts on the house going to be paid? Who can sell the house? Can the house be sold by the children if the surviving spouse does not want to sell? Can the children move into the home with the surviving spouse? As you can see, there are numerous questions and problems that can develop as the result of the deceased spouse not having a valid Will.
Preparation of a Will or a Trust allows the deceased spouse to pass the deceased spouse’s property in the manner in which the deceased spouse wants the property to pass. This is true whether the asset is a community property asset or a separate property asset. There are many additional benefits of having a Will and/or Trust properly prepared and executed. If you do not have a Will, you should contact an attorney that can explain the problems your family may endure if you die without a valid Will and one that may also help you in preparing your estate planning documents.
Tamara Hensarling Paul is a 1991 graduate of the University of Houston Law Center. She has been practicing law for over 26 years and concentrates her practice in the area of estate planning, wills, trusts and probate. Ms. Paul is a member in the firm, Currin, Wuest, Mielke, Paul & Knapp, PLLC (“CWMPK”) located at 800 Rockmead Dr. Suite 220, Kingwood, Texas. In addition to the areas in which Ms. Paul practices, other attorneys at CWMPK concentrate their practice in areas of estate planning, probate, family law (including divorce and custody issues), business operations and formation, construction, real estate, bankruptcy and litigation. For more information, please call 281.359.0100 or see the CWMPK website at www.cwmpk.com.