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Oil, Gas and Mineral Interest Division in a Divorce

Oil, Gas and Mineral Interest Division in a Divorce
Hendershot, Cannon & Hisey, P.C.

Texas is home to a thriving oil, gas, and mineral industry, which means numerous residents invest in local operations involving the production of these valuable substances. Whether you’re a business professional who stakes your claim in this arena, a casual investor, a landowner, or anyone else with mineral rights (or are married to someone who does) the presence of such interests can create unique challenges during divorce.

One of the most important issues to address in any divorce is property division. Because Texas is a community property state, this means all assets and debts acquired during the course of a marriage are “community property” subject to division between both spouses. In most cases, this may mean dividing a family home or retirement accounts. In other cases involving more complex property division, it may entail the division of a family business, professional practice, or unique assets like oil, gas, and mineral rights.

Oil, gas, and mineral interests create complexities for a number of reasons. Below, we discuss some of the concerns that may arise when they play a role in Texas divorce cases.

Land & Reals Estate Ownership

Under Texas law, ownership of land can include three distinct “estates,” including the surface of the land itself, what’s above the surface, and what’s below the surface.

  • Above the surface – In some regions of the state, divorcing spouses may have wind rights on their land and receive royalty streams from the electricity generated from windmill farms. This would constitute “above the surface” energy interests.
  • Surface Interests – This is the value of the land itself. It may also include growing commodities such as corn, and equipment or structures and multi-generational land passed down through inheritances. In an oil and gas lease, a landowner maintains their right to use the surface of the land, but leases mineral interests to a company.
  • Below the surfaceOil and gas law is a niche area of law. When it comes to valuing mineral rights below the surface, a host of factors come into play, such as royalty income, bonus payments, and delay rentals. If your land is producing, you have the leasehold interest and the working interest, whether it involves oil reserves extracted by drilling, natural gas from hydraulic fracturing, quarries for valuable minerals, or others.

Mineral Interests: Separate or Community Property?

Above-surface, surface, and mineral interests are considered real property in Texas. As such, they are governed by the same family law principles as any other type of real estate, such as the marital home. During divorce, real property must be defined as either separate property or community property subject to division. Proving certain assets as separate property, including real property, will require evidence, including evidence that supports it was owned prior to marriage or acquired by inheritance or gift.

When a divorce involves oil and gas land (or other energy production), both the surface and mineral interests will be considered separate property of a spouse if they either:

  • Owned the land prior to the date of marriage;
  • Received it during the marriage by inheritance or gift.

Determining whether or not such interests are separate or community property is not always that simple, however, and it can be subject for dispute. For example, land may be gifted to both spouses, which would mean each spouse has a ½ separate property interest in surface and mineral interests. When generational family land is passed down to only one spouse, it will be treated as their separate property, and typically will stay in the family. However, non-land owning spouses may still have rights to a share of surface and mineral interests when land or interests are acquired during the marriage.

Oil & Gas Leases

Generally, income earned from separate property during the course of the marriage is considered community property. However, that rule does not apply when a spouse leases their separate property mineral interests to an energy / oil and gas company. Instead, most payments under the oil and gas lease will be treated as their separate property, and will not be subject to division.

In oil and gas leases, landowners who lease mineral rights to companies are typically compensated in one of three ways:

  • Bonus signing payment
  • Delay rentals (such as when drilling has not begun by a deadline)
  • Royalty payments for oil and gas production

Under Texas law, royalty and bonus payments – but NOT payments for delay rentals – will be considered separate property if mineral interests are separate property, which is commonly the case. As a result, a spouse who obtains separate property land (through gift or inheritance) with an oil and gas lease is entitled to not only surface and mineral interests in divorce, but also royalty and bonus payments. Delay rental payments, when they exist, are community property divisible to both spouses.

Protect Your Rights & Interests During a Texas Divorce

When it comes to divorce, Texas property division laws provide significant protections to spouses who inherit family land with mineral interests. However, there are many circumstances where such interests can be challenged, and where they are subject to division under the law, such as when spouses acquire land and oil and gas leases during their marriage.

Whatever your case may be, addressing any mineral rights in your estate is an important part of divorce proceedings. As a firm that handles challenging divorce and family law case – as well as oil and gas law – we are uniquely prepared to help in the valuation, classification, and division of oil, gas, and mineral interests, as well as all other facets of your divorce, ranging from spousal support (alimony) to custody and visitation of minor children.

To discuss a potential case with a Houston divorce lawyer from Hendershot, Cannon & Hisey, P.C., contact us today.