Handling real estate can be an extremely complicated process, especially when you own a mix of residential properties and commercial properties with your spouse. As you may know, under Texas law, most property acquired after the date of marriage is “community property” and will get divided between the spouses upon divorce. If you are anticipating a high net worth divorce in Austin and own significant real estate, it is important to work with a divorce attorney who has experience handling complex property in a high net worth divorce.

While the division of community property is often complicated under any circumstances, real estate or real property can pose particular issues. The following are some tips from our Texas high net worth divorce attorneys for handling real estate in an Austin high asset divorce case.

Classifying Real Estate: Know Whether It is Community Property or Separate Property

For most married couples in Texas, the family home will be classified as community property and will be subject to division. In addition, any property that you acquired—whether it is a vacation property, a rental property, or a commercial property—after the date of your marriage can also be classified as community property. Moreover, even if you purchased one of these properties prior to the date of marriage, if you made payments on any of them or invested in updates during the marriage, those increases in value may constitute community property.

While very few of us ever get married with the intention of later filing for divorce, Texas residents file for divorce more often than you might expect. Making plans in the event of divorce are important for Austin residents of all income levels, but planning is particularly important for wealthy Texans and high earners. We want to discuss some tips for preparing for a high net worth divorce in Austin at multiple points in time—from the time of your marriage to the moments shortly after filing for divorce. If you need assistance with your divorce, an experienced Austin high asset divorce lawyer can help.

1. Sign a Prenuptial Agreement

Under the Texas Family Code, two people who are planning to get married can enter into a prenuptial (or premarital) agreement. While prenuptial agreements are helpful for people at all income levels, they are particularly necessary for individuals who are high earners or would anticipate a high asset divorce in the event the marriage does not last. In a prenuptial agreement, the parties can reach an agreement about how certain assets will be divided or distributed in the event of divorce.

2. Avoid Commingling Separate and Community Property

Avoid commingling separate property and community property wherever possible. In other words, any property you acquired before the marriage, or any property acquired through gift or inheritance during the marriage, should be kept separate. Do not use those assets to contribute to community property, such as investing separate property into a community property account or by using separate assets to improve the marital home.

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.

Paying alimony or maintenance after a Texas high asset divorce can cost tens of thousands of dollars for high earners. Yet there may be options available to parties in a high net worth divorce to limit the amount of taxes paid on alimony. Once you know that your spouse is entitled to receive maintenance under Texas law, you will likely be wondering whether there are ways to limit the amount of taxes that you will pay on those alimony payments. Indeed, since the payor spouse is responsible for taxes on the maintenance payments, those taxes can be significant.

While a court order for maintenance does not provide options for minimizing maintenance taxes in a high net worth divorce in Texas, entering into a marital settlement agreement with your spouse in which you provide an alternate form of compensation in lieu of maintenance payments could allow you to minimize taxes substantially. There are certain methods for reducing or minimizing alimony taxes for the wealthy, discussed below.

Minimizing Taxes on Maintenance in Austin, TX

Texas law caps maintenance payments at $5,000 per month, Yet even taxes on payments of $5,000 are probably more than you would like to pay. As we said above, there may be options to reduce the total amount of taxes you will pay. Options that may be available include but are not limited to the following:

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.

When you are going through a high asset divorce in Texas, the prospect of dividing valuable collections in your divorce can be devastating. Married couples in the Austin area often acquire many different types of collections that they consider to be priceless, from paintings and sculptures to rare vinyl records and books. Given that one of the points of the collection is to keep it intact, it can be extremely difficult to consider having a collection pieced apart and sold because you are getting divorced. The following are some important considerations for dividing a rare book collection in a high net worth divorce, including possibilities for keeping the collection intact.

Know How Property is Divided Under Texas Law

Texas is a community property state. As a community property state, any property that spouses acquire during their marriage is owned jointly by them as “community property.” Generally speaking, Texas courts will divide community property equally between the spouses recognizing that both have equal interests in the property. However, courts ultimately divide property in a manner that is equitable to both parties, or “just and right,” given their particular circumstances.

If you acquired any part of the rare book collection after the date of marriage, it will likely be classified as community property and subject to division. Exceptions may include a rare book inherited by one of the spouses during the marriage or a gift given only to one of the spouses during the marriage. Any part of the collection acquired prior to the date of marriage usually will be classified as separate property and will not be divided.

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.

A high asset divorce does not necessarily involve contested litigation. In many cases, the divorcing spouses are eager to resolve their outstanding issues and end their marriage as quickly as possible. To facilitate this, Texas law does allow for mediated settlement agreements (MSA).

An MSA is a legally binding contract signed by both parties. A mediator serves as a neutral facilitator who assists the parties, and their attorneys, in reaching an agreement. But unlike an arbitrator, the mediator does not have the legal authority to force a decision. The spouses are still free to abandon mediation at any time and take their case to litigation.

Texas Supreme Court Clarifies Law Governing Mediated Settlement Agreements

The Texas Supreme Court recently addressed an important legal question regarding MSAs: Are such agreements enforceable if they are signed before either spouse actually files for divorce?