What is “Commingled” Property?

Texas is one of the few states that recognize two distinct forms of property held by spouses. The first of these characterizations of property is referred to as separate property, which is all property owned by the spouses before the marriage or acquired by the spouses during the marriage by gift, devise, or descent. Common examples of separate property include a vehicle purchased before the marriage or an inheritance bequeathed to a spouse. All other property is the marital estate’s community property. An experienced attorney can guide you. 

Upon the dissolution of a marriage, Texas courts will divide the spouses’ property so that each spouse retains all of his or her separate property and so that the couple’s community property is split in a “just and right” manner. Generally, the starting point for the just and right division is a fifty-fifty division between the spouses, but this will often be adjusted according to the unique circumstances of the case. While the details of each case will determine the just and right division, courts may consider a variety of factors including who made a majority of mortgage payments, who was the predominant caregiver for the children, and who has the greater income-earning potential moving forward.

But what happens in cases where property or assets are a mix of both community property and separate property? For example, when community property is deposited into a bank account that also holds a spouse’s separate property or vice versa. Courts refer to these funds as commingled property, and the issue presents itself fairly frequently. 

Courts begin with the presumption that all property owned by the spouses is the marital estate’s community property. To overcome this presumption, a spouse must show by clear and convincing evidence that an asset is his or her separate property. When it comes to commingled property, a spouse can overcome the community property presumption with the tracing doctrine. 

Tracing refers to the method by which a spouse’s separate property interest in a presumed-community property account or asset is traced back to an earlier separate property deposit or asset. Say for example, a couple jointly owns a bank account with a $100,000 balance, into which both spouses deposit their income. However, 6 months ago, the wife deposited her separate property inheritance ($14,000) into the account. If she can adequately trace that inheritance (with account statements and transfer receipts), then she may have a $14,000 separate property claim in addition to her just and right percentage of the account’s remaining community property. Clear and convincing evidence of an asset’s separate property character can come in many forms, even handwritten notes or statements made at the time of transfer. 

Of course, tracing is only the first step in arriving at a spouse’s final separate property interest claim. How a spouse’s separate property was used by the community estate and viewed by the spouses can also play an important role. For instance, if the separate property owning spouse intended for half of the property to be a gift to the other spouse, often seen in the case where one spouse owned the marital residence prior to the marriage, then it may lose all or part of its separate property characterization. There are also complexities that arise with any increases in value of the separate property. Passive appreciation will generally be separate property as well, but any income from the separate property during the marriage, such as interests and dividends or income from a rental property, will be community property. These are just a few examples of the intricacies of comingling and tracing, and an experienced lawyer can help you work through the separate property claims you can be making in your divorce.
If you would like to learn more about defending your separate property, please contact one of our experienced lawyers today.