In Texas, knowing what type of property you and your spouse own is not only important in the context of family law, it is also important for Texas estate planning and litigation. A better understanding of what type of property you own will allow you to make informed decisions about managing and protecting your property.

Separate vs. Community Property

In Texas, your separate property is anything you owned before your marriage, anything you inherit or are given personally during marriage (property acquired “by gift, devise, or descent”), and any recovery you get for your personal injuries. The Texas constitution strongly protects your separate property—no court can take your separate property to satisfy your spouse’s debts or liabilities. Anything that you own that’s not separate property is community property. Dividends and interest earned during marriage on your separate property is community property, but capital gains on separate property remain separate.

While the Texas constitution protects your separate property, the law in Texas also presumes that anything you own while you’re married is community property, regardless of when or how you got it. This means that if you want to ensure your separate property is treated as separate, you have to be able to prove that you owned it before you were married or that it was given to or inherited by you personally.

Retaining the Character of Property

The underlying value of your property retains its separate or community character even if you sell it, trade it, or otherwise change what it is. For example, if you sell a car or a house you owned before you got married, the proceeds from that sale are your separate property. If you buy another car or house with the money you get from that sale, that new car or house is also your separate property. But to ensure you can identify what property is what, it is important that you not commingle your separate property with community property. That means if you sell your separate-property car, you shouldn’t put the money you get into your joint bank account. While doing that doesn’t turn that money into community property, it makes things complicated. If you later want to make specific bequests in your estate plan, if you or your spouse gets sued, or if you get divorced, you may need to figure out the character of your and your spouse’s property. If the property is commingled, this determination requires an expensive and time-consuming process called “tracing” to determine what is separate property and what isn’t.

Why Do I Need to Know This?

Why is this information important to know? What implications does this have for a happily married couple?

Knowing what property is separate and what is community will help you and your spouse make decisions about managing your assets. As mentioned before, if you or your spouse gets sued, if you want to make specific bequests in your estate plan, or if you get divorced, determining the character of your property may be important. Determining legal ownership of commingled assets may require an extensive search or tracing involving lawyers and forensic accountants. This translates into at least several hundred if not several thousand dollars and a lot of time and effort.

If your spouse gets sued, defaults on a debt, or otherwise owes somebody money, your separate property is protected. Your spouse’s creditor can get to one half of your and your spouse’s community property assets, but cannot touch your separate property. Similarly, when writing your Texas estate plan, you and your spouse can each give one half of your community property to whomever you want, but only you can decide who gets your separate property. And in a divorce, a court can split up community property in whatever way the judge decides is “just and right,” but you will always get to keep all of your separate property.

Know what property is separate and community in your marriage. (You can even change it if you want.) It will allow you to protect and preserve not only your interests but your family’s interests as well.

No matter what assets you have, an effective Texas estate plan involves more than just a will. A will provides for the transfer of your property at death, but what if you become seriously ill or badly injured? Who will make decisions for you if you are legally unable?

A will is an important part of an estate plan, but it has no legal effect until you die. A will does nothing to direct the management of your assets or to ensure your wishes are followed should you become temporarily or permanently incapacitated.

Every complete Texas estate plan provides answers to five questions:

  • Who will receive my property when I die and how should it be distributed?
  • Who will be responsible for distributing my property in accordance with my wishes when I die?
  • Who will manage my assets if I become incapacitated?
  • What type of medical care do I want if I am unable to discuss my care with my doctor?
  • Who will make decisions about my medical care if I cannot? Will that person have access to my medical information so he or she can make informed decisions?

At the Ruesch Law Firm, our Dallas estate planning lawyers recommend that all Texas estate plans include five documents, which together will address all of these questions:

  1. Texas Will
  2. Texas Durable Power of Attorney
  3. Texas Medical Power of Attorney (Advance Directive)
  4. Texas Directive to Physicians (a Living Will)
  5. HIPAA Authorization

If you have minor children, there is a sixth question that must be answered in an estate plan: Who will care for my minor children if I die or if I become incapacitated?
And there is a sixth document that must be executed to answer it:

  1. Declaration of Guardianship for Minor Children

 


Last Will and Testament

A will is a document that directs the disposition of your estate when you die. In your will, you can also designate who you would like to be responsible for distributing your estate and who you would like to care for your minor children. Your will can also establish a trust to hold the assets you give your children until they are old enough to handle them responsibly. Your will has no legal effect while you are alive; it becomes an effective legal document upon your death. If you’re married, you and your spouse should have separate wills, though the provisions may be nearly identical.

Durable Power of Attorney

A durable power of attorney appoints an agent to manage your assets if you become temporarily or permanently incapacitated. By executing a durable power of attorney, you get to choose who will manage your affairs if you cannot. You also may choose to limit the powers your agent has. If you become incapacitated without an effective durable power of attorney, a court-ordered and court-supervised guardianship may be required to ensure your assets are properly managed, bills are paid, property is maintained, etc. With a durable power of attorney, you choose who manages your assets and what powers that agent has; with a guardianship, the court gets to decide what is in your best interest.

Medical Power of Attorney (Advance Directive)

A medical power of attorney appoints an agent to make medical decisions for you if you are unable. This agent is required by law to make decisions according to your wishes, including your religion and your moral beliefs. The medical power of attorney is effective as soon as it is executed; however, your agent may not make medical decisions for you unless your doctor certifies in writing that you are not able to make those decisions for yourself.

HIPAA Authorization

A HIPAA Authorization authorizes one or more individuals access to your medical records. HIPAA, the Health Insurance Portability and Accountability Act, protects your personal medical information from disclosure. A HIPAA Authorization acts as a waiver for your health care providers so they don’t have to worry about whether they will be violating the Act by releasing information about your care to the person you have named as your health care agent. You can find more information about health information privacy at this link.

Texas Directive to Physicians (Living Will)

A directive to physicians, sometimes called a “living will,” is another form of advance directive. It supplements the medical power of attorney by providing explicit instructions on whether to provide life-sustaining treatment for terminal conditions.

Declaration of Guardianship for Minor Children

A declaration of guardianship for minor children designates one or more individuals to serve as legal guardians of your children in the event that you become unable to care for them. A declaration of guardianship is effective upon either your death or your incapacity. While you could name a guardian for your children in your will, our Dallas estate planning lawyers recommend using a separate document. This is because your will has no legal meaning until your death—if you become incapacitated and unable to care for your children during your lifetime, a guardian designation in your will is ineffective. However, a separate declaration of guardianship can take effect either when you die or while you are still alive but incapacitated.