If you are planning to file for a high asset divorce in Austin, or if you or your spouse recently filed for divorce in Texas, we know that you likely have questions about what the division of community property will look like when your investments, including mutual funds and stocks, are worth much less than they were even a month ago. You may be wondering if it could make sense to put your divorce on hold until the stock market resurges, or you might be thinking that you could end up faring better in the long run if you can ensure that community property from your marriage gets divided before the stock market resurges. Divorces are stressful enough without the added anxiety of a declining stock market and a global pandemic.

We want to discuss some of the issues concerning high net worth divorce when the stock market is in decline. If you have questions or need assistance with your divorce during this complicated time, an experienced Texas complex litigation attorney at our firm.

Benefiting and Suffering from Falling Stocks During Your Divorce Case

Depending upon the types of investments you have, some spouses could stand to benefit while the other spouse suffers from falling stock prices during a divorce in Texas. One of the spouses might have specialized knowledge about investments while the other spouse has none of that knowledge at all, and the first spouse might use that knowledge to his or her advantage in order to come out with a community property distribution or settlement that stands to benefit that spouse in the long run.

Divorces can be extremely contentious regardless of the income levels of the spouses or the amount of assets they share. However, high net worth divorces in Texas often are among the most contentious, given that the parties have more to lose financially than other couples who are going through the divorce process. When one or both parties realize that divorce is likely in their futures, issues about hidden assets may start to arise. If you have concerns about your spouse hiding property or trying to prevent certain assets from being classified as community property, you should reach out to a Texas high asset divorce attorney as soon as possible. At Powers and Kerr, PLLC, we routinely assist clients with this very issue and can discuss options for working with a forensic accountant to locate hidden assets.

In the meantime, we want to provide you with some useful information about recognizing when a spouse may be trying to hide assets before a divorce.

Why Would a Spouse Attempt to Hide Assets?

Why would any spouse in Austin, Texas try to hide assets before a divorce case? As you may know, Texas is a community property state. What this means is that, under Texas law, nearly all property acquired by either spouse after the date of the marriage will be classified as community property and will be subject to division in the divorce case. A spouse might try to hide assets to prevent those assets from being classified as community property and divided. There are many different ways that people can try to hide assets, and it is important to recognize the signs. If you do have concerns, you should speak with your divorce lawyer as soon as possible.

When you are planning for a high asset divorce in Austin, Texas and know that your retirement accounts will be classified as community property and subject to division under Texas law, you will need to have a plan in place to divide those retirement benefits. For wealthy couples anticipating a high asset divorce, the amount of money in retirement accounts can be substantial. Using a Qualified Domestic Relations Order (QDRO) to transfer retirement benefits as part of your divorce could end up saving tens of thousands of dollars (or even more depending upon the amount of money in your retirement accounts and the amount that needs to be distributed to your spouse).

We want to tell you more about QDROs and how they work, and to provide you with examples that demonstrate the importance of having a QDRO in a high net worth divorce. An Austin high asset divorce lawyer is here to assist you.

What Is a Qualified Domestic Relations Order in a High Asset Divorce?

What is a QDRO? The Employees Retirement System of Texas (ERS) explains that a QDRO is a legal order subsequent to a divorce or legal separation that splits and changes ownership of a retirement plan to give the divorced spouse his or her share of the assets. In order to qualify for a QDRO, the ERS’ General Counsel must receive a certified copy of the divorce decree, and the ERS’ General Counsel must review and approve the QDRO.

High asset divorces in Austin, TX are complicated for numerous reasons, from matters of property division to alimony. One of the more complex and contentious issues that can arise in a high net worth divorce is the matter of hidden assets. Particularly in high asset divorces where one of the spouses was the primary earner during the marriage, the other spouse may have concerns about hidden or concealed assets. When the non-primary earner does not control the finances of the marriage and does not regularly manage business issues or jointly owned accounts, it can be difficult to know exactly what the assets from the marriage look like in sum. Yet discovering hidden assets can be extremely important given that Texas is a community property state.

Under Texas law, couples who get divorced in Texas should know that community property is owned equally by the spouses. Accordingly, courts divide the property recognizing that both spouses have an equal interest in it while also taking into account what kind of division would be fair to both parties. If there are substantial hidden assets, one of the spouses could end up losing out on property to which she or he is entitled. While assets can be hidden in any divorce—regardless of the extent of the property owned by the married couple—hidden assets in a high net worth divorce can total tens of thousands of dollars. As such, it is essential to ensure that neither spouse is hiding assets in the divorce.

Know Where to Look for Hidden Assets

Even if you do not immediately suspect your spouse of hiding assets, it is important to know where to look for “red flags.” For example, itemized deductions in Schedule A in past tax returns could reveal property that you did not know existed. Or, for instance, details about assets that have generated interest and dividends (located in Schedule B) could reveal that your spouse has more money than she or he has listed. Tax returns can also provide information about business profits and losses (Schedule C), as well as capital gains and losses (Schedule D). Information about capital gains and losses can provide information about certain securities in which your spouse has invested, as well as stocks or real estate.

In high asset divorce cases, the disposition of real property is often a major sticking point between the estranged spouses. When dealing with large parcels of commercial or agricultural land in particular, it may be necessary to actually subdivide the property. And even after the divorce becomes final, there may still be outstanding issues related to the property that lead to additional litigation.

Ex-Husband Held in Breach of Contract Over Post-Divorce Land Sale

The Texas Second District Court of Appeals in Fort Worth recently addressed one long-running dispute between two parties who divorced five years ago. The former husband and former wife in this case held 300 acres of land in Parker County as community property. Under the terms of their divorce decree, the former wife received 123 acres from that parcel.

Two years later, the former wife signed a contract with the former husband to sell back 32 acres. The contract included a written description of the land, together with an aerial photograph obtained via Google Earth. Under the contract, the former husband agreed to pay a $35,000 earnest-money deposit, which he would forfeit to the former wife in the event of a breach.

In a high asset divorce, one of the most critical issues is the division of retirement accounts. When one spouse earns a pension during the course of a marriage, it is considered community property. This means any such pension is subject to division as part of the overall divorce proceedings.

Austin Court: Divorce Invalidated Previous Designation of Ex-Spouse as TRS Pension Beneficiary

Pension plans require a covered employee to designate a “beneficiary,” who will receive any remaining pension benefits upon the employee's death. Typically when an employee gets divorced, the court will issue Qualified Domestic Relations Orders (QDROs), which instructs the pension plan administrator on how to divide any accounts or benefits. A QDRO also serves to override any prior beneficiary designation that conflicts with its terms.

Even without a QDRO, however, the divorce itself may automatically revoke a prior designation of a now-former spouse as beneficiary. A recent decision from a state appeals court in Austin, Jones v. Teacher Retirement System, provides a helpful illustration of this rule. In this case, a former employee of Texas Tech passed away in 2015. He had a pension with the Texas Retirement System (TRS).

When it comes to a high asset divorce in Texas, both parties need to take care when selling or disposing of anything that might be considered marital property. In other words, do not sell all of your jewelry or expensive electronics and keep the money hidden from your estranged spouse. If you do this, a court may consider such actions “fraudulent” and penalize you when making a final division of the marital estate.

Judge Orders Ex-Wife to Repay Ex-Husband for “Constructive Fraud”

Now, selling assets that partially belong to you may not be fraudulent in the traditional sense of that word. But Texas law does consider it a “fraud on the community.” This is another way of saying one spouse breached their fiduciary duty to the other spouse.

Here is a real-world illustration of what we are talking about. In a recent Texas divorce case, a husband filed for divorce against his wife after eight years of marriage. The couple had no children. In his divorce petition, the husband alleged his wife had sold more than $50,000 worth of “household goods, furniture, and electronics” acquired during the marriage without his consent. Basically, the husband said he returned home one day to find his house “empty.” The house itself was the husband's separate property – he acquired it before the marriage – but everything else was considered community property.

Although divorce can be an emotional rollercoaster for the parties involved, proceedings can become especially contentious when there are disputes about ownership of significant, unique, or valuable assets. While prenuptial agreements can help clear up these disagreements, many couples fail to enter into these types of contracts, as they deem it unlucky to contemplate the end of a marriage before it actually begins. For help protecting your property during your divorce, please contact our experienced Texas high asset divorce legal team today.

Accounting for All Assets

One of the biggest mistakes that a divorcing couple can make is to fail to account for all of their assets, including:

• Current bank accounts
• Non-cash assets
• Future interests, such as pensions, start-up stock options, and business interests
• Inherited funds or goods
• Income earned prior to the divorce filing, but received later, including bonuses and recent paycheck retirement contributions

Identifying all of these types of assets can be difficult, especially for those who do not play an active role in managing their household finances, so it is particularly important for those who find themselves in this position, to speak with an experienced forensic accountant before proceeding with the property division process.