Reimbursement of Assets at Divorce for Funds Spent from an Inheritance

Texas Legislature Passed New Law That Will Change How Inherited Assets Are Treated in a Divorce

Originally posted June 1, 2023. 

Updated June 28, 2023. The law was passed by the legislature and signed into law. It takes effect September 1, 2023. 

Over the years, many clients have asked me if they can be paid back at divorce for assets they spent from their inheritance during the marriage. This would be called reimbursement.

Inherited money is separate property in Texas. Texas is a community property state and separate property is protected by the Texas constitution. Please refer to my blog on Characterization of Property for a more in-depth discussion of separate property vs. community property.

In some instances, the law provides that a party to a divorce may be reimbursed for separate property assets used for the benefit of the community estate. Under existing law and until September 1, 2023, if you used inherited funds to pay general living expenses, it would not be reimbursable. However, a bill before the legislature in 2023 to modify the Texas Family Code would represent a wholesale change to this provision.

The new law (H.B. No. 1547) would provide, among other things, that the “benefited estate” would owe reimbursement of the assets to the “conferring estate” if one or both of spouses used property of the “conferring estate” to pay a debt, liability, or expense that in equity and good conscience should have been paid by the “benefited estate.”

What do these terms mean?

Example of Conferring Estate and Benefited Estate

If a wife paid household expenses out of her inheritance (separate property) for six months while the husband was out of work, hers would be the “conferring estate” and their community property estate would be the “benefited estate.” Those household expenses should have been paid from community property (assets they own together). At the time of divorce, their community property would be required to reimburse the wife’s separate property estate.

What does this mean? That the total value of community property would be reduced by that reimbursement amount and the husband’s share of their community property would be reduced accordingly. Would they each get 50 percent of the remaining community assets? Not necessarily. For more on this, read how property division is not necessarily 50/50 in Texas.

The key words in this proposed law are “in equity and good conscience.” This is a fact issue to be decided by the trier of fact (judge or jury). Equity and good conscience in connection with this proposed law are not defined in the statute. If this becomes law, then at some point certain cases involving reimbursement will go up on appeal and it will be up to the appellate courts or even the Texas Supreme Court to determine what these terms mean in the context of this law.

For more information about division of assets in a divorce, read here. For immediate answers to your questions, call Chris at (713) 526-2400.

This law will become effective on 9/1/2023:

Legislative Summary

This law applies to any cases pending on 9/1/2023 wherein a claim for reimbursement has been made and any cases filed after 9/1/2023. What this means is that if you have a divorce currently on file where you have made a claim for reimbursement, if that case does not go to trial until after 9/1/2023, the new statute will apply, regardless of when the reimbursable expenses were incurred.