I told you in my last post that I'd be giving you some more information about exceptions to the general community property rule in Texas divorces, and about other nuances of Texas property division in divorces. This post will discuss the issue of "reimbursement."
In Texas, many people who get married own property (and/or debt) they acquired before they got married. The general rule in Texas is that any property acquired before the marriage is that person's separate property--the other spouse has no right to it, and it cannot be divided by the court in a divorce. However, separate property can create a number of complications. This post will discuss the complication known as "reimbursement".
The most common claim for reimbursement in a divorce comes about when one "marital estate" (which could be the community estate OR the separate estate of either party) pays the unsecured debt of another marital estate. The most common example is when a couple gets married and one party has a lot of credit card debt. Then, during the marriage, the credit card debt gets paid down from income earned during the marriage. Since most income received by either spouse during the marriage becomes part of the community estate, this results in one person's separate debt being paid down with community income. To put it another way, one spouse's separate estate is being improved at the expense of the community estate. In that example, the separate estate of the spouse with the separate credit card debt would upon divorce owe money to the community estate in an amount equal to the amount of the separate debt principal paid off during the marriage.
Here is an example of how the reimbursement claim would play out:
Assume at the time of divorce that the parties have no property other than $10,000 in the bank. However, during the marriage, the husband's separate credit card debt (debt he had prior to the marriage) of $10,000 was paid off during the marriage using the Husband's income. At the time of divorce, Husband would owe $10,000 back to the community. That money would then be split, since Husband is entitled to 50% of the community property, which results in an additional $5000 going to the wife. Since Husband has no separate property money to pay wife for her "reimbursement" claim, he'll have to pay her out of his share of the community estate. His original share of the $10,000 bank account is $5,000, which he has to pay to the wife as reimbursement, meaning she'll get a total of $10,000 and Husband will get nothing. This may sound unfair, but remember that the Husband paid down all of his credit card debt.
There are lots of other types of reimbursement claims, but this is the most common. Next time, I'll talk to you about another type of reimbursement claim called "Economic Contribution" which usually comes up when real estate is purchased by a spouse prior to the marriage, but the mortgage is paid down during the marriage with community property income.
J. Michael Clay is a San Antonio, Texas lawyer whose practice centers around all types of family law issues, including divorce, property division, spousal maintenance (alimony), child custody, child support, enforcement and modification issues, and adoption.
J. Michael Clay is licensed to practice all types of law in Texas state courts, and in federal courts in the Western District of Texas.
Not certified by the Texas Board of Legal Specialization.
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