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TX divorce lawyerHigh 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.

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TX divorce attorneyWhen 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.

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TX high asset divorceIn 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.

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TX divorce lawyerA 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?

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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 divorceOne issue that often comes up in a high asset divorce is how to properly value the “net resources” of a spouse for purposes of calculating child support payments. Texas law requires a court to take into account a wide range of resources, including such things as retirement benefits or annuities payable to the parent required to provide support. That said, there are some forms of income, such as “return of principal or capital” that are not considered part of the parent's net resources.

Texas Appeals Courts Reach Different Conclusions on Scope of Annuities Definition

With respect to annuities, there is some disagreement among Texas appeals courts as to whether certain types of annuities may be excluded from a net resources calculation. This issue came up in an October 9 decision from the Fourth District Court of Appeals in San Antonio. In that case, the Fourth District declined to follow a 2009 holding from the 10th District Court of Appeals in Waco, which raised a similar issue.

Here is a brief explanation of the San Antonio court's decision. A husband and wife received a divorce. Prior to the marriage, the husband was injured in a work-related accident. This led to a settlement agreement with the husband's employer. The settlement itself was structured as an annuity that will pay the husband $6,970 per month until his death or June 2044, whichever occurs first.

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TX high asset divorceIn 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).

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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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