Texas is one of 9 community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). While the laws of each community property state differ, here are few highlights of Texas community property law:
Separate Property:
Earned income from the work of either spouse before the marriage.
Capital gains (appreciation) on separate property.
Gifts and inheritances received by either spouse during marriage.
Personal injury damages for a physical injury sustained, even while married (except for lost wages which are community property).
Community Property:
Earned income from the work of either spouse during the marriage.
Property purchased with income earned during the marriage.
Dividends, interest, and capital gain earned on community property.
Dividends and interest earned on either spouse’s separate property during the marriage.
Example
If a party owns 100 acres of land as separate property, and rents it out for grazing rights for $5,000 per year, and saves the $5,000 per year in a savings account, and then gets divorced after ten years, the entire $50,000 in the savings account is community property.
The same rule applies with income from stock. Many people use the dividends on their stock to reinvest and acquire new shares. If a spouse starts out the marriage with 1,000 shares of stock, and receives a 4% dividend each year, then uses the dividend to acquire 400 shares of stock, and then at the end of the 10-year marriage has 1400 shares of stock, the initial 1,000 shares of stock constitute the spouse’s separate property, but the 400 shares of stock acquired with the dividends constitute community property and is subject to division by the court.
Capital gain from separate property stock is treated differently. If a party has 1,000 shares of stock before marriage at a basis of $50 a share, and after the marriage, the stock increases in value to $75 a share. The increase in the value of the stock is still considered separate property. The same rule on capital gain of separate property applies to other assets, such as real estate, small businesses, equipment, gold.
