During a high net worth divorce, you will need to address a wide variety of financial issues, and the decisions you make can have a significant impact on your finances and your ability to provide for your family in the future. As you address matters related to the division of property, spousal support, and child support, you will need to be sure to understand how these issues will affect your taxes. This will help you avoid surprises related to tax debts, unexpected tax obligations, or other concerns that could affect your financial stability. Some of the tax-related concerns that you may need to address during a high asset divorce include:

• Filing status - Once your divorce is finalized, you will no longer file taxes jointly with your spouse. However, it may be beneficial to file joint tax returns if you were still married in the year(s) before your divorce, and you may need to work with your spouse to ensure that all relevant financial issues are considered, including how you will divide any tax refunds or who will be responsible for paying taxes owed. Following your divorce, you will likely need to make a variety of adjustments when filing as a single person, and you may need to review the deductions or exemptions that you may be able to take and determine the best strategies for minimizing your tax burden.
• Dependents and child tax credits - If you and your spouse have children, only one of you may claim them as dependents and receive any applicable tax credits. In many cases, the custodial parent will claim children, although you may be able to negotiate an arrangement that will provide you both with the maximum tax benefits. Following your divorce, you should be sure to update your tax withholding information to make sure the correct amount of taxes is being withheld from the income you earn.
• Taxes on alimony - In the past, spousal support was tax-deductible for the payor, and it was considered taxable income for the recipient. However, this changed in 2019. A payor can no longer deduct alimony payments, and a recipient will no longer need to pay taxes on spousal support. This can result in more overall taxes being paid and lower alimony payments. However, spouses may be able to find other arrangements that are more financially beneficial for both parties, such as allowing a spouse to receive a larger portion of the marital estate instead of alimony or creating a trust that will provide ongoing payments to the recipient.
• Property taxes - Spouses will need to consider the taxes associated with any assets they will own after the divorce, including property taxes on the marital home, vacation homes, or any other real estate property. A spouse should be sure they will have the financial resources to pay these taxes on an ongoing basis.
• Capital gains taxes - While taxes will not apply to any assets transferred between spouses within one year after their divorce is complete, the sale of assets such as stocks or real estate during or after divorce could result in capital gains taxes. Spouses should be sure to understand what taxes will apply in these cases and who will be responsible for paying them.
• Retirement accounts - When transferring funds in accounts such as 401(k)s or IRAs between spouses, a Qualified Domestic Relations Order (QDRO) should be used to ensure that taxes will not apply to these transfers and that a spouse will not be required to pay penalties for withdrawals made before reaching retirement age. Spouses may also need to address the tax implications of dividing pension benefits or other executive retirement benefits.
• Business taxes - If either spouse owns a business or professional practice, they will need to determine how taxes that apply to the business will affect the decisions made during the property division process and the income that they earn on an ongoing basis. As part of the business valuation process, spouses will want to consider the taxes owed by a business, whether the business is structured as a pass-through entity, and how business losses will affect taxes owed in the future.

Contact an Austin High Asset Divorce Lawyer

The attorneys of Powers and Kerr, PLLC can make sure you have fully considered the tax implications of the decisions you make during your divorce. With our extensive experience handling complex financial issues, we can help you reach a resolution that will protect your financial interests and allow you to provide for your family’s needs. Call our Austin, TX high net worth divorce attorneys at 512-610-6199.

If you earn a large income or own valuable assets, you will want to make sure you are financially protected if you or your spouse choose to pursue a divorce. In many cases, the best way to protect yourself from financial losses in a high net worth divorce is to make decisions ahead of time about how certain issues will be handled. A prenuptial agreement, which you and your partner can sign before getting married, will allow you to specify how you will handle the division of community property if your marriage ends, as well as other matters related to your finances.

To be valid and enforceable, a prenuptial agreement (also known as a “prenup”) must be in writing, and it must be signed before you get married. Both spouses must also provide each other with a fair and reasonable disclosure of their finances, including the property they own, the income they earn, and the debts they owe. A spouse can waive their right to receive a financial disclosure from the other party, but this waiver must be completed before the prenup is signed.

What Decisions Can a Prenuptial Agreement Make?

In Texas, a prenuptial agreement is also known as a “marital property agreement,” and it can include decisions related to the ownership or disposition of the couple’s property, including community property or separate property owned by either spouse. A prenup can define each party’s rights and obligations toward their property during their marriage, including the right to buy, sell, lease, transfer, or use physical property, real estate, financial instruments, or anything else owned by either or both spouses.

Preparing for an imminent divorce in Texas is difficult under any circumstances. Whether you are planning to file but want to make sure you are the one who serves your spouse with papers, or you have recently been served with a divorce petition, getting ready for a divorce can be extremely stressful. High asset divorces in Texas make preparation for a divorce even more complicated given the value and complexity of many assets that will be classified as community property under Texas law. When an Austin high net worth divorce is imminent, you should begin taking steps to ensure that you have the best chance of reaching a divorce resolution that is right for you. The following are tips for preparing for an imminent high asset divorce. If you have additional questions or need assistance, you should reach out to an experienced Texas high net worth divorce lawyer as soon as possible for legal advice.

Find an Attorney with Experience Handling High Net Worth Divorces in Texas

It is incredibly important to have a lawyer with experience representing Texas clients in high asset divorce cases. While you might think that any well-reviewed divorce attorney can handle your case, it is in your best interest to hire a high asset divorce lawyer who knows how to effectively represent clients in your position. High net worth divorces can have a variety of complex and contentious issues, and you will want to have an advocate on your side who knows what to do.

Learn About Appraisers and How They Can Help with Asset Valuation

Now is the time to begin learning about appraisers and how an appraiser can help you to obtain fair valuations for assets that will likely be classified as community property. You should not rely on your spouse to hire an appraiser. To be sure, you will want to work with an appraiser who is clearly a neutral party and will not give a biased valuation of certain tangible property.

The division of community property is a complicated process in any Texas divorce, but it is often particularly complex in high asset divorces in the state. If you are planning for a divorce or you have just begun the process of filing, you probably already know that, under Texas law, Texas is a community property state. What does this mean for your divorce and your property? In short, most property acquired after the date of the marriage will be classified as “community property,” or property of the community (the community being your marriage). Property acquired prior to the date of your marriage, as well as certain property acquired after the date of marriage, will typically be classified as separate property. In Texas, community property is divided in a divorce in a manner that is “fair and just,” according to the Texas Family Code.

What, then, is commingled property? The term commingled property refers to debts or assets that have characteristics of both separate property and community property. In a high net worth divorce, dealing with commingled property can get complicated, but an aggressive Austin high asset divorce attorney can help. In the meantime, we want to provide you with more information about commingled property and to discuss how courts handle it.

How a Court Will Handle Commingled Property in a High Asset Divorce

How will a court handle commingled property in your high asset divorce? The answer to that question depends largely on just how commingled the property has become. The level or amount of commingling will probably depend upon a few different factors, including, for instance, the type of property and the length of time for which it has been commingled. If the court can trace out, or separate, the community property from the separate property, it will likely do so. However, if the property is so commingled that it is not feasible to determine what amount of the property is community property and what amount is separate property, all of the commingled property could end up being classified as community property and divided between the spouses.

While most wealthy couples in Texas will have more than one retirement account that will be subject to division in a divorce, it is important to understand how the court is likely to treat your 401(k) accounts, and how those accounts can be divided without incurring substantial penalties. You should learn more about the classification of 401(k) accounts in a community property state like Texas, and whether there are options for preventing the distribution of your 401(k) accounts in your divorce case. When you have questions or need assistance, you should reach out to a Texas high asset divorce lawyer for help. In the meantime, the following includes information about 401(k) classification in Texas and details about distribution.

Community Property and Your 401(k) Account

As you likely know, 401(k) plans are a particular kind of defined-contribution retirement account, and employers offer them to their employees. The term 401(k) refers to the Internal Revenue Code section that governs these plans. With a 401(k) account, employees make automatic contributions from their paychecks, which are then matched by an employer (the percentage of the match depends on the employer). In traditional 401(k) plans, funds are not taxed until they are withdrawn, although withdrawals from Roth 401(k) accounts are not taxed since those are funded with “after-tax” contributions.

For most married couples in Austin, at least a portion of their 401(k) accounts will be classified as “community property.” According to the Texas Family Code, there is a presumption that assets acquired after the date of marriage are community property unless one of the spouses can prove by clear and convincing evidence that the asset is separate property. Then, community property will be divided in a manner that is “just and right” based on the circumstances of the parties. To be clear, any contributions to a 401(k) account during the marriage will most likely be classified as community property.

High net worth divorces in Texas have many complex elements that do not exist in other types of divorce cases. If you are getting ready to file for divorce, or if your spouse has already filed, you should know just how important it is to have a Texas high net worth divorce lawyer on your side throughout this complicated and often lengthy process. Given the complexity of high asset divorces, we want to go through a list of things that anyone anticipating a high net worth divorce should consider.

1. You Should Hire a Lawyer Who Has Experience Handling High Asset Divorces

You want to make certain you have an Austin divorce lawyer who has experience handling high asset divorces in Texas.

When you are getting ready to file for divorce, or your spouse has recently filed, you should be thinking carefully about the divorce lawyer you will hire to represent you. For high net worth couples in Austin, your choice of a divorce attorney is particularly important given that your case is likely to have complications due to the high value of your assets and earnings. You may be wondering: what makes a high asset divorce different? And you might even be thinking that any divorce lawyer familiar with community property division and child custody issues under the Texas Family Code can handle your case.

However, it is essential to keep in mind that there are various issues that do in fact make high asset divorces different from other divorces, and you should always have a Texas high asset divorce lawyer on your side who has years of experience assisting clients in high net worth divorces in and around Austin. The following are just a few of the ways in which high asset divorces are different from divorces involving spouses with lower incomes and assets.

Valuation of Complex Property

High asset divorces often involve high-value complex property that can be difficult to value without the assistance from an appraiser. For example, high asset divorces in Austin may involve businesses that need to be appraised, valuable art collections that need to be appraised for current market value, or real estate in different parts of the country (or even different parts of the world) that will need to be accurately appraised. Often, distinct and high-value property will need to involve multiple appraisers with experience providing valuations for niche assets.

When you are planning to file for divorce in Austin, TX and you know that you and your spouse have significant earnings, or that you have substantial and valuable assets, you may have heard the phrases “high asset divorce” or “high net worth divorce.” Yet you may be wondering whether these terms do indeed apply to you and, if so, what they mean for your ultimate divorce process. Under Texas law, regardless of whether you have a high asset divorce, your property will be classified either as community property or separate property, and all community property will be divisible. When community property is of high value, often nearing or upwards of $1,000,000, there will be particular considerations you will want to take into account.

For example, in a high asset divorce, you may need to hire a property appraiser with expertise handling niche property, or you may need to seek multiple estimates for real property to ensure that it is appropriately valued and classified. Moreover, you may need to work with a forensic accountant who can uncover hidden property that one of the spouses was attempting to conceal. An experienced Texas high asset divorce lawyer can tell you whether you should anticipate a high net worth and what you should expect. In the meantime, the following are types of community property that may signal a high net worth divorce and the need to seek advice from a high asset divorce lawyer in Austin.

High Earnings

If either you or your spouse has had particular high earnings after the date of marriage, then you should likely be anticipating a high asset divorce that may involve additional complications.