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Faq & More >> Articles >> Articles about Marital Property >> Income from Separate Property
Income from Separate Property
January 27, 2016

Photograph of a piggy bank, paper cut out of a family of four and a house with a key hanging off the chimneyTexas is a community property state, which means that property is either considered community property or separate property. Separate property is any property owned or claimed before marriage. Separate property also includes property inherited or received as a gift during marriage. Finally, separate property also includes any recovery for personal injuries sustained during marriage, excluding recovery for loss of earning capacity. Community property is any property acquired during marriage that is not separate property. A divorce court divides community property between spouses during divorce, but a divorce court cannot divide a spouse's separate property.

One of the more interesting and counterintuitive aspects of marital property law in Texas is that income earned from separate property during marriage is community property. The following examples show practical applications of this law.

As our first example, John Q. comes into his marriage with 100 shares of Google stock. Since John had these shares prior to his marriage, these 100 shares of Google stock are John's separate property. However, if John's Google shares pay out a cash dividend while John is married, that cash dividend is community property. In other words, it belongs to both John and his wife. However, if the Google shares split or go up in value, the additional shares or the increase in value of the shares remains the separate property of John.

As our second example, John Q. is married and inherits a fully paid off rental property. Because John inherited the rental property, the rental property is John's separate property. However, any rental income John earns from the property while John is married is community property. If the value of the rental property goes up, then that increased value remains John's separate property. In addition, if John makes any permanent improvements to the rental property, those improvements are also considered separate property. If John sells the property while he's married, the sales proceeds are John's separate property.

As our third and final example, John Q. began a partnership with his brother Jake Q. prior to John Q.'s marriage. The partnership owns and operates a car dealership worth $2 million dollars. John Q. had a 49% share of the partnership prior to his marriage. Because John established the partnership and acquired his share before marriage, John's 49% share is John's separate property. The assets of the partnership (i.e. the dealership building, banks accounts and cars) are neither separate property nor community property. Under Texas's partnership law, assets of the partnership do not belong to the partners but rather to the partnership itself. Any of John's 49% share of the profits from the car dealership during marriage is community property and belongs to both John and his wife. However, if the partnership keeps the profits for the current or anticipated reasonable needs of the partnership, then those profits become partnership assets that belong only to the partnership.

There are many more examples of how the "income from separate property" rule applies in the real world. However, they are too numerous to cover in this article.

If you have concerns or questions about whether an asset you own is your or your spouse's separate property, contact Sugar Land divorce attorney Chikeersha Puvvada at 832-317-6705 or online today to schedule a free 30 minute consultation.

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