Frequently I receive a lot of questions regarding how to prove the character of a certain piece of property. Recall that community property in Texas is defined in the negative as all property acquired during the marriage except through gift, devise or descent. Thus, community property is pretty much every piece of property obtained during the marriage what wasn’t gifted or inherited to one particular spouse. Separate property is property that does not owe its existence to the marriage. Put another way, everything that is not community property is defined as separate property, including property which was owned prior to the marriage.
Under the Texas Family Code there is a statutory presumption that all property owned by either spouse during or upon dissolution of marriage is community property. See Tex. Fam. Code Sect. 3.003(a). Once it is established that property is in the possession of either spouse, there is a presumption that the property is community property and belongs to the community estate. In order to over come this presumption, a spouse is required to show through clear and convincing evidence that the property is not community property.
One of the ways spouses frequently show that property is not community property is to rely on the inception of title rule. Under the inception of title rule, a property’s character is based on the time and manner in which a person first acquires an interest in the property. Generally, if a person first acquires an interest in the property before marriage, the property is considered separate property; if a person first acquires an ownership interest in the property during marriage, the property is considered to be community property. Once the character of the property is established under the inception of title rule, that character will not change because of mutations in the property’s form. For example, if the property was sole or exchanged for other property.
By way of example, the inception of title rule provides that the day the interest is earned in an bank account is the crucial date which decides whether the property was owned prior to marriage. Therefore, if the interest in the bank account was earned prior to the date of marriage, then under the inception of title rule, the bank account interest earned (as of that date) would be considered separate property. Another example might also be helpful. Assume a car was purchased on the eve of marriage. Under the inception of title rule, the car would be characterized as separate property because its title pre-dated the marriage.
Where things can get a little tricky is what happens when the separate property goes through mutations during the marriage. Here, we have to apply the concepts of tracing to the inception of title rule in order to determine the correct characterization of the property. Although the concepts of tracing could encompass volumes of other posts, simply put tracing follows the changes of the original property to its current state. So, if the bank account that was opened prior to marriage was closed out to purchase a car during the marriage, and the tracing concepts are satisfied, then the care would remain separate property under the inception of title rule and tracing concepts.