Since the gusher at Spindletop, Texans have used their grit and ingenuity to produce value from the depths of their lands. As a result of the recent shale boom in the Permian Basin, many Central Texas residents became first-time purchasers of mineral interests, and some were even lucky enough discover they had mineral rights that traced back to decades-old grants to their ancestors.
Regardless of how a mineral interest was acquired, all agree on the need to safeguard such interests, whether they are currently producing or with the potential to produce. Fortunately, Texas oil and gas law has become quite sophisticated over the last century. Yet one factor that is a consistent source of worry for some mineral rights holders is the question of marriage and divorce. Thankfully, the intersection of Family Law and Oil and Gas law is easy to grasp with an overview of the basics.
Most mineral interest holders understand that the mineral estate can be leased, with the mineral lease generally divided into primary and secondary terms. Please note, however, that even though the term used is “lease,” the interest provides the lessee with more than would typically accompany the lease of an apartment or house. Once the lessee has produced minerals in paying quantities, the lease will continue for the duration of the secondary term. Accompanying or derivative interests, such as bonus payments, delay rentals, and royalties, may also be included in the lease.
Texas is one of a small number of states that recognizes two characterizations of property held by spouses. The first is separate property, which is all property held by the spouses before the marriage, or acquired during the marriage by gift, devise, or descent. The second is community property, which is all property that is not a spouse’s separate property.
Due to the unique nature of Texas property law, different aspects of a mineral lease may be considered either the marital estate’s community property or a spouse’s separate property.
Royalty Interests: Courts consider royalty interests to be an extension of the interest in the land itself. This means that if the mineral interest is a spouse’s separate property, then so too are any royalties. Conversely, if a mineral interest is the spouses’ community property, then so are the royalty payments.
The Bonus: As with royalty interests, if the mineral interest derives from a spouse’s separate real property, then the bonus will also be that spouse’s separate property.
Delay Rentals: These are considered income, and just as with the income derived from most other types of property, the income from delay rentals paid out during marriage will be considered the spouses’ community property regardless of whether the land is a spouse’s separate property. In contrast to the bonus and royalties, the time the mineral interest was acquired by the spouse will have no effect on the characterization of delay rentals. Instead, the marital estate will have a right to all delay rentals paid out during marriage.
If you are interested in discussing how to protect your mineral interests, please contact one of our experienced lawyers today.