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Special Property Division Issues: What Is the Difference Between Property Division & Reimbursement Claims?

Property Division

In divorce cases, Texas courts are required to make a just and fair division of the parties’ property. Under Texas law, courts resolve property division issues according to principles of community property. Sometimes, a court will order one spouse to reimburse the other spouse for certain expenses or transactions. This article is the first of a series of blogs that examines special property division issues in divorce cases. Here, we look at the difference between dividing community assets and reimbursement claims between the divorcing parties.

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Rights Under Texas’ Community Property System

When a married couple acquires property, Texas law presumes that such property is community property. Simply put, the spouses in a marriage both have an ownership interest in community property. For example, when a married couple buys a house to live in together, the law presumes that the house belongs to both spouses rather than one of them. Many married couples purchase property, such as furniture and real estate, with the intention that both spouses will own and use said property. Therefore, such property is deemed to be community property.

However, when spouses get a divorce, they cannot be reasonably expected to share ownership of their property if they move on to lead separate lives. Because both spouses have an ownership interest in community property, Texas courts will conduct a just and right division of community property upon divorce.

Property that an individual spouse acquires before marriage, after divorce, or during marriage through gift or inheritance, is not considered to be community property and therefore is not subject to division upon divorce. For instance, when someone acquires ownership of a pet dog before meeting their spouse and marrying them, it is safe to say that they didn’t intend to jointly own the pet with their future spouse.

In summary, both spouses have ownership rights to community property by virtue of their marriage. As a result, community property must be justly and fairly divided upon divorce. In contrast, one’s spouse does not have an ownership interest in the other spouse’s separate property. Therefore, separate property is not divisible upon divorce.

General Reasons for Reimbursement

Reimbursement requires a party to repay the other party for the use of property to which they had an ownership right. Reimbursement claims arise when a party’s property was used for the sole and separate benefit of the other spouse. Reimbursement claims do not create an ownership interest in the property, although such claims might arise from a party’s ownership interest in specific property.

Texas courts are required to use equitable principles to resolve a reimbursement claim in divorce proceedings. Reimbursement claims do not impact the other spouse’s right to manage, control, and transfer marital property.

Two common situations that implicate a party’s right to reimbursement involve the following:

  • Use of community property: When a party uses community property to benefit their separate property estate, their spouse usually has a right to reimbursement for the use of their community property interest. For example, the job earnings of a spouse acquired during marriage typically qualify as community property. The other spouse has an ownership interest in part of those earnings. However, if community property earnings were used to make payments on a car loan one party incurred before marriage, the other spouse has a right to be reimbursed for their half of the community property used to pay off the separate car loan. The other party does not necessarily have an ownership claim to the car. Instead, the other spouse has a claim against the estate that benefited from the use of community property.

  • Use of a spouse’s separate property: If a spouse’s separate property assets were used to benefit the other spouse’s property—whether it be community property, or separate property—the spouse whose separate property benefited the other spouse’s estate has a reimbursement claim. For example, if a spouse received a $20,000 check as part of their inheritance share, the money is ordinarily not divisible in a divorce—it is the receiver spouse’s separate property. However, if the couple encountered financial problems and was forced to spend the spouse’s separate $20,000 inheritance to make mortgage payments on a community property house, there may be a right to reimbursement. The spouse can be reimbursed for $20,000, minus a portion of the community debt to which they were responsible for paying.

Statutory Bases for Reimbursement

Texas Family Code § 3.402 governs reimbursement claims in a divorce, listing nine conditions that may justify a claim for reimbursement between spouses. Many of these situations involve the use of community property or a spouse’s separate property.

Under Texas Family Code § 3.402, a reimbursement claim can arise in the following situations:

  • Payment for the unsecured separate debts of the other spouse
  • Insufficient payment by one spouse’s business for the other spouse’s work
  • Principal payments for debts secured by property the other spouse acquired before marriage
  • Principal payments for debts secured by property the other spouse received as a gift or inherited
  • Principal payments for secured debts incurred to finance the purchase or improvement of property—such as a home equity loan
  • Principal payments for debts secured by the other spouse’s separate property where the creditor agreed to expect payment only from the other spouse’s separate property, incurred to finance the purchase or improvement of property
  • Refinancing to reduce the principal amount of debt
  • Capital improvements to property
  • Use of community property to repay the unsecured separate debts of a spouse

The statute also authorizes courts to offset one spouse’s reimbursement claims if the other spouse has such claims as well. A party who wishes to offset a reimbursement claim has the burden of proving the basis for offsetting the claim.

Find Effective Legal Advice from Coker, Robb & Cannon

If you are looking for a skilled attorney to represent your interests in your divorce, look no further than Coker, Robb & Cannon, Family Lawyers. We have years of experience with various issues in divorce cases, including matters concerning community and separate property rights of the spouses. You can rely on our legal team to have your best legal interests at heart.

To schedule a case evaluation exploring your rights, call us at (940) 293-2313 or contact us online today.