How Texas Courts Divide Oil Royalties Between Divorcing Spouses

Texas Community Property Rules

Texas courts generally divide property according to the community property system of asset division for divorces. Under community property rules, Texas courts will perform a “just and right” division of community property upon divorce. All property acquired by the parties while married constitutes community property, unless evidence clearly proves that the property is a party’s separate property which is not divisible upon divorce.

Any property a party acquired before marriage or after divorce qualifies as their sole and separate property. Additionally, property that a party acquires during marriage through gift or inheritance is also considered to be the party’s separate property.

A good example of community property is a house or couch the parties bought while they were living together happily married. Both parties can be viewed as being the owner of the house or couch. Since they are married and living together, the parties concurrently exercise ownership of the house or couch because they are occupying or using those items more or less at the same time.

Thus, when a married couple decides to get a divorce and live separate lives, they must divide community assets between them because they cannot reasonably exercise concurrent ownership of the property if they no longer live together.

Additionally, any income earned during the parties’ marriage is considered to be community property income. Even if the property from which the income was derived qualifies as one of the spouse’s separate property, the income it produces constitutes community property if received during marriage.

Therefore, if a spouse inherited rental property it is considered to be their separate property and will not be divided upon divorce. However, any rental income received from the property is considered to be community income subject to division upon divorce if received while the parties were married.

Dividing Oil and Mineral Rights in Texas

Under Texas law, the owner of real estate has the right to occupy and use it at the exclusion of others. “Real estate” includes the land and everything in or attached to the land, as well as the airspace above it. As a result, landowners also own the minerals, subsurface water, and other natural resources contained within the earth between the boundaries of their real property.

If a couple acquires title to real estate while they were married, then their land will be treated as community real estate subject to division upon divorce. As a result, all of the land—including its underground natural resources—is characterized as community property.

Texas courts have held that oil and minerals extracted from community real estate retain the same character as the rest of the land. The time when the land’s natural resources were discovered or extracted has nothing to do with determining whether they are considered community or separate property.

For example, pretend that a couple bought fifteen acres of land outside Odessa while they were married. However, they got a divorce two years later and decided to divide the Odessa property by selling it and splitting the proceeds. Before they could sell the property, one of them discovers that it contains a rich oil deposit.

Without the other spouse’s knowledge, the spouse who discovered the oil leased their mineral rights to an oil company. In exchange, the oil company agrees to pay 25% of the revenue brought in from selling oil extracted from the Odessa property—also known as oil royalties.

Texas courts have held that oil royalties have the same character as the land that contained the oil. Royalties from oil sales are not considered as income derived from the land but are instead treated as proceeds from the sale of the land. Thus, the oil royalties from the Odessa property are considered to be community property to which both spouses have ownership rights even though the parties were no longer married when they were paid.

You Deserve Comprehensive Legal Representation

Are you concerned about how divorce might affect your property rights, including oil royalties? If so, you stand to benefit from retaining the services of a skilled attorney for legal advice. Kay Polk, Attorney at Law is dedicated to providing you with quality legal representation during your divorce. We can help you understand complex legal issues, such as the division of property such as oil and mineral rights.

Call Kay Polk, Attorney at Law, at (713) 234-6260 or contact our office online to schedule a consultation about your divorce today.