Complex Accounting in a High-Asset Divorce

 Posted on April 01, 2015 in Complex Property Litigation

Quite often, asset and property division involve complex accounting measures in high-asset divorce cases.

Assume that Husband owned an investment portfolio prior to the marriage. Initially, he only contributes funds from his separate bank account. As time passes, however, both Husband and Wife begin investing money, and sometimes these funds come from a Wife's separate bank account.

Also assume that Wife owned a rental house prior to the marriage. The couple subsequently elected to take out a second mortgage on the marital residence and use the proceeds to renovate the rental property. Before the renovations, the house was essentially un-rentable and borderline uninhabitable. Since the renovations, the house has been continually occupied by a responsible tenant who pays market-rate rent.

These two examples present significant classification and division issues during property settlement negotiations in a high net worth divorce. It is very important to have an experienced and aggressive divorce attorney who can help craft a plan that is a just and right division of the marital estate, and simultaneously protects your legal and financial interests.

Commingling

In the first example, the portfolio was clearly separate property when the couple exchanged vows, but the funds became commingled. According to Section 3.003 of the Texas Family Code, all marital property is presumed to be community property. Furthermore, the party asserting a different classification must establish that the property is separate property by clear and convincing evidence.

Typically, this evidence is oral testimony from the spouses. In some cases, there is an informal agreement, such as a check memo or an e-mail. "Clear and convincing evidence" is a rather high standard, and a judge or jury may simply not find one version of events to be credible. To avoid later disagreements, it is always best to keep separate funds separate.

Reimbursement

In the second example, the community estate may have a 3.402 reimbursement claim. These claims are limited to:

• One estate's payment of the other estate's debt;
• Compensation for a business' time, toil, talent and effort;
• Refinancing a debt; and
• Capital improvements using non-borrowed funds.

In this case, the community estate should be reimbursed for its investment in the capital improvements but it is probably not entitled to a share of the subsequent rents. Even though the income was made possible by the renovations, the increase from separate property is typically separate property.

For assistance with tracing issues in a property settlement, contact an experienced Round Rock high-asset divorce attorney. After-hours and weekend appointments are available.