Texas Community Property and Real Estate
Ownership of real estate is a state-specific issue. Even if the property owner lives in another state, the real estate that person owns is governed by Texas law. And because Texas is a community-property state, all Texas real estate owned by a married couple is governed by Texas community property law. Texas community property law creates two broad categories of marital property:
- Separate Property – Separate property includes:
- property owned or claimed by the spouse before marriage;
- property acquired by the spouse during marriage by gift or inheritance; and
- certain recovery for personal injuries sustained by the spouse during marriage.
- Community Property – Community property includes all property acquired by either spouse during the marriage that is not separate property.
All real estate owned by either spouse falls into one of these two categories, with community property being the default characterization. This means that all property acquired during the marriage is presumed to be community property unless it can be shown that the property qualifies as separate property.
The characterization of property as community property means that both spouses are treated as a single economic unit with respect to the community property. In the real estate context, even if only one spouse is listed on the deed, the property is considered to be jointly owned by both spouses as community property. A spouse may not sell, mortgage, or otherwise deal with real estate titled as community property without involving the other spouse.
Attorney Practice Note: Many spouses would prefer that property be classified as community property. Community property provides tax benefits that are unavailable to separate property. Community property can also be structured to include a right of survivorship, so that the property passes automatically to the surviving spouse upon the death of a spouse.
Because characterization as either separate or community property is determined when the spouses acquire title and can have important legal and tax consequences, it is important for the deed and other transfer documents to clearly specify whether property is marital or community property. If the spouses intend for the property to include a right of survivorship, the transfer documents should include a Community Property Survivorship Agreement.
Our online deed preparation service creates either community property or separate property interests based on the answers you provide in the interview. If you want the property to pass to the surviving spouse on the death of the deceased spouse, our software will also create a Community Property Survivorship Agreement.
Presumption of Community Property for Property Acquired During Marriage
Texas follows a legal principle called the inception of title doctrine. Under this rule, the character of property as separate or community property is fixed when the spouses acquire the property. As long as the property is acquired during marriage, it will be presumed to be community property unless it can be shown that the property falls within one of the categories of separate property. Texas case law indicates that there are several circumstances where this can occur:
- Property Transferred by One Spouse to Another – One spouse transfers property to the other spouse. The rationale is that a transfer to the other spouse is probably a gift. Because gifts made during the marriage are separate property, the conveyance is presumed to create a separate property interest in the spouse that receives the property.
- Property Acquired by Both Spouses Using Consideration Provided by One Spouse – One spouse uses separate property consideration to pay for property acquired during the marriage and takes title to the property in the name of both spouses. This is a variation on the example above. If one spouse contributes all of the funds from separate property, that spouse could take title as separate property. If, instead, the spouse names both spouses on the title, Texas law assumes that the spouse that provided the funds from separate property intends to make a gift of half the property to his or her spouse.
- Separate Property Recitals – The deed contains a “separate property recital” that states either that the property is conveyed as separate property, that the consideration is paid from separate property, or both.
Each of these examples were resolved in court at expense to both parties. If the parties intend for the property to be separate property, the deed to the property should clearly state that the property will be the separate property of one spouse and the basis for characterizing the property as separate property. It is best for the spouse who will not hold title to the property to sign a Marital Property Agreement (sometimes called a Partition and Exchange Agreement) to evidence his or her consent to separate property arrangement. The Marital Property Agreement should be recorded in the land records with the deed.
Our online deed preparation service creates both community property and separate property interests based on the choices you select in the interview. If the person receiving the property is married and wants to take title as separate property, our software will include the language and create any supplemental documents—like Marital Property Agreements—needed to clearly document the arrangement.
Ownership of Community Property
If Texas real estate is community property, it becomes subject to the Texas rules regarding division or distribution of community property. These rules apply in two contexts: Divorce and death.
Treatment of Community Property on Divorce
In a divorce proceeding, the court will order a “just and right” division of the couples’ community property. Because it is up to the court to determine what is “just and right,” the ultimate division of a divorcing couple’s community property may not be an equal split. If the court believes that one spouse is entitled to more, that spouse will receive more.
Treatment of Community Property on Death of a Spouse
On death the death of one spouse, a couple’s community property is divided equally. The surviving spouse gets to keep his or her half. The deceased spouse’s half is transferred through his or her will or, if there is no will, as provided in the Texas intestacy statutes.
Control of Community Property
Control of community property is a separate issue from ownership. Control relates to who may transfer marital property. Even if property is community property (and treated as owned by both spouses), one spouse may have sole control over the property.
Texas law creates several specific categories of community property that—although owned by both spouses—may be controlled by only one of the two spouses. Section 3.102 of the Texas Family Code provides:
During marriage, each spouse has the sole management, control, and disposition of the community property that the spouse would have owned if single, including: (1) personal earnings; (2) revenue from separate property; (3) recoveries for personal injuries; and (4) the increase and mutations of, and the revenue from, all property subject to the spouse’s sole management, control, and disposition.
If community property does not fit within one of these “sole management and control” categories, the spouses must act jointly to deal with the property.
Control and Ownership of Separate Property
If the property is separate property, the spouse that owns the property has both control and ownership, with one important exception: Texas homestead. The signature of both spouses is required to convey Texas homestead, even if the property used as the marital home is actually owned by only one spouse.
As a general rule, the court may not award separate property to a spouse in a divorce proceeding. This rule can create an unfair result for couples who move to Texas from separate property states, especially if the majority of the couples’ marital property is characterized as separate property of only one spouse.
To address this issue, Texas has developed a category of “quasi-community property” for property that would have been community property had the spouses lived in Texas when the property was acquired. The court may divide quasi-community property between the spouses in a divorce proceeding, even though the property is not actually community property under Texas law.
Unlike the divorce context, there is no “quasi-community property” category for division of property upon death. This can cause unintended and often unfair consequences for couples that migrate to Texas. Couples who move to Texas from other states should ensure that their assets are titled in a way that achieves their goals.