We have all heard the saying in marriage that “what’s yours is mine”, but is that true from a legal standpoint? Texas is one of nine states in the United States that has community property laws. Many people believe that in a community property state, once you are married, all property is community property.

Community property is property accumulated during marriage through both spouses, including income and debts. Property acquired through inheritance or gifts while one is married, is considered separate property unless the spouse that received the inheritance or gift moves the property into a community account. For example, Jane received $100,000 in cash from her mother. If Jane keeps that money in a separate account for her, then the $100,000 is separate property. If Jane moves the money into a joint account with her spouse, then the money is community property. Property acquired prior to marriage is also considered separate property unless the original owner moves the property into a community ownership.

Separate property is as the name indicates – property that each spouse holds separately. As long as the property is held by one spouse and isn’t comingled for the other spouse’s benefit, the property will remain separate during a marriage.

Prior to entering a marriage in a community property state there can be separate property agreements (also known as pre-nups) that keep property separate in the event of a dissolution. As the divorce rate continues to increase, these agreements are becoming more appealing to those with a wide income gap from their soon to be spouses.

The rules surrounding community and separate property can be overwhelming. Should you need tax consultations about this issue, please do not hesitate to reach out to one of our qualified advisors.