Marital Property and Traceability in Divorce

We have discussed previously that marital property is not just “stuff” such as the contents of a house etc.  After all, who wants to pay $350.00 an hour to fight over a used vacuum cleaner.  Some people do, and I call it the pink elephant.  Once everything else is resolved, it’s sometimes hard to let go. 

Marital property is much more than the contents of the house.  It includes houses, land, cash, cars, motorcycles, investments, retirement…basically anything acquired during the marriage that is NOT a gift, an inheritance or a personal injury. 

The definition is straightforward, but the real world is not.   Much litigation is over the “what ifs” and “what about…”  Each variation has a separate rule.  For example, what if the Wife owns a house before marriage.  She marries and she and her new husband buy a house.  Wife rents her old house to Bob.   Well, the rental income is considered community property while the house itself remains her separate property.   Here’s another variation.    After they marry, Wife sells her old house for $50.000 and buys another house that she and her new husband live in and pay taxes.   When it comes time to divorce, the house is community property because it was purchased during the marriage.  BUT, if Wife can prove (or trace) part of the money was from the sale of her separate property house, she can assert a claim for reimbursement.  It is her burden of proof because property is presumed to be community property unless  she proves otherwise.  Keeping good records and separate band accounts goes a long way in these situations.

Here’s another situation.  Sally lives in Houston, and her mother dies and leaves her an enviable inheritance of one million dollars.  The money comes from her late mother’s estate in a single check.  Wife buys a one year CD in her own name and it earns 5% interest.  At the end of the year, wife rolls the money back into another CD etc.  It matures and wife takes out $50.000 to go on vacation.  She puts the interest from the last three years and $150,000 in a hedge fund that does so well they go on another vacation, knowing they have invested well because there is a million dollars, a CD and a hedgefund.  When they get home, the market has slipped so Wife takes money out and pays off the house.  Now we have lots of problems. 

Life happens and we don’t make decisions based on future divorce.  But your bookkeeping should be clear and concise.  You can spend a little money on separate accounts where there is no co-mingling, or pay lawyers to sort it out.  I hope you are reading this before it is too late and you find some helpful hints herein.

Kelly Koch

Law Office of Kelly Koch, PC

1402 N. Chaparral Street

Corpus Christi, Texas 78401

Tel: (361) 882-8000

Fax: (361) 882-8757