While most assets earned or acquired during a marriage are community property, other assets that were separate property at the time of marriage remain separate property. It is possible to convert separate property into community property, but anyone intending to do so must sign and execute a conversion agreement exactly as laid out in the Texas Family Code. As a recent Texas court has held, at least one requirement of that agreement must be precisely clear, or the conversion may not be legally valid.
General Requirements for a Valid Community Property Conversion Agreement
The Texas Family Code requires the following steps to be completed for a valid conversion agreement of separate property to community property:
- The agreement be in writing;
- The agreement must be signed by both spouses;
- The agreement must identify the property being converted;
- The agreement must specify that the property is being converted to the spouses’ community property.
Tex. Fam. Code § 4.203. As a Texas court of appeals has recently ruled, the language required to satisfy the fourth requirement must be clear and specific.
What Language is Required to Convert Separate Property to Community Property?
In a recent case, a Texas court considered what language is necessary to satisfy the requirement that a piece of separate property is being properly converted into community property. In that case, a wife had several assets held as separate property. She and her husband made a trust and transferred all those assets into that trust. When signing the trust agreement, the husband and wife included a statement which read, “At the time this Agreement is signed, TRUSTORS contemplate that all of their assets that will be transferred to the Trust will be community property.” LaPree v. LaPree, 2022 Tex. App. LEXIS 1325 (Tex. App.—Austin February 24, 2022, no pet. history).
They later divorced. During the divorce, the husband argued that the trust agreement with the included statement had converted the assets into community property. The wife argued that the conversion had not happened despite the language. The court agreed with the wife and ruled that the trust assets were still the wife’s separate property. This may seem surprising, because the statement agreed to by both spouses seems to clearly indicate that they wanted all assets transferred to the account to become community property.
However, the court determined that the language in the statement – that the assets that will be transferred will be community property – should be understood to just mean that maybe, at some point in the future, the couple might convert the assets to community property, not that they are doing it now. The court emphasized that § 4.203 of the Texas Family Code strictly requires any conversion agreement to clearly state that the property is being converted – that it is happening the moment the agreement is executed. Because the statement in the agreement said “will” instead of “are,” and another line in the agreement allowed for the possibility that separate property might also be transferred to the trust, the court held that all the trust assets were still the wife’s separate property. Even though the couple had agreed “that all of their assets that will be transferred to the Trust will be community property,” the court ruled that none of it had become community property.
It is entirely possible that both spouses fully intended at the time they executed their trust agreement that the assets they were transferring into the trust would then be community property. As it would later turn out, a relatively small difference in language made a big difference in the character of their assets. This case should serve as a warning to Texas spouses that transfers to community property must be carefully drafted, and it would be a good idea to work with an attorney in making any such transfers.
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