A high net worth divorce will involve a wide variety of financial issues that will need to be addressed, but tax-related matters are one area that can sometimes be overlooked. Those who have complex finances may have tax liabilities, and in many cases, one spouse may be unaware of the debts owed to the IRS. It is important to address these issues during the divorce process, and divorcing spouses should also understand their options if the IRS attempts to collect the taxes owed.

Tax Liabilities and Innocent Spouse Relief

When a married couple files taxes jointly, both parties will be liable for any taxes owed, including in cases where the IRS conducts a tax audit and determines that the parties have tax liabilities due to errors on a joint tax return. Even if a divorce decree or judgment states that one spouse will be solely or primarily responsible for paying tax debts, the IRS can disregard these orders and attempt to collect the amount owed from either or both spouses.

Fortunately, a person may be able to receive innocent spouse relief, and they may be able to avoid being held liable for tax debts incurred by their ex-spouse. This form of relief is available if a joint income tax return understated the amount of taxes that a couple was required to pay. An understatement of taxes may be related to income that was not reported correctly or deductions or credits that were claimed improperly.

During a high net worth divorce, spouses will not only want to make sure their own financial interests will be protected, but they may need to take steps to ensure that other family members are not negatively affected by the end of their marriage. Those who come from wealthy families will want to make sure their family’s assets will not be lost during divorce proceedings. Spouses who have acquired significant assets during their marriage may want to ensure that certain assets will be preserved and passed on to their children or other family members. Business owners, executives, and those with large incomes may need to determine how to divide their marital assets in a way that will allow family businesses to remain in operation while making sure they and their families will have the resources they need in the years to come.

Wealth Protection Methods

The divorce process can be complex, and it often involves strong emotions and contentious disputes. This can make it difficult to determine how to divide marital assets fairly, and drawn-out divorce proceedings may end up using up a great deal of wealth that could be put to better purposes elsewhere. In many cases, the best way to make sure family wealth is protected is to take steps to do so before either spouse begins to consider getting divorced. Some ways that spouses can protect their family’s assets include:

• Marital agreements - If a person enters a marriage while owning significant assets, it is often a good idea to create a prenuptial agreement, which can specify how both community property and non-marital assets will be handled during a potential divorce. This can be a good way to ensure that existing family wealth is protected. For those who acquired valuable assets during their marriage, such as a business or professional practice, a postnuptial agreement can provide similar protections and decide how business assets and other property will be divided if a couple chooses to get divorced in the future.
• Asset protection trusts - To avoid the commingling of separate property owned by one spouse with community property owned by both spouses, assets may be placed in a trust. In most cases, a person will create this type of trust before getting married. By removing assets from their possession and placing them in the control of a trustee, they can ensure that these assets will be protected from division during divorce. When creating an asset protection trust, a person can provide instructions for how the assets should be distributed to beneficiaries, which may include themselves, their children, charitable organizations, or others.

Contact Our Austin High Asset Divorce Attorneys

If you are looking to protect the wealth owned by your family or other types of assets, the attorneys of Powers and Kerr, PLLC can explain your options and help you put the proper protective measures in place. If you need to determine how to divide valuable assets during your divorce, we can provide you with representation, help you negotiate a workable divorce settlement, or advocate on your behalf during complex property litigation. Contact our Austin property division lawyers today by calling our office at 512-610-6199.

The COVID-19 crisis has affected everyone in the United States, and while vaccines are currently being made available, the pandemic will likely continue to affect people and families throughout 2021 and beyond. Because of this, parents will want to make sure they are following the proper measures to protect themselves, their children, and other loved ones. If you are a parent who is currently going through a divorce, you may have already had to address a variety of complex child custody issues, and COVID-19 may have complicated these matters even further. Fortunately, by working with an experienced attorney, you can take steps to protect your parental rights and ensure that your children can remain safe and healthy.

Child Custody for Those Affected by COVID-19

Many families are able to avoid COVID-19 infections by following social distancing guidelines, staying home whenever possible, wearing masks when in public, and making sure all family members wash their hands regularly. However, there are some cases where family members may need to take additional precautions due to increased risks of infection. For example, if a parent works in the healthcare field and is regularly exposed to those who have been infected, they may need to take additional measures to ensure that they do not inadvertently spread the virus to their children.

If a parent becomes infected with COVID-19, or if another person in their household is infected, they should be sure to quarantine themselves and follow all necessary restrictions to ensure that they do not spread the infection to their children. This may mean that they will not be able to have their regular visitation with children. Parents may need to make special arrangements in these cases, such as by having “virtual visitation” with children through video conferencing apps like Zoom or planning to adjust schedules in the future to make up for lost visitation time.

A high asset divorce will involve a variety of complicated financial issues, and complex property litigation may be needed to determine how assets and debts will be divided between the parties. While spouses will often focus on issues related to physical property, real estate, investments, valuables, and financial accounts, they will also want to address their retirement benefits. In addition to dividing the balances of retirement accounts such as 401(k)s or IRAs, spouses will also want to understand their rights regarding pension benefits earned by either spouse during their marriage.

Dividing Pension Benefits Between Divorcing Spouses

Pensions are different from other types of retirement assets since their actual value will usually not be known at the time of a couple’s divorce. Pensions are known as “defined benefit plans,” and the benefits that a person will receive are based on factors such as the number of years a person worked in a position that earned pension benefits and the salary they received at the time of retirement. The amount that a person paid into a pension fund will usually not be directly related to the amount of benefits they receive, so the current balance of a pension account will not be relevant during a couple’s divorce.

Depending on the decisions made during a divorce case, one spouse may receive a percentage of the other spouse’s pension benefits. However, only the marital portion of pension benefits may be divided between spouses, and this portion is determined by dividing the number of years a person worked in a position where they earned pension benefits while they were married by the total number of years they worked. That is, if a person worked for a total of 40 years, and they were married for 10 of those years, the marital portion of their pension benefits would be 25%.

When getting married, couples will need to be aware of a variety of issues that may affect them both immediately and in the future. While planning for the possibility of divorce will likely not be their top priority, it can be a good idea to consider this issue, especially if one or both spouses are entering the marriage with significant assets. A prenuptial agreement can provide spouses with protection, ensuring that they will be able to maintain ownership of certain assets if their marriage ends while also addressing other issues that may play a role in a potential divorce. However, couples will want to be sure their prenup will be legally valid and that its terms can be enforced if they do decide to get a divorce.

When Can a Prenup Be Invalidated

A prenuptial agreement must be signed by both parties before getting married, and it will take effect after the couple becomes legally married. A prenup will usually be enforceable if it is in writing and signed by both parties. However, under Texas law, a prenuptial agreement may be unenforceable in the following situations:

• Coercion or duress - A prenup must be signed voluntarily by both parties. If one spouse threatened the other or manipulated them into signing a prenup, the agreement may be found to be invalid. For example, if a person waited until the day of their wedding to present their partner with a prenup and stated that they refused to get married unless the prenup was signed, this could be seen as coercion. To avoid these issues, a prenuptial agreement should be prepared well in advance of a couple’s wedding, and both parties should be able to consult with an attorney to ensure that they understand and are satisfied with the terms of the agreement.
• Unconscionability - A prenuptial agreement may be found to be invalid if it is unconscionable, or grossly unfair to one party. However, a prenup will usually only be considered unconscionable if one party did not provide the other with a reasonable disclosure of their assets, debts, and other relevant financial information, if the other party did not waive their right to receive a financial disclosure, and if the other party did not have a reasonable knowledge of their partner’s financial circumstances. To ensure that a prenup will be valid, spouses should provide each other with a full disclosure of the assets they own, the debts they owe, and all sources of income.

It is also important to note that prenuptial agreements can make decisions about a couple’s property and finances, including deciding how assets will be divided in a divorce and whether one spouse will pay spousal support to the other. However, a prenup cannot decide matters related to child custody or child support. If a prenup attempts to address these issues, these terms may be disregarded, or the agreement as a whole may be found to be invalid.

The process of getting a divorce is rarely easy or simple. While all divorces have their own unique complexities, high net worth divorce cases can be especially complicated, since couples will need to address a wide variety of financial issues, including considering multiple sources of income, investments and other complex assets, business ownership, taxes, and debts. Whether a couple is involved in complex property litigation or needs assistance unraveling the details of their finances, a forensic accountant can be an invaluable resource.

Forensic Accounting During the Divorce Process

Forensic accountants can review financial records, perform appraisals, and analyze assets, debts, income, and other issues that affect a couple’s divorce. By providing a full understanding of a couple’s financial situation, these experts can help ensure that marital assets and debts are divided fairly in a divorce settlement, that financial support is calculated correctly, and that any concerns about undisclosed assets or misreported income are addressed properly.

Some of the issues that a forensic accountant may be able to address during the divorce process include:

Divorcing spouses will need to address many different legal and financial concerns when ending their marriage, and in many cases, a divorce case will become more complex when a couple has children. In addition to determining how they will share child custody, parents should also understand their child support obligations. In cases where a couple has a high net worth, parents may need to address additional financial issues when determining the amount of child support that will be paid.

Texas Child Support Guidelines

The state of Texas uses a straightforward “percentage of income” method to calculate a parent’s child support obligations. The parent who has the majority of the time with the children and is granted the right to decide where children will live is known as the custodial parent. The non-custodial parent will typically pay child support to the custodial parent. The amount of child support is calculated by taking a percentage of the non-custodial parent’s “net resources,” as follows:

• One child: 20% of the non-custodial parent’s net resources
• Two children: 25% of the non-custodial parent’s net resources
• Three children: 30% of the non-custodial parent’s net resources
• Four children: 35% of the non-custodial parent’s net resources
• Five children: 40% of the non-custodial parent’s net resources
• Six or more children: At least the amount that would be paid for five children

A non-custodial parent’s net resources are determined by taking the income they earn and subtracting federal and state income taxes, Social Security taxes, union dues, and amounts paid toward their children’s health insurance, dental insurance, and other medical expenses. In high net worth divorce cases, a parent’s income may not only include the wages they earn, but also interest and dividends on investments, income earned from rental properties, capital gains, income earned from trusts, annuities, pensions, retirement benefits, and gifts.

When a couple chooses to end their relationship, they will usually need to address a variety of issues as they decide how they will proceed with the process of separating their lives from each other. While any type of breakup can be difficult, a situation can become much more complicated when children are involved. Married parents who are planning to get a divorce or unmarried couples who wish to establish their parental roles and responsibilities going forward will need to consider multiple different legal issues. While this is true for all couples, there are some cases that involve complex child custody disputes, and parents in these situations will want to be sure to understand their rights and the steps they can take to protect their children’s best interests.

Situations That May Involve Complex Child Custody Concerns

Texas child custody cases typically involve two separate issues: conservatorship and visitation. Conservatorship, which is also known as legal custody, refers to the right to make decisions about how a child will be raised. In most divorce cases, courts prefer to name parents as “joint managing conservators,” meaning they will share in the responsibility of making decisions for their child. Parents will usually also share physical custody, meaning that they will both have reasonable amounts of visitation time with the child.

During a child custody case, a parenting plan will be created that specifies how conservatorship and visitation will be handled. While parents may be able to reach an agreement on a parenting plan, there are some cases where disputes over child custody must be resolved in court. Some situations that may lead to complex child custody disputes include: