San Antonio Express-News
June 6, 2006

Growth in Value of Separate Property
-and-
Dangerous Driving

copyright 2006, Paul Premack

The answer to your question lies in understanding how Texas law defines community property, and in how Texas law handles assets when a person dies. Under our marital property system, an item that was owned by a person before marriage was and remains that person’s separate property. On the other hand, growth in the value of separate property, when that growth is directly attributed to the owner’s personal efforts, is community property. Additionally, any income stream derived from the separate property is community property.

Under our probate system, a Will allows its maker to dispose of anything its maker owns. A person owns half of any community property assets and owns all of his or her own separate property. The Will’s maker cannot dispose of something he/she does not own except under extraordinary circumstances.

Your husband’s company was entirely his separate property on the day you married. But when he went back to work, his efforts to improve the company belonged to the community. If he dies, and if you can establish that the company’s inherent value increased due to his personal efforts after the marriage date, then you own half of that increase.

If his Will leaves "all of his estate" or "the entire company" to his adult daughters, they receive his half of the community property and all his separate property interest in the company. If any part of the company can be identified as community property, you retain the half you already own. This may be an accounting and legal quagmire, and may lead to litigation over just what part of the company’s value is community property and what part is separate property. To avoid that struggle, he should visit with an estate-planning attorney to clarify his position, prepare appropriate legal documents, and hopefully eliminate a nasty battle.

Dear Mr. Premack: I own a Cadillac I no longer drive because of my failing eyesight. Sometimes my son chauffeurs me, but he has had accidents in the past. I am worried about liability. What can I do under these circumstances? – V.H.

You have stopped driving because safety is the biggest issue. Your son’s driving record also creates a safety issue and thus potential liability for you. You are aware he has had accidents yet still allow him to drive a vehicle you own. If he causes another accident, the injured party is likely to sue him as driver and to sue you as vehicle owner.

One possible solution is to buy an excess of auto liability insurance and make sure your son is listed as an authorized driver on the vehicle. That won’t stop you from being sued if there is an accident, but the insurance will hopefully cover the damages.

You could also transfer ownership of the vehicle to your son. The legislature just passed a change to the tax on transferring a used car: effective October 1, 2006 tax will be charged based on the sale price or on 80% of the blue book value, whichever is higher. This is a large tax increase, intended to offset reductions to real property taxes that will phase in over the next two years. If you decide to take this route and if you act soon, you can transfer title before the tax increase hits.