I. BASIC PRINCIPLES OF CHARACTERIZATION

Question 1

The following property is SEPARATE PROPERTY (SP)

Answer 1

1. Property acquired (the right) before marriage (inception of title rule)
2. Property acquired during marriage by gift (even purchased with CP, if gift for couple, then SP tenancy in common), devise, or descent
3. Property acquired during marriage but purchased with separate property funds (tracing)
   goods->cash->goods still SP

Question 2

The following property is COMMUNITY PROPERTY (CP)

Answer 2

Property—other than SP—that is acquired by either spouse during the marriage

CP PRESUMPTION: all property owned at divorce is presumed to be CP. Spouses must provide clear and convincing evidence that a particular asset is SP.

Question 3

A. Title

Homer buys a house with SP, but lists both himself and Marge on the deed. Is the house SP or CP?

Homer buys a house with CP and the deed names as the grantee: “Marge, as her sole and separate property.” Is the house SP or CP?

Homer buys a house with CP and the deed names as the grantee: “Homer, as his sole and separate property.” Marge did not know that Homer used this language in the deed, and did not participate in the transaction. Is the house SP or CP?

Answer 3

The name listed on the TITLE to an asset (for example, whose name is on the deed to land) is NOT RELEVANT to the asset’s characterization.
EXCEPTION: Title is relevant to whether one party intended to make a gift of the asset

By putting Marge’s name on the deed to his SP house, Homer creates a SP of marge that he intended to give her a gift in the house. so each own half as TIC

SP; Homer gift his 1/2 to Marge

CP; homer cant gift himself the CP to himself

Question 4

B. Inception of Title Rules

The week before the wedding, Homer signs a contract to buy a plot of land and takes out a mortgage for $100,000 to do so. Homer pays the entire the mortgage during the marriage with money he earns during the marriage. Is the plot of land CP or SP?

Answer 4

see when he acquire the right

SP; he aquired land before marriage

TWO EXCEPTIONS TO THE INCEPTION OF TITLE RULE:
pensions and stock options

Question 5

C. Tracing, Commingling, and Bank Accounts

Answer 5

What if Homer deposits both SP and CP money into the same bank account, thereby commingling the two types of property? Homer’s SP money will remain SP if its identity can be traced

“COMMUNITY OUT FIRST PRESUMPTION”
When a spouse takes money out of a commingled account, Texas courts apply a presumption that the spouse took out CP money, not SP money.

“LOWEST INTERMEDIATE BALANCE” PRINCIPLE
compare LOWEST INTERMEDIATE BALANCE with amount of SP, if LIB more then all SP are there, otherwise reduce the SP

“IDENTICAL SUM INFERENCE” METHOD
The community out first presumption can be overcome if the deposit and withdrawal were 1, close in time and 2, close in amount

Question 6

Some assets earn income. Stocks earn dividends. Land can be leased to produce rent.
IF AN SP ASSET PRODUCES INCOME DURING THE MARRIAGE, THAT INCOME is

Homer’s father set up a trust for him. Homer will receive the income generated by interest on the principle of the trust until age 70, and then Homer will have unrestricted access to the principle of the trust as well. Which payments are SP and which are CP?

Answer 6

IF AN SP ASSET PRODUCES INCOME DURING THE MARRIAGE, THAT INCOME IS CP

i. Exception #1: Interspousal gifts
When one spouse makes a gift of her SP to the other spouse, courts will presume that this is a gift of both the underlying SP asset and the income produced by it in the future

ii. Exception #2: Partition and Exchange Agreement
Spouses can partition CP into SP by written agreement. If they change a CP asset into an SP asset, they can also convert all future income from that asset from CP to SP.

iii. Exception #3: Minerals
SP

Income before Homer is 70: SP; periodic gifts to him
Principle of the trust, after Homer is 70: SP; equivalent of gift
Why? Unrestricted access is the equivalent of a gift
Income after Homer is 70: CP; because the principle now is his SP, so income from that is CP

Question 7

D. Appreciation in the Value of SP
When an SP stock produces cash dividends, those dividends are income and hence CP. But what if the stock goes up in value during the marriage?

stock split, 100 shares of 2 -> 200 shares of 1
stock dividend
Suppose Homer invested in a mutual fund before marriage. Would a “CAPITAL GAINS DIVIDEND”— where mutual fund holders receive money based on the sale of some of the fund’s stock—be CP or SP?

Answer 7

Although the income from an SP asset is CP, APPRECIATION IN THE UNDERLYING VALUE OF AN SP ASSET REMAINS SP.

stock split change the form but not the character of the asset
*stock dividend is SP

SP; just the sale of SP stocks results in SP