Divorce is, unfortunately, a reality of modern life. Between 2000 and 2020, there were approximately three marriages for every one divorce. No matter what your religious or political beliefs lie, divorce is part of our life now.
One of the most important topics related to divorce is how property is treated by courts during a divorce. Public policy generally favors ensuring each spouse is treated fairly but the approaches used by courts can vary from state-to-state. This article will briefly address the two categories of property, the two approaches adopted by various states, and some common issues that can complicate property distribution.
As with all other articles on this blog, this will be a broad discussion meant for general education purposes. Because I am licensed in both Texas & Arkansas and practice in the border city of Texarkana, I will refer to Texas and Arkansas statutes, but this discussion is generally applicable to any state depending on the approaches it has adopted by statute.
Two Categories of Property
Before discussing how property is distributed during a divorce, you must understand how property is classified. When speaking with my clients, it has been helpful for them to visualize two large buckets. All of your property — acquired before or during the marriage — goes into one bucket or the other. Each bucket of property is treated differently during a divorce; it is essential to understand what goes into each one.
1) Separate Property
Separate property is property that is treated as belonging to one particular spouse rather than to the marital or community estate.[i] It generally is not divided between the spouses in any way because it belongs to one specific person. For this reason, classifying property as separate — or arguing against that classification — is very beneficial when available.
Separate property generally includes:
- Property acquired before the marriage began; and
- Property that was acquired during the marriage through inheritance or gift.
Some states including Texas also sometimes provide for other situations when property acquired during the marriage can be classified as separate property.[ii] There are also situations where separate property can become martial property through transmutation.
One issue worth noting here is that several states — including Texas — presume that all property owned at the time of divorce is not separate.[iii] In those states, the burden of proving that property is separate falls on the person claiming that it is. This is important because a spouse who comes into the marriage with significant assets must later argue that they are separate during the divorce proceeding or risk his property being divided when it should not be.
2) Martial/Community Property
In contrast to separate property, martial property — sometimes called community property — is any property acquired during the marriage that is not classifiable as separate property.[iv] When I say “any,” I mean every paycheck, share of Walmart stock, and Christmas ornament either spouse acquired while married is considered marital property. If it was acquired during the marriage and is not classified as separate by state statute, it is martial property.
The important takeaway is that any property acquired during the marriage by either spouse that is not specifically classified as separate in your state statutes will be considered martial/community property and will be subject to distribution upon divorce.
Two Approaches to Property Distribution at Divorce
Now that we know what property is split up at divorce, the essential question is: how is marital property divided? The answer will depend on which state the property was acquired in.
Equitable Distribution
The majority of states — including Arkansas — attempt to do what is fair based on the circumstances at divorce. This approach is known as equitable distribution. Essentially, the court assumes that either a 50/50 split or the manner in which all property is titled is fair unless either spouse shows that it is unfair based on a set of factors provided in the state’s divorce statutes.[v] This varies significantly on a state-by-state basis; Arkansas favors a 50/50 split. These factors often include considerations such as:
- The length of the marriage;
- Age, health, and background of the spouses;
- Occupation of each spouse; and
- Contributions made by each spouse toward the marriage.
This list is not all-inclusive of every factor each state might look at in determining how to distribute property. Some states may also assume that titled property owned by one spouse was intended to be owned only by that spouse. The variations are countless and thus it is hard to make overarching claims that apply to every state here.
The important idea to understand here is that the court can split up marital property in any manner of combinations in states that follow the equitable distribution approach, ranging from splitting everything 50/50 to awarding all marital property to one spouse.
Community Property
One of the downsides to the equitable distribution approach discussed above is how expensive and time-consuming it can be to divvy up property based on concepts of fairness. In response, several states established property allocation statutes that divided property evenly between the spouses without regard to fairness. These are known as community property states. Texas is a community property state.
This does not mean that each piece of property will be divided evenly. For example, how would one person divide a PlayStation video game system evenly? In this example, a court may grant the PlayStation to one spouse while granting another piece of community property that is comparable in value to the other spouse to balance the scales. If the scales cannot be balanced, a court could order one spouse to pay the other a monthly amount post-divorce until the property distribution becomes equal.
Again, the key concept here is that community property states give each spouse a 50% ownership interest in all property acquired during the marriage that is not otherwise classifiable as separate property.
Special Issues Regarding Property Distribution
Transmutation
Sometimes separate property can become marital property if the owner treats it in a way that is inconsistent with it being separate.
Example: Spouse A owns a home before becoming married. After marriage, Spouse A tells Spouse B that it is her home as well and that they co-own it. During the marriage, Spouse A treats the home as if it were owned by both of them. Assuming caselaw in their state supports transmutation under these facts, the house may be classified as marital or community property and become subject to division at divorce despite it being purchased before the marriage.
Martial Funds Used To Enhance or Pay Off Separate Property
Most large purchases — such as a house or car — require mortgages or multi-year financing. This can impact whether a piece of property can be classified as separate or marital property. Under the rule of inception of title, property is generally classified as separate or marital based on when the property interest was acquired. This can become murky, however, when marital funds are used to pay off a loan incurred before the marriage.
While the result can vary from state-to-state, most states would treat property that was paid off with marital funds as partially separate and partially marital with the split based on how the amounts paid toward the loan before and during the marriage.
Ultimately, this means you cannot take out a mortgage on a house before marriage in order to prevent your future spouse from obtaining an interest in it if you become divorced later. Similarly, any improvements made using marital funds could also result in your future ex-spouse obtaining an interest in otherwise separate property.
Tracing & Liquidating Separate Property
Separate property can be sold, traded, or otherwise used to purchase other property without it becoming marital in nature. The catch is that you must be able to trace the money from the separate property to the newly purchased property. Comingling the funds with marital property — such as depositing it into your joint bank account or separate account where you have your paychecks deposited — can result in the property becoming separate property.
Example: Spouse A owns a home. They sell it, place the money in a separate bank account by itself, and then use that money to purchase a new home for the exact same amount. In this situation, the new house would also be separate property because a) the money can be traced back to the original home, b) no comingling occurred, and c) no marital property was used in the subsequent purchase.
Premarital Agreements
All fifty states recognize premarital agreements — also know as prenuptial agreements — in some form. The requirements for an enforceable premarital agreement are beyond the scope of this article but whether property is considered separate or marital in nature can be altered by an agreement between the spouses.
Are you considering a divorce and want to know more about your rights? Please feel free to reach out to our office at (903)221-9180 or email our Client Services Director at evelyn@matthewlewislaw.com.
[i] Ark. Code. Ann. § 9–12–315(b) (2022); Tex. Family Code § 3.001 (2022).
[ii] Tex. Family Code § 3.001 (2022) (classifying partial funds recovered from personal injury claims as separate property).
[iii] See, e.g., Tex. Family Code § 3.003 (2022).
[iv] Ark. Code. Ann. § 9–12–315(b) (2022); Tex. Family Code § 3.002 (2022).
[v] Ark. Code. Ann. § 9–12–315(a)(1)(A) (2022) (listing factors the court can evaluate in deciding whether a distribution is fair).
