Community Property and Separation – The Surprising Truth

The word “separation” is commonly heard prior to divorce proceedings. Couples may separate physically and emotionally with the intent of either working out their problems or not, but in legal terms, the definition is surprisingly simple. To be separated is to live apart from your spouse while married. What this actually means in real life with regard to income and property can be very surprising.

Separation and Community Property

Couples separate for many reasons in addition to having marital problems. It may be done for religious reasons, or to maintain health and other insurance benefits. However, a fact that is commonly overlooked is separation does not “stop the clock” on the accumulation of community property. Texas is a community property state, and generally speaking, so long as a couple remains married the rules of community property still apply.

Even though this is a straightforward concept, here are a few examples from actual case law that may further illustrate the point.

Example #1 – The Bonus

A couple was experiencing marital difficulties, and the female (who was the primary breadwinner) decided that their multiple attempts at reconciliation had failed. She decided to separate before year-end, when she expected a large performance bonus from her job. In early November, she moved to an apartment with the intention to file for divorce early the next year. She received her bonus in mid-December, and it was immediately contested by the husband, who claimed he was owed half. Even though they had been living apart and handling their own finances, the Court ruled for the husband because they were still married.

Example #2 – Income from Real Estate

Another couple acquired a duplex near a university early in their marriage. At the time, the husband was able to qualify for the loan individually, so he did and the property was recorded in his name. Both spouses worked on the property together and paid for repairs and maintenance out of whatever funds they had. It became a very successful, long-term rental, but the marriage soured and after several months of strife, the husband moved into one of the units. He became the on-site manager for the tenant, handled all issues, and also began receiving all rental payments in a separate account. The wife contested his belief that he was entitled to all rental income, even though they had been separated and he had taken over all property management. Again, the Court awarded the wife half of all rent money received solely by the husband.

Example #3 – Half the Assets

This is a more extreme example. It happened in South Africa, but had it occurred in Texas the end result likely would have been no different. In late June, a story was published describing a couple from South Africa. Married in 1980, the husband went to work in mining and transport. Times were difficult, and after coming home from work one day in 1998, he found his wife had left to seek work in another city. They lived apart for the next 22 years, working but never engaging each other. By the time the husband retired in 2020, he had acquired some assets and a pension from his employer, and in retirement, decided it was time to end the marriage. The wife countersued for half of his assets (including those earned during their 22 years apart), and because they were still married, she won.

One more caveat – remaining married to someone you have little contact with can lead to IRS problems, as they consider both parties responsible for any tax issues. If this marital limbo were to go on for years, one spouse could be liable for the taxes and penalties of the other.

Nine (Thousand) Degrees of Separation

Even though this last case occurred 9,000 miles across the Atlantic, it carries an important lesson. In Texas and elsewhere, you remain married until the day you are not. In the eyes of the law, this means each spouse is still acquiring community property and still earning joint income. If you are contemplating the idea of any kind of marital separation, there are ways to mitigate this impact, such as with a post-nuptial agreement. If you have any questions on separation or would like more information, please feel free to contact the Essex Firm for an in-person or virtual consultation.