Chapter 1: The Texas Marital Property System

 

  1. Introduction
    1. Marital Property System: governs ownership, management, liability, and disposition of all property possessed during and upon dissolution of a marriage
    2. §3.001 Separate Property: A spouse’s separate property consists of: (a) The property owned or claimed by the spouse before marriage; (b) The property acquired by the spouse during marriage by gift, devise, or descent; (c) The recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
    3. §3.002 Community Property: Community Property consists of the property, other than separate property, acquired by either spouse during marriage.
    4. §3.003 Community Property Presumption: (a) Property possessed by either spouse during or on dissolution of marriage is presumed to be community property. (b) This presumption can only be rebutted by clear and convincing proof that the property in question is separate property.
    5. Characterize: to determine whether marital property was acquired at a time or in a manner which would deem it separate property of a spouse.
    6. Why does it make a difference?  Only community property can be divided by the judge in a divorce.
    7. Community property presumption: always begin with this.  The person claiming separate property must rebut this presumption by clear and convincing evidence. 
    8. Three characterizations of property: (1) Community property, (2) Husband’s separate property, (3) Wife’s separate property
    9. Management of property: 5 categories (1) H separate that he manages (2) W separate that she manages (3) Community property that H solely manages (4) Community property that W solely manages, (5) Community property that is jointly management
  2. The Constitution of 1876
    1. 1876 Constitution’s Definition of Separate Property: All property, both real and personal of the wife, owned or claimed by her before marriage, and acquired afterward by gift, devise, or descent, shall be her separate property, and laws shall be passed more clearly defining the rights of the wife, in relation as well to her separate property as that held in common with her husband.  Laws shall also be passed providing for the registration of the wife’s separate property.

                                                              i.      Limited to gift, inheritance, or before marriage property. 

                                                             ii.      You couldn’t agree that something would be separate property. 

                                                           iii.      You couldn’t agree to split something so half would be his and half would be hers

                                                          iv.      Single most limiting aspect of the definition of separate property: gender.  The constitution does not define separate of men.  The man manages the property, but the woman owns it

    1. DeBlane v. Hugh Lynch: Judgment against H alone.  Judgment levied against cotton, which was produced by slaves and land that are separate property of W. Crops produced on separate property land is community property.  An increase in value of land that is separate property is separate property.

                                                              i.      The definition of separate property includes the increase of all lands or slaves thus acquired.

                                                             ii.       “Increase” means the increase in value.  So if her separate property was worth $100 at the time of marriage and upon divorce it was worth $1000, that $900 is separate property.  But growing crops or collecting rent on that separate property is community property.

                                                           iii.      Note: keep this case in mind.  The character of the crops will not change as time goes on in the course of the law, but what will change is whether or not the crops can be used to satisfy H’s debt.

    1. Doctrine of Ownerous Title: Whatever is acquired by the joint effort of the spouses is community property.

                                                              i.      Test: Was is acquired by the labor of spouses?  If yes—C/P.  If no—S/P.

                                                             ii.      This principle lies at the foundation of the whole system of community property.

                                                           iii.      Texas courts have adhered strictly to the doctrine that dividends, interests, rent, and other income derived from separate property of a spouse comprise community property.

                                                          iv.      But see §3.005 Gifts Between Spouses: If one spouse makes a gift of property to the other spouse, the gift is presumed to include all the income and property that may arise from that property.

    1. Stringfellow v. Sorrells:  Judgment against H executed against W’s separate property mules. Are the mules, which H cared for during the marriage, still separate property of W?  Yes. Offspring of livestock that is separate property of the wife is community property.  The livestock remains separate property, despite any increase in the weight or value of such livestock during the marriage.

                                                              i.      Offspring are community property.  Increase in value is separate property.

                                                             ii.      Remember, at this point in time, H controlled and managed all property, even separate property of the W, but H’s creditors cannot get at W’s separate property.

                                                           iii.      Under the Texas statutes, as interpreted by early decisions, the husband possessed sole management powers over all the marital property, including the separate property of the wife, except that the wife’s joinder was required in deeds conveying real estate which was homestead or which was separate property of the wife.  The husband’s creditors could reach the husband’s separate property, and the community property, but not the wife’s separate property.

    1. Kellet v. Trice: W owned separate property; she was the bread winner.  The couple had a volatile relationship, but her money kept them together, because if they divorced, she would keep all her separate property.  H controls W’s property.  H takes the bulk of her property, passed it to a trustee, who conveyed it back to the community… trying to turn it in to community property. Can the H, under his management and control powers of W’s separate property, have the leeway to do this?  No.  This is a mere agreement that would change the character of property, and character of property is set at the time of acquisition, and an agreement can not change what has been constitutionally defined… conveyance is ineffective. Character of property is set at the time of acquisition and an agreement cannot change what has been constitutionally defined.

                                                              i.      W could have gifted the property to H, which would make it H’s separate property.

                                                             ii.      What is the only way in which this property could be turned into separate property?  Purchasing the property with community property funds.  (Community pays her FMV so the land is community property and the money is separate property.)

    1. 1911: married woman could obtain an order of the district court to remove her disability of coverture.
    2. 1913: (1) wife has power to manage her separate property, (2) power of control, management and disposition of what was later termed the “special community property” consisting of the personal earnings of the wife, the rents from the wife’s real estate, the interest on bonds and notes belonging to her and dividends on stocks owned by her, (3) exemption from liability for debts contracted by the husband was extended to the wife’s special community property, as well as to her separate property.
    3. 1915: Property or money received as compensation for personal injuries sustained by the wife are her separate property, except those to pay for medical bills and other expenses that the husband paid.

                                                              i.      This statute is later declared invalid.

    1. 1917: Rents and revenues derived from separate property of either spouse are separate property of that spouse.
    2. Doctrine of Implied Exclusion: if the constitution says that this is the only way you can acquire a right in something, then anything not specifically listed is implied to be excluded.

                                                              i.      Test: Was it acquired by gift, devise, or descent?  If not—C/P.  If so—S/P.

    1. Arnold v. Leonard: Mr. Leonard incurred debts. His creditors tried to levy the rents and revenues of Mrs. Leonard’s separate rental property. W sought an injunction. Trial ct held for wife, as SP.  Creditor appeals w/ an argument that the constitution doesn’t define CP, but Article 15, section 16 of The Texas Constitution, defines separate property, and made no mention of rents and revenues from separate property. (So they must be CP) Under the doctrine of implied exclusion, if it is not listed as separate property, it is community property. Mrs. Leonard argued that even if the property is community, they should be able to exempt the property from creditors based on statutes defining parameters of the wife’s liabilities.

                                                              i.      Legislature cannot change the character of property.  They cannot decide that rents and revenues produced by separate property are now separate property instead of community property.

                                                             ii.      It’s community property, the Legislature doesn’t try to change the character, they just exempt it from liability from spouse’s creditors.

1.      Why can they exempt it from creditors, but not change the character?  The constitution specifically said in the definition of separate property: “and laws shall be passed more clearly defining the right of the wife, in relation as well to her separate property as that held in common with her husband.”

                                                           iii.      So Legislature cannot change the character of property, but they can change the rights of control and power.

    1. Northern Texas Traction v. Hill: W was passenger in ex-H’s car, when it was hit.  W was injured and sued for negligence, and amended the petition to join her new husband.  She was suing D for recovery of her personal injuries.  She thinks ex-H should be responsible since part of the accident was his fault.  Are her damages C/P or S/P?  All property or moneys received as compensation for personal injuries sustained by the wife shall be her separate property, except such actual and necessary expenses as may have accumulated against the husband for hospital fees, medical bills, and all other expenses incident to the collection of said compensation.

                                                              i.      Everything a W collects for personal injury is her S/P, except for money used for hospital bills, medical bills, and other expenses incident to the collection of the damages.

                                                             ii.      What’s wrong with this?  It conflicts with the constitution.

                                                           iii.      What’s the rule to use here?  Rule of Implied Exclusion… personal injuries are not gift, devise, descent… so they must be possessed before marriage, or else the damages are community property.

                                                          iv.      What effect does this being C/P have on the H?  He has an interest in half the property.  Also, his negligence will mean no recovery (rule was at this time was “all or nothing”).  Contributory negligence would have barred her entire cause of action.  If he had no interest in the recovery, his contributory negligence would not bar her cause of action.

    1. Gorman v. Gause: Doctrine of implied exclusion keeps two people from making an agreement to change the character of property.  Doctrine of implied exclusion was applied to a prenuptial agreement, which had declared that no property acquired during the marriage would be community.  The Court viewed this as an attempt by the parties to fix the character of marital property by means different from that recognized in the state constitution, and held the agreement to be void and unenforceable.
    2. Strickland v. Webster: Wife had purchased property from her husband with money she earned as a school teacher.  The couple had entered into an agreement that her personal earnings would be her separate property.  While that agreement was found to be invalid, because community property law cannot be changed by contract, the deed executed by the husband conveying the property was effective as a gift.
    3. King v. Bruce: A husband and wife attempted to partition their community property into the separate property of each via an elaborate series of transactions.  The court held that the couple’s attempt was ineffective, as it was not recognized by the constitution as a means of acquiring separate property.

                                                              i.      Article 16 was amended to include §15 after this case.

  1. The Constitution as Amended in 1948
    1. Article 16 §15: Separate and Community Property of Husband and Wife: All property, both real and personal, of the wife, owned or claimed by her before marriage, and that acquired afterward by gift, devise, or descent, shall be the separate property of the wife; and laws shall be passed more clearly defining the rights of the wife, in relation as well to her separate property as that held in common with her husband; provided that husband and wife, without prejudice to preexisting creditors, may from time to time by written instrument as if the wife were a feme sole partition between themselves in severalty or into equal undivided interests all or any part of their existing community property, or exchange between themselves the community interest of one spouse in any property for the community interest of the other spouse in other community property, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property of such spouse.

                                                              i.      Partition… H and W hold Whiteacre as community property.  They decide to split it and one half becomes H’s separate property and one half becomes W’s separate property.

                                                             ii.      Exchange… H and W hold Greenacre and Blackacre as separate property.  H exchanges his community property interest in Blackacre for W’s community property interest in Greenacre, and so then all of Greenacre is H’s separate property and all of Blackacre is W’s separate property.

    1. These are two new ways to create separate property.
    2. Creditors are protected in that if the partition or exchange that creates separate property prejudices creditors, it’s held invalid.  Fact question.
    3. These cannot be done in a prenuptial agreement… the couple must be married.
    4. Must be done on existing community property

                                                              i.      Can partition a bank account, but cannot partition future interest earned on it.  Interest earned next year will be community and will have to be partitioned again.

                                                             ii.      If they separated the accounts so each spouse had their own account, the interest earned will still be community property.

                                                           iii.      What do you do to make the interest separate property?  Do an exchange at the end of each year, after the interest has been earned.

    1. Hilley v. Hilley: community property cannot be used to create a joint tenancy with right of survivorship between the spouses, because such a transaction was not an interspousal gift.

                                                              i.      If you’re going to set up a joint tenancy with right of survivorship, so that on H’s death, H’s separate property becomes W’s separate property and vice versa, the couple MUST partition or exchange FIRST

    1. Davis v. East Texas Savings and Loan: spouses could utilize separate property to create a valid joint tenancy with right of survivorship, with the spouses as joint tenants
    2. Krueger v. Williams: a spouse, utilizing community property, could create a valid joint tenancy with right of survivorship with the spouse and a third party as joint tenants.
    3. Williams v. McKnight: H went in with W to set up bank accounts in 3 different banks, setting up JTWROS.  There was no partition at all.  Under the probate code, H and W may by written agreement create JT, but this violates the constitution. Courts strictly read the constitution- up until 1988, JTWROS had to be made by partition.  W argued that her husband set up bank accounts with their property as joint accounts with rights of survivorship, proven by the signature cards on the account.  There can be no JTWROS arising from CP without partitioning it first. 

                                                              i.      Even today, crops grown on separate property land are considered to be community property

    1. Jameson v. Bain: the partition/joint tenancy card was signed in the wrong order, so the spouses did not first partition the property, but did so after creating a joint tenancy… which was not valid due to the strict procedures in the constitution.
    2. Few v. Charter Oak Fire Ins. Co: When a rule of the court conflicts with a legislative enactment, the rule yields.  A wife does not have to join her husband in a suit for recovery of worker’s compensation benefits arising out of her own injuries.  Worker’s compensation is community property, and her husband owns it jointly with her.  But despite that joint ownership, he doesn’t have to be a party to the suit to recover them.

                                                              i.      Court says, he can be joined because of his interest, but he is not an indispensable party. 

                                                             ii.      Worker’s compensation recover = lost wages, which is community property

                                                           iii.      Statutes, created by legislature, trump rules, created by SCt. 

    1. §3.001(3): the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage, is separate property.
    2. Graham v. Franco: The recovery awarded for personal injuries sustained by either spouse during marriage is the separate property of that spouse except for any recovery for loss of earning capacity during marriage.  The acts of negligence of the husband are not imputed to the wife so as to bar her recovery.

                                                              i.      Separate property: damages for injury to her body, including disfigurement, loss, or impairment of the use of the body, and physical pain and suffering, both past and present.

                                                             ii.      Community property: loss of earnings, medical expenses, and all other damages.

                                                           iii.      Court says that when it is personal (pain, suffering, dismembering), the damages will be separate property. 

                                                          iv.      Other aspect of personal injury recovery: medical expenses (community property because burden is on community to pay the expenses), lost wages (community property because they would be earnings during the marriage).

                                                            v.      Contributory Negligence

1.      What effect does this have on wife’s recovery?  No recovery by husband for his own wrong, and because he has an interest, no recovery for negligence.

2.      But her personal injuries, she still has a claim for those.

                                                          vi.      PERSONAL INJURY RECOVERY IS SEPARATE PROPERTY

                                                         vii.      What day controls the characterization of property?  The day the accident occurred.

                                                       viii.      The person who was injured has sole management of personal injury recoveries, even if some of them are characterized as community property.

                                                           ix.      Pain and suffering is separate

                                                            x.      Medical expenses and lost wages are community property

    1. Southwestern Bell v. Thomas: Wife’s recovery of damages for personal injuries is not barred by contributory negligence on husband’s part.
    2. Schwing v. Bluebonnet Express: in a wrongful death action for the death of a wife, contributory negligence of the husband would be imputed to bar the husband’s cause of action, but that it would not serve as a bar to the cause of action of the children.
    3. Wyly v. Commissioner: Three cases… Case 1: Husband made irrevocable trust funded by community property; trust income was to be distributed to wife and then to grandchildren upon her death.  Case 2: Husband made gifts to his wife of one-half of his community interest in bonds.  Case 3: Husband transferred his community property interests in certain assets to his wife. A gift of property from one spouse to the other or a gift of a spouse’s one-half community interest to the other spouse results in separate ownership in the donee.

                                                              i.      Income from separate property becomes the community property of both spouses, and the only way to change it to separate property is to partition it after it comes into existence.  But the spouse who owns the separate property has a “special community” or a “sole management community” interest in the income. 

1.      The other spouse has only “ownership” with no direct management rights.  All that ownership means is that (1) they can complain that the spouse owning the community property made an excessive or capricious gift to a third party, or (2) they can demand an accounting on dissolution of the marriage or partition, alleging that the income was used to improve the other spouse’s separate property.

2.      This “ownership” does not constitute a “right to the income,” because the interest is so limited, contingent, and expectant.  Therefore it need not be included in giving spouse’s gross income for tax purposes.

                                                             ii.      Is the interest from gratuitous transfers between spouses separate or community property?  Community property.

                                                           iii.      The gift was wife’s separate property, but the income from the property was community property.

                                                          iv.      When there is a gratuitous transfer, does the donor spouse retain a possession of or right of enjoyment of the income from the gift?  No.  Because the gift and the income thereof is special community property, the donee retains the absolute right to manage it, and the donor has no possession or enjoyment of it.

                                                            v.      In Texas, when does a person have a right to income arising from spouse’s separate property?

                                                          vi.      Special community property: A spouse receiving income from his separate property holds what is known as “special community” or a “sole management community” interest.

1.      A spouse has an absolute right to manage their special community property, as long as there is not a fraud on the community.

                                                         vii.      Under Texas law, setting up a trust and retaining a reversionary interest means that the donor has NOT retained a right of possession and enjoyment, because the donor has given away as much as he can under the law.

                                                       viii.      Wyly Amendment: If one spouse makes a gift of property to the other that gift is presumed to include all the income or property which might arise from that gift of property.

1.      Note: this amendment applies to spouses only!

2.      So, income from a rent house given to wife from her parents is community property.

                                                           ix.      What if before marriage, you give your fiancée stock certificates as gifts that produced dividends before marriage?  The stock is separate property.  Any income from the stock before marriage is separate.  Any income from the stock after the marriage is community. 

    1. Williams v. Williams: A premarital agreement can waive the constitutional and statutory rights of a surviving spouse to a homestead and other exempt property.  Premarital agreements will be construed as broadly as possible in order to allow the parties as much flexibility to contract with respect to property.  As long as the agreement does not violate constitutional and statutory definitions of separate and community property or the requirements of public policy.

                                                              i.      The Texas Constitution was amended in 1980… the “Williams Amendment” is a result of this case.

                                                             ii.      Can a couple agree in a prenuptial agreement that all income from separate property will be separate property?  No.  Such a clause is invalid because it is in violation of the Constitution.

                                                           iii.      Homestead Right: the right of a surviving spouse to continue to occupy the marital home that is separate property of their dead spouse, until the surviving spouse either dies or abandons the home.

1.      said that both spouses were older persons with adult children.

                                                          iv.      Result of this case: it is possible to waive your homestead rights.

    1. Interspousal Transfers

                                                              i.      Either spouse possesses power to make a gift to the other spouse of his separate property or of his interest in community property, so that the property becomes the separate property of the donee spouse.

                                                             ii.      While property purchased by the community estate from the separate estate of a spouse for a valuable consideration is community property, it is not possible for a gift to be made to the community estate, because of the constitutional definition.

                                                           iii.      Problem with interspousal transfers: determining whether an effective gift has been made under the facts.

    1. Equal Rights Amendment

                                                              i.      Everything became genderless in 1972

                                                             ii.      Art I §3a: Equality under the law shall not be denied or abridged because of sex, race, color, creed, or national origin.

  1. Chapter 4 of the Family Code: Premarital and Marital Property Agreements
  2. The Constitution as Amended in 1980, 1987, and 1999
    1. Art XVI §15: (1) All property, both real and personal, of a spouse owned or claimed before marriage, and that acquired afterward by gift, devise, or descent, shall be the separate property of that spouse, (2) and laws shall be passed more clearly defining the rights of the spouses, in relation to separate and community property, provided that persons about to marry and spouses, without the intention to defraud preexisting creditors, may by written instrument from time to time partition between themselves all or part of their property, then existing or to be acquired, or exchange between themselves the community interest of one spouse or future spouse in any other community property then existing or to be acquired, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property and estate of such spouse or future spouse; (3) and the spouses may from time to time, by written instrument, agree between themselves that the income of property from all or part of the separate property then owned by one of them, or which thereafter might be acquired, shall be the separate property of that spouse, (4) and if one spouse makes a gift of property to the other that gift is presumed to include all the income or property which might arise from that gift of property, (5) and spouses may agree in writing that all or part of their community property becomes the property of the surviving spouse on death of a spouse, (6) and spouses may agree in writing that all or part of the separate property owned by either or both of them shall be the spouses’ community property.

                                                              i.      Wylie Amendment

                                                             ii.      Williams Amendment

                                                           iii.      Clause 1

1.      Same basic definition of separate property is the same

2.      Genderless

                                                          iv.      Clause 2

1.      Genderless

2.      Now includes future spouses (“persons about to marry”)

3.      As for to preexisting creditors, the statute has changed from “prejudice to” to “intent to defraud.”