St. Mary's Law Journal


The character of property acquired on credit is one of the most vexing in Texas marital property law. The apparent black letter rule is that anything acquired by either spouse on credit during the marriage is community property, unless the creditor agrees at the outset to look only to separate property for repayment. The general rule follows naturally from a core principle of Texas law that everything owned by a married person is presumed community when the basic presumption is combined with the “inception of title” doctrine. In a credit transaction, the borrower acquires some legal right to the loan proceeds at the very instant the credit agreement is signed. If there is any chance at the time title “incepts” that community property might ever be at risk, the community property presumption is not displaced. The apparent exception to the general rule makes less sense. The notion that proceeds of a separate-property-secured non-recourse loan also becomes separate property has been criticized. Fortunately, neither theoretical uncertainty nor confused case law has caused much trouble to date. Few institutional lenders would willingly make a non-recourse, separate property-secured loan to an individual, especially if they suspect the loan might embroil them in a family squabble. The Texas Constitution has the safeguard of requiring home equity loans to be non-recourse, secured only by the homestead. Consequently, the legal doctrine surrounding credit acquisition of separate property will take on great importance in every Texas divorce in which the homestead is separately owned, though acquired via home equity loan. Now that the question can be expected to arise in everyday litigation, the arcane nature of the separate credit exception is beneficial. In a series of cases, the Texas Supreme Court acknowledges the separate credit exception, but did not find circumstances justifying its application.


St. Mary's University School of Law