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Divorce and Marital Property

Bob Philo, CTIA, Presenter

»TEX. FAMILY CODE Sec. 3.002: “Community property consists of the property, other than separate property, acquired by either spouse during marriage.”

»TEX. FAMILY CODE Sec. 3.001: “A spouse’s separate property consists of:

» (1) the property owned or claimed by the spouse before marriage;

» (2) the property acquired by the spouse during marriage by gift, devise, or descent; . . .”

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» TEX. FAMILY CODE Sec. 3.003:

“(a) Property possessed by either spouse during or at the dissolution of marriage is presumed to be community property.

(b) The degree of proof necessary to establish that property is separate property is clear and convincing evidence.”

»‘Til Death Do Us Part: » In the first part of this series we discussed

Death and Probate, Descent and Distribution

» How does marital property – the distinction between community property and separate property effect land owned by a person who dies intestate?

» If one spouse dies without a will and leaves both children and separate property, the other spouse receives only a 1/3rd life estate in the separate property.

» If a childless spouse dies without a will and leaves separate property, the surviving spouse receives one-half of the separate property outright, and the other one-half is divided between parents and/or siblings of the decedent.

» If a childless spouse dies without a will and leaves separate property, but is not survived by a parent or any descendants of his or her parents, then the surviving spouse receives all of the separate property.

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» Property acquired by either spouse during the marriage is presumed to be community property of both spouses.

» However, this presumption can be overcome by clear and convincing evidence that the property is actually the separate property of one spouse alone.

» Acquired by one spouse before marriage

» Given as a gift to one spouse during the marriage

» Inherited by one spouse, either as devisee under a probated will or as an heir-at-law during the marriage

» Character of the property is fixed at the inception of title

» Separate property can be “transmuted” (changed) from one form to another but will not lose its character as separate property, so long as it is not “commingled” (mixed up) with community property.

» Inheritance placed in joint bank account and then used to purchase land?

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» Real estate can be dual-character, qualifying both as separate property and as community property.

» TEX. FAMILY CODE Sec. 7.001:

» “In a decree of divorce or annulment, the court shall 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.”

» Because the “estate of the parties” means only their community estate, the court hearing a divorce suit cannot divest one spouse of his or her separate property and award it to the other spouse.

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»Divorce does not determine the title to property held in joint ownership as tenants in common or to separate property

»

» HB 908

» • Provides procedure in cases where fraud on

» the community has occurred by defining a

» “reconstituted estate” and outlining specific

» factors to consider in determining fraud on

» the community and division of the marital

» estate in light of the fraud on the community

» – Adds Family Code Section 7.009

» • Effective: September 1, 2011

» When, as part of a divorce settlement and/or decree, community property is divested from one spouse and awarded entirely to the other spouse, evidence of the transfer must be filed in the real estate records of the county where the real property is located.

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» Prewitt v. United States, 792 F.2d 1353 (5th Cir. 1986)

» Stafford v. Lunsford, 53 S.W.3d 906 (Tex.App.—Houston (1st Dist.) 2001)

» TEX. PROPERTY CODE Sec. 12.005

» At division on divorce, when one spouse is divested of interest in community property that is completely awarded to the other spouse, it is essential that this change in ownership be immediately established in the real estate records, by one means or another.

»Texas or foreign decrees:

˃Proper Jurisdiction

˃Personal Service

˃Final and non-appealable

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» Decree should contain:

˃proper vesting and divesting language,

˃a valid legal description (not just an address)

˃ language may be in a Property Settlement Agreement adopted by the Court

»Decree may impose a lien against the property which must be properly disposed of upon transfer of property.

»Real claims situation

»Not necessarily Owelty lien

» May be created by owners as co-tenants by written agreement; or,

» May be created by Decree of Divorce.

» Insuring an owelty lien requires a correct owelty deed as well as lien documents (note, deed of trust).

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» TEX. FAMILY CODE Sec. 3.403(a): marital estate as claim against other marital estate

» TEX. FAMILY CODE Sec. 3.404: does not affect rule of inception of title or create ownership interest

» TEX. FAMILY CODE Sec. 3.406: court may impose a lien to secure and lien may affect all property in the marital estate

» When community funds are used to make improvements on one spouse’s separate property or to pay mortgage payments or taxes owed on such separate property, the character of the property does not change, and the non-owning spouse has only an equitable right of reimbursement to be adjusted when the marriage ends as the result of death or divorce.

» TEX. FAMILY CODE Sec. 2.401

» Man and woman

» Signed declaration

» Agreed, lived together, told others

» If no judicial proceeding within 2 years of separation – presumption of no marriage

» Person < 18 years is not married by this

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»Once it comes into legal existence, an informal marriage is legally indistinguishable from a ceremonial marriage.

»Can there be a divorce?

» Texas does not recognize a same-sex marriage

» If deed reads “to John Smith and Sam Jones”

˃ As tenants in common

˃ As “joint tenants”

˃ Or with no other designation

» Texas law presumes that if two non-spouses are named as co-owners (grantees), and nothing more is said, then they are “tenants-in-common”

» Probate Code Sec. 46. JOINT TENANCIES. (a) If two or more persons hold an interest in property jointly, and one joint owner dies before severance, the interest of the decedent in the joint estate shall not survive to the remaining joint owner or owners but shall pass by will or intestacy from the decedent as if the decedent's interest had been severed. The joint owners may agree in writing, however, that the interest of any joint owner who dies shall survive to the surviving joint owner or owners, but no such agreement shall be inferred from the mere fact that the property is held in joint ownership.

» (b) Subsection (a) does not apply to agreements between spouses regarding their community property.

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» TEX. FAMILY CODE Sec. 6.501: “(a) After filing of a suit for dissolution of a marriage, on the motion of a party or on the court’s own motion, the court may grant a temporary restraining order without notice to the adverse party for the preservation of the property and for protection of the parties necessary, including an order prohibiting one or both parties from: . . .

» (6) intentionally, knowingly, or recklessly destroying, removing, concealing, encumbering, transferring, or otherwise harming or reducing the value of the property of the parties or either party with intent to obstruct the authority of the court to order a division of the estate of the parties in a manner that the court deems just and right . . .”.

Another Basic Rule: Even if such a restraining order has not been put in place, when a seller or borrower is known to be involved in a pending divorce, be cautious in handling any transaction where the individual is attempting to sell or borrow against real estate, either separate or community, without the involvement of his or her spouse. When in doubt, require the joinder or separate consent of the other spouse.

» Title agents are audited by TDI to make sure they comply with P-12 “Abstract Plants.” TDI has interpreted the requirement in p-12 that alphabetical indices of “divorce actions, wherein real property is involved” and “probate records” refers to judicial records, not to records pertaining to divorce or probate that are filed in the land records.

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» Probate and Divorce records are considered Judicial Records and are specifically excluded from the Texas Public Information Act, Govt Code Section 552.003(1)(B) [“does not include the judiciary”] and Section 552.0035 states that access to these records “is governed by rules adopted by the Supreme Court of Texas”.

» Sec. 6.411. CONFIDENTIALITY OF PLEADINGS. (a) This section applies only in a county with a population of 3.4 million or more.

» (b) Except as otherwise provided by law, all pleadings and other documents filed with the court in a suit for dissolution of a marriage are confidential, are excepted from required public disclosure under Chapter 552, Government Code, and may not be released to a person who is not a party to the suit until after the date of service of citation or the 31st day after the date of filing the suit, whichever date is sooner.

» Property Code: Attorneys (or owners of real property located in Texas) should be required (1) to file a lis pendens or notice in the Deed records when a divorce petition or application for probate is initiated, and (2) to file a final divorce decree or final probate order to show who is vested in title after it’s all said and done.

» It may also be appropriate to amend the Family Code and/or the Probate Code to effect this change.

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» In 1952 Jane inherits her mother’s (Sarah) home and then marries Richard in 1954. Richard and Jane have only one child Dorothy (born in 1956).

» Sarah’s home is Jane’s separate property at inception of title

» Jane has no children born outside her marriage to Richard

» In 1958 Jane and Richard buy the vacant lot just south of Sarah’s home, mortgage both lots and build an addition on the house which extends 17 feet onto the south lot they just purchased.

» The south lot is community property

» Community funds are used to pay the mortgage

» The original house remains separate property but the addition –which is on both lots – is clearly community property

» In 1984 Dorothy marries John. In 1986 Dorothy and John purchase the small home on the lot just north of her parents’ home. But living next to his in-laws does not work out for John; he and Dorothy are divorced two years later.

» North lot and home are community property

» (assume John would not want that house)

» Assume that Dorothy is granted title to it in divorce decree

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» Jane dies in her sleep the night of August 31, 1993. Richard passes away from a broken heart three months later. Neither Jane nor Richard had a will.

» If Jane died before midnight, ½ went to Richard and ½ to Dorothy and when Richard died it all went to Dorothy.

» If Jane died after midnight, it all went to Richard and when Richard died it all went to Dorothy.

» In 1996 Dorothy, who moved into her parents’ home after her father passed away, tears down the small house on the north side and builds a garage and swimming pool on that lot. Dorothy is now attempting to sell the house and the adjacent two lots.

» Title to the house and all three lots is in Dorothy, but the divorce decree and proper affidavits of heirship need to be filed in the land records.

» bobphilo@titleexperts.biz