Any divorce can be complex, no matter how much the couple’s assets are worth. The situation can become even more difficult when there is a large community estate to divide. Although the laws of community property can be helpful in preventing some disputes, there are still many things that could cause disagreement between the spouses. Here are some considerations to take into account regarding a high net worth divorce in Texas.
As a preliminary matter, in Texas, spouses would generally divide the community property equally. In addition, both spouses are equally responsible for the debts that are incurred during the marriage. Community property laws may change the character of the divorce and the considerations when dividing property.
Full Disclosure of Assets
When the property is divided 50/50, one spouse may have an incentive to withhold disclosure of some or all of their assets. For whatever reason, they may try to hide assets in the divorce. This conduct is fraudulent, and it can lead to harsh consequences if it is discovered during or after the divorce. Still, many people think they can get away with hiding assets.
You should pay close attention to the inventory of assets provided by the other spouse. If something does not look right, you should not hesitate to question it through your family law attorney. Your lawyer can request additional discovery and/or they can trace assets to discover what the other spouse tried to hide.
Prenuptial Agreements and Postnuptial Agreements
If either party brought assets into the marriage, or if the couple simply wanted to avoid a potentially bitter divorce, they may have executed a prenuptial agreement. If circumstances change during the marriage, the spouses can also agree to a postnuptial agreement. These documents are binding contracts between the two spouses that set many of the terms of a potential future divorce in advance. A prenuptial agreement would lay out ahead of time how certain assets the parties brought into the marriage are to be divided in the event of a divorce.
A prenuptial agreement is a contract, so the same rules that apply to any contract govern this document. There are reasons why a prenuptial agreement may not be enforceable. For example, the terms of the agreement could have been so unbalanced from the start that it would be unfair to enforce it. One spouse may have been in a superior bargaining position and forced the other to accept lopsided terms. For whatever reason, the spouse who considers themselves to be in the worse position may try to challenge the validity of a prenuptial agreement. If the agreement is not enforced, the spouses could find themselves in the position of having to start from scratch when it comes to the division of assets.
Taxes on Capital Gains
When dividing the community estate, one should not forget that some assets may have a built-in and significant tax liability attached. For example, if two spouses are dividing a 401(k) account, taxes on the investment gains will be deferred until money is withdrawn from the account. If one spouse needs to take money out early, they will also face an early withdrawal penalty.
The same thing goes for other investments and real estate the spouses may jointly own. If they have a robust investment portfolio, their stocks may be carrying significant capital gains. In these cases, 50/50 does not necessarily mean equal. Each spouse needs to account for the potential tax liability when determining how the property is to be split. It may be that one spouse gives up less property in an exchange when they take ownership of an asset that has a built-in tax liability.
Business and Asset Valuation
While you may know how much each spouse will receive from the marital estate division, you may not necessarily know the value of each asset. This knowledge is important because each asset may not necessarily be divided right down the middle. It may be that one spouse wants to keep more of one asset, and they would trade other assets with the other spouse to secure the asset they want. For example, one spouse may want to remain in and own the family house. In that case, they may allow the other spouse to keep more of the investment account. To make an equitable trade, you would need to know how much the house is worth.
The same is true when much of a couple’s net worth is concentrated in a business. Each spouse may have their own competing evaluation of the business that furthers their own interests. For example, the spouse who will retain ownership of the entire business may want it valued for as little as possible because it means they would then need to pay the other spouse less in exchange for their share.
Many divorcing spouses each hire business valuation experts who then develop their own estimate of a business’s value. The divide between the figures could be large enough to drive the case to court if the two spouses cannot bridge the gap.
Not everything may be a part of the community estate. Some assets that one spouse held beforehand may have appreciated in value during the course of the marriage. The other spouse could receive their share of the increase, but the spouse who owns the asset gets to keep it. Forensic accountants may need to trace the history of this asset to see how the value changed during the marriage.
Forensic accountants could also detect potentially hidden assets or the waste of marital property. A community property divorce may also necessitate complex statistical projections that only a forensic accountant could make.
If the bulk of the earnings come from one of the spouses, that person may need to pay spousal support to the other. This is commonly known as alimony. In Texas, there are two types of spousal support:
- A family law judge can order spousal support when there is a significant disparity in the earnings of the spouses. This support is usually temporary to allow the receiving spouse to build up their earning capacity.
- The two spouses can agree amongst themselves, by contract, to the amount of support. They can set their own terms, including the amount and the duration.
In general, Texas courts disfavor ordering alimony. The thought process is that the equal distribution of property should be enough to help one spouse get on their feet financially. Although it is rare, it is possible for a family court to order alimony. The spousal support would be temporary and limited. The court may also order alimony if there is family violence. Texas has caps on alimony based on the duration of the marriage.
It is essential that you hire an experienced divorce attorney early in a high net worth divorce. You may need to prepare for this type of divorce earlier and more extensively than you would if there were not many assets involved. You should never attempt to negotiate your own divorce, especially when there is a lot of money at stake.
How an Attorney Can Help You in a High Net Worth Divorce
Your family law attorney can help with the following in a high-net-worth divorce:
- Give you an objective perspective of what you can expect in the case
- Formulate discovery questions so you can get information about the assets being held by the other spouse
- Negotiate with the other spouse’s attorney to reach a settlement agreement
- Take your case to court and argue it in front of a judge and/or jury if you cannot reach an agreement
It may not be in your best interests to go straight to litigation in a high net worth divorce. You have little predictability about how a judge or jury may rule, and you would cede all control of your divorce to the court. You may want to consider negotiation and potentially mediation in the hopes of reaching an agreement – in whole or in part.
Contact a Brazoria County Divorce Attorney Today
The family law attorneys at Terry & Roberts provide you with pragmatic representation in a high-net-worth divorce. If the situation calls for it, we can aggressively represent your interests in a high-stakes negotiation or a court case. The key is that you contact us early in the process. To reach a high net worth divorce lawyer, contact us here.