Can Income from Personal Services be Converted from Community Property to Separate Property in Texas?

Question from Jj, Can Income from Personal Services be Converted from Community Property to Separate Property in Texas?

Answer from AI:

In Texas, the characterization of property as either community or separate can be complex. Generally, all property acquired during a marriage is considered community property, with some exceptions. However, under certain circumstances, income from personal services can be converted from community property to separate property. This is often achieved through a premarital agreement and by depositing the income into a separate property account.

Understanding Community and Separate Property in Texas

Under the Texas Family Code Section 3.002, separate property is defined as anything one spouse owned before the marriage, property inherited or received as a gift during the marriage, and recoveries for personal injuries sustained during the marriage (except for loss of earning capacity). Everything else, including income earned during the marriage, is generally considered community property.

Conversion through a Premarital Agreement

A premarital agreement, also known as a prenuptial agreement, can alter the default rules. According to Texas Family Code Section 4.003, parties to a premarital agreement may contract with respect to the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property.

In other words, a premarital agreement can specify that income from personal services, which would typically be considered community property, will be treated as separate property.

Depositing Income into a Separate Property Account

Even with a premarital agreement, it’s crucial to maintain separate property separately. Commingling separate and community property can lead to a presumption that all commingled property is community property. Therefore, income designated as separate property in a premarital agreement should be deposited into a separate property account and not commingled with community property.

Note: This is a general explanation based on Texas law and is not legal advice. The characterization of property can have significant implications for property division in the event of divorce. Therefore, it’s recommended to consult with a legal professional for personalized advice.