Getting a new estate plan or evaluating your current one is necessary for any new events in your life, such as getting married or perhaps remarried, having a child or grandchildren, and so on. When creating an estate plan, people tend to forget about one important asset that needs some attention. In particular, you need to understand certain crucial aspects of "home ownership" whether you are married or want to be married in order to make sure that your present or future estate plan will be successful.

You must first own an asset in order to include it in your estate plan because the bottom line is that you can’t give away what you don’t own. This seems obvious, right?  In Texas, a community property state, many people mistakenly think that after getting married, they will own half of their spouse's assets and the other spouse will own half of theirs. This is because most people are not familiar with the marital interest laws that dictate the thorny question of “who owns what” in a community property state, and how this lack of knowledge can detrimentally affect your estate plan.

The Texas Supreme Court has held that the Texas Constitution defines what is community property, but the truth is that it really doesn’t. The Constitution does define separate property as any property you owned prior to your marriage and any property you receive during your marriage by gift, devise (in a Will), or descent (as an Heir). If it is a spouse’s separate property, the other spouse holds absolutely no legal interest in such property. For example, if you marry someone that owns their home prior to your marriage, you do not automatically own half of it after you get married and move in and, therefore, you can’t give any interest in your “home” away in your estate plan because you have no legal interest in it.

Defining community property is a little muddier because it is governed by subsequent legislation and case law. The two most important governing case law doctrines that help determine “who owns what” are:

• The Rule of Implied Exclusion. This doctrine holds that if an asset does not fall within the constitutional definition of separate property (as defined above), it must be community property. Logically, you can conclude that community property is property of the marriage, which is not proven to be separate property.
• The Inception of Title Doctrine. This doctrine requires that you look to the character of the property at the time a person acquires an interest in it, e.g. even if an asset is purchased during the marriage, if the person purchased it with their separate property money, it is that person’s separate property. Even if the property is purchased during the marriage with a person’s income from their job (which is community property) and deposited the money into an account solely in their name, it is nevertheless community property and the person’s spouse owns half of the monies in that account.

According to Texas law, property cannot be converted from separate to community or community to separate unless a prenuptial agreement is signed before marriage or a partition and exchange agreement is signed after marriage. Even though many people think they can outsmart these laws, their attempts will not work to circumvent the law and their estate plans will not succeed as to the property if this problem is not corrected. For example, what happens if the newlywed who previously owned the house prior to marriage signs a new deed to make their spouse a co-owner? Each spouse will hold only a separate property interest in the property as a result, and the survivor will not be eligible for a valuable community property benefit which reduces capital gains tax on the property's sale after the first spouse passes away. Or, what if that newlywed couple refinances their home and both spouses sign a new promissory note and both of their names appear on the deed of trust securing the debt that is filed in the real estate records? Unfortunately, while this means that the new spouse signed up to be liable for paying off the home's debt, the refinance still did not grant that new spouse any legal interest in the house. Regretfully, the home remains the separate property of the spouse who owned it before marriage and the other spouse has no legal interest in the home to include in their estate plan.

Contact Us

If you have questions about home ownership and preventing any unexpected and detrimental wrinkles it can cause in your estate plan, please do not hesitate to contact the Law Firm of Blanche D. Smith. Give us a call today at (936) 301-0111 or email us at lawclerk@bdsmith-law.com.