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TX divorce lawyerThere are two questions that often come up in high asset divorce cases: First, how does a court properly characterize “community” versus “separate” property? Second, to what extent does the other party's fault in causing the divorce affect the court's division of community property?

Court: Judge Allowed to Award Ex-Wife Greater Share of Community Property Based on Ex-Husband's Infidelity

To give you some idea of how the courts address these questions, here is a recent decision from the Texas 1st District Court of Appeals. In this case, a former husband appealed a divorce judgment that awarded most of the couple's community property to the former wife. On appeal, the husband challenged both the unequal distribution and the overall characterization of some of the property.

The couple was previously married for 10 years. The former wife filed for divorce on grounds of infidelity and cruel treatment. The former husband apparently did not challenge these allegations. The trial court ultimately granted the divorce on grounds of infidelity and cruel treatment.

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TX high asset divorceWhen 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.

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Texas divorce attorney, Texas complex litigation lawyer, Texas is one of only nine community property states in the Union. The concept originally comes from Spanish law, and was adopted by Mexico in the 19th century and passed onto its possessions in what is now the modern-day United States. The idea is that marital property belongs to both spouses upon divorce, due to the emotional and financial nature of a marriage. Some states have very strict community property laws (in California, a 50-50 split is mandatory), but Texas has a community property presumption in Chapter 7 of the Family Code. Like most all presumptions, this provision can be overcome in certain high-asset divorces.

Identifying Property

The presumption applies to all property that was acquired during the marriage, unless it was a gift. This dividing line is not always clear, because property is often commingled. Assume that Husband bought a car before the marriage (separate property) and makes the payments from his paycheck (community property). Or assume that Wife inherited a rental house (separate property) and used proceeds from a second mortgage on the marital residence (community property) to fund improvements.

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family business, divorce, division of property, Texas family lawyer, Austin divorceA big task during a divorce proceeding is determining what property is separate property (belonging to a particular spouse) and what property is marital property (to be divided in the divorce). Marital property is all property, other than separate property, acquired during the marriage until the date of separation. Marital property may include the family home, the family car, or a retirement account. Separate property is all property acquired by either spouse before the marriage, or all property acquired during the marriage by inheritance or gift. Separate property may include an inheritance from a parent or a cash gift from a friend.

 For some types of property, determining whether it is marital property or separate property can be challenging. One piece of property of particular concern to many divorcing couples is the family business.  Where the Family Business is Jointly Owned or Separately Owned In some instances, the court may determine that the family business is marital property (i.e., owned by both spouses). For example, a business that was started during the marriage, and with funds acquired during the marriage, may be considered marital property. During a divorce, the court will determine a value for the business and divide that value between the divorcing spouses. Where the court determines that a business is owned by just one of the divorcing spouses, the court will award the business to that divorcing spouse.  Where the Family Business is Part Separate Property and Part Marital Property Determining what happens to the family business can get complicated, however, when the business is a mixture of both separate property and marital property. For example, instances when a business may be part marital property and part separate property include:
  • Income received from a business - Even if a business is considered the separate property of one of the spouses, income received from the business may be considered marital property, provided such income is attributable to the personal efforts of either spouse. For example, if both spouses work at the business producing income, that income will be considered marital property, even though the business is the separate property of just one of the spouses.
  • Increase in value of the business - Even if the business is considered the separate property of one of the spouses, an increase in the value of the business during the marriage may be marital property, provided that such increase was due to the personal efforts of either spouse. For example, if one spouse owns the business before marriage, but either spouse's personal efforts cause the business to substantially increase in value during the marriage, the increase in value may be marital property. Such personal efforts may include labor, effort, inventiveness, skill, creativity, or marketing activity applied to the business.
Attorney Help If you are considering divorce and have questions about a business owned by either you or your divorcing spouse, it is vital that you contact a skilled Austin family law attorney. The attorneys at our firm are dedicated to helping individuals involved in divorce proceedings understand their rights and reach the outcomes they desire. Contact us today to schedule your consultation.
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