Texas High Net Worth Divorce
Divorces are a complicated and complex area of the law that can put a serious strain on the people that need them. The headaches of pursuing a divorce are compounded for marriages that involve high-net-worth individuals with large estates. Will my spouse get half of my trust or half of an inheritance I’ve received? What happens to illiquid assets such as art or other collectibles I own? What if I own a business or have an interest in one? We have heard these questions from high-net-worth clients, and each of those questions represents a valid concern for high-net-worth individuals seeking a divorce. This guide will explore some of the most common issues in high-net-worth divorces and the role that a skilled and knowledgeable Austin attorney serves in successfully resolving those issues.
To learn more about high net worth divorce in Texas, contact the team at Cofer & Connelly, PLLC, online or call (512) 991-0576.
How Is Property Divided in a Texas High Net Worth Divorce?
Divorces almost always require the input of a court to determine what property should be awarded to each spouse when the marriage is finally dissolved. Texas family law courts resolve property issues in a divorce through two processes—division of community property and confirmation of separate property:
- Community property generally refers to property acquired during the marriage. That includes houses, cars, bank accounts, furniture, and even collectibles such as art, guns, and furniture. Community property is presumed to be equally owned by each spouse and will need to be equitably divided by a court before a divorce can be finalized.
- Separate property refers to specific assets acquired before or during the marriage that are excluded from the community estate. Typically, this includes trusts, inheritances, or payments received from the settlement of personal injury lawsuits. However, because Texas is a community property state, all property is presumed to be community until any separate property is affirmatively proven to be separate by a preponderance of the evidence.
In high net worth divorces, where the spouses have substantial community and separate estates, the task of separating separate property from community property and then equitably dividing the community property amongst the spouses is a monumental task. Generally, the first step is discovering each spouse’s assets through the creation of an inventory and appraisement. An inventory and appraisement traditionally involves the identification of assets, characterization of those assets as either community or separate property, and assignment of an initial value. An attorney will work with you to provide critical supporting documentation to prove the identity, character, and initial asset value to produce a complete inventory and appraisement.
As one of the first steps to resolving a divorce, identification, characterization, and initial valuation of assets sets the stage for the property issues that will define any divorce. Accordingly, a skilled and knowledgeable Austin attorney can make the difference when it comes time to ask a court to confirm separate property and divide the remaining community estate. In a high net worth divorce, the importance of getting the inventory and appraisement correct is magnified by the sheer volume of assets that will need to be properly characterized and valued. That makes your decision to hire the right divorce attorney critical to resolving a divorce in your favor. Our attorneys have the experience necessary to take on the volume of complex financial particularities in your high net worth divorce.
How Texas Courts Value Assets in a Divorce
High net worth divorces often involve valuable assets that are a lightning rod for disagreement during divorce. The value that a court assigns to a home, car, or collectible can mean the difference of hundreds of thousands of dollars in equity value assigned to one spouse or another when a divorce is finalized. How do Texas courts value assets in a divorce?
Generally, Texas courts rely on fair market value to assign a value to property in divorces. For assets such as publicly-traded stock or bank accounts, the fair market value is easy to establish because the fair market value is publicly associated with the asset. For other property such as real estate, art, cars, collectibles, and antiques, additional evidence may be necessary to prove fair market value. In high-net-worth divorces, an expert witness is often necessary to provide the appropriate testimony that proves the fair market value of otherwise difficult-to-value assets. These experts will consider an array of evaluation methods and work with attorneys to testify as to their expert opinion on tricky valuation questions. Alternatively, a third-party appraisal report may suffice to prove asset value where the appraisal can be proven to reflect the fair market value of the property.
When no fair market value can be assigned, Texas courts rely on the intrinsic value of property. The intrinsic value is useful when the property is one-of-a-kind or otherwise lacks a secondary market for resale. Evidence of the intrinsic value does not include the sentimental value but does include the original purchase price of the property.
Determining the accurate value of assets in a divorce is a tedious process, and high net worth individuals face additional hurdles due to the unique composition their estates can take. When considering a divorce that will involve rare, expensive, and otherwise niche assets, the risks from proceeding without the advice of an attorney can be costly. To minimize the risk of those circumstances, hiring an attorney that will fight for a fair valuation is critical to avoid the problems that otherwise arise when a court improperly values and divides community assets. Our attorneys have the experience necessary to advise you on complex assets and valuation questions.
Property Located Outside of Texas
It is not uncommon for high-net-worth marriages and divorces to involve property located outside of the state of Texas. In those cases, you may wonder whether a Texas court adjudicating your divorce can resolve out-of-state property issues. For example, what will happen to a vacation property you or your spouse owns in a different state?
If a marriage involves a piece of property located outside of the state of Texas, Texas courts do not have the power to directly assign the title of that property to an individual. However, just because it cannot directly affect the title does not mean Texas courts are powerless to address out-of-state property. Instead, Texas courts rely on their power over the individuals to indirectly affect a division of out-of-state property. For example, a Texas court can compel a party to a divorce to take action with regard to an out of state property per the court’s instructions. Thus, a Texas court has the power to indirectly order the valuation, sale, distribution, division, or conveyance of property owned by one or more parties to a divorce.
Whether you own a second home, apartment, or condo in another state, our attorneys can work with you to properly address out-of-state property division with a Texas court.
Proving the Existence and Value of Separate Property
Generally, spouses enter a marriage with some amount of preexisting property or assets. Furthermore, throughout a marriage, one or both spouses may receive property and assets as gifts, inheritances, or lawsuit payouts. Depending on the circumstances of how these assets are handled, they may constitute an individual’s separate property. If the property is appropriately proven to be separate, Texas courts are unable to award any portion of them to the other spouse in a divorce. In a high net worth divorce, one or both spouses generally have complex financial arrangements that involve substantial separate property held in trust or earned through an inheritance.
While the importance of keeping your separate property separate is obvious, proving the characterization of separate property is an otherwise challenging task. Separate property must be proven by a preponderance of the evidence, which can be complicated by the financial arrangements of any joint bank accounts or the perception that you gifted any separate property to the community estate. Furthermore, even if your separate trust or inheritance remained unmingled with community assets, you and an attorney will need to determine whether any income generated from separate property assets constitutes community income that your spouse is entitled to.
Often complicated separate property arrangements require one or both parties to a divorce hire a forensic accountant to do a full financial tracing of separate property and generate a report on the final separate and community value of a trust, inheritance, or other separate property asset. These forensic accountants will also often serve as expert witnesses at any trial to assist your attorney to prove the characterization and valuation to the court.
Protecting that separate property is of the utmost importance to our clients, and our attorneys understand that affirmatively proving the value and existence of separate property is a critical task for any attorney handling a high net worth divorce.
Disputes Over Business Interests
Like any other asset in a divorce, business ownership is property that a Texas court must value and characterize as either separate or community property. In some cases, ownership or a portion of interest in a business may be divided between spouses like any other community property asset—even if the other spouse was never involved in the business. This can be an incredibly distressing thought for clients that have spent years building an incredibly valuable business. In those cases, our attorneys do everything within their power to argue for an equitable distribution that awards the business to the spouse best suited to capitalize on the value of the business as an asset.
Regardless of whether a spouse is interested in receiving an ownership stake in a business characterized as community property, any business at issue in a divorce will need to be assigned its fair market value. Like any complex asset, high net worth individuals with a business at stake in a divorce will likely need to hire a business valuation expert to provide a report on the fair market value. In turn, the fair market value of the business will instruct the court on how much equity value the business adds to the community estate. A truly fair market assessment of your business can thus be the difference between having to pay our thousands or hundreds of thousands in equity to a spouse at the finalization of a divorce.
Contact Cofer & Connelly, PLLC Today
Whether your business is separate or community property, the right attorney can make a critical difference in how your business is assessed by a Texas court. Our Austin family law firm understands the central role that a business can play in resolving a divorce and are prepared to guide you through the complex business valuation process. Contact us online or call us at (512) 991-0576 today.