If you are seriously considering divorce right now, you will find two parts to any divorce. Those possible parts are of property division part and the child custody part. The focus of today’s blog post will be on the property division aspect of your divorce. Of the two regions, property division tends to be the one that is more easily negotiated upon for the vast majority of Texas families. The reason is that most families have relatively straightforward asset and debt situations. Their primary focus is beyond dividing up parenting time and rights and duties concerning the children. Property division is essential, but it doesn’t have the emotional aspects that issues related to children do.
Let’s begin by discussing the basics of property division In a Texas divorce. Texas counts itself among 13 other states as being a community property state. This is how our family code defines the property as held between married persons, and its laws will determine, in large part, how the property in your divorce is divided. The basic assumption and tenant of Community property is that all property held by you and your spouse at the time of your divorce is presumed to be Community property. All property categorized as community property is then subject to division by a court in your divorce.
There are, however, exceptions to this rule. The most significant exception is that property owned by you before your divorce would be categorized as separate property belonging to you. The same can be said for property owned by your spouse before the divorce. Suppose either of you can test the independent property nature of a particular asset. In that case, The spouse making the separate property argument would need to present evidence to substantiate their claim of the property is separately owned. However, individual property, once proven, is not subject to division in your divorce.
Additionally, there are types of property that can come into your ownership during the marriage which are not held as Community property in Texas. Suppose you acquired the property by inheritance, gift, or certain types of personal injury awards from a lawsuit. In that case, these are properties that would be considered separately owned for a Texas divorce no matter when you came into possession of them. These are the bare-bones basics of Community property law that I wanted to walk us through for today’s blog post.
Community property division in a Texas divorce
At the outset of your divorce, your attorney will likely ask you to start making a list that requests you to inventory all the property you and your spouse and divide it up in 2 to three columns. The first column would be a community-owned property. The second column will be a property that is part of your separate property. The third column would be the property that your spouse separately owns. By doing this exercise column, You will have a much better idea, in your attorney will as well, about the financial picture for your family and how you and your attorney will begin to negotiate on other community estates.
Keep in mind that while you are performing this exercise, your spouse and their attorney will be doing the same. An exciting part of a divorce is comparing your property in a debt situation with how your spouse views pretty much the exact scenarios. It can be remarkable how two people with similar perspectives and access to the same information can sometimes come up with two divergent views on Community property and separate property ownership in the marriage.
Performing this exercise will allow you, your attorney, and your spouse to determine where the disputes will center as far as the property division component of your divorce. It may even be possible for you and your spouse to negotiate on these issues early in the divorce so that they do not become sticking points at the very end of a case. I can tell you from experience that it is frustrating for parties and attorneys alike to get to the very end of divorce only to have disputes regarding silver Ware or other personal property come up as a roadblock to completing a divorce. A diligent examination Of your property status and an attempt to negotiate with your spouse on these subjects can decrease the likelihood that issues like this will be hindrances for you and your spouse in your divorce.
Valuation of Community property and in Texas divorce
We have just finished discussing the basics of identifying and dividing up property in a divorce as far as Community property and separate property are concerned. These are the first steps that parties take in a divorce to figure out where things stand as far as a property division is concerned. The other part of this equation Is attaching in estimating values for each piece of property. How you and your spouse will choose to value property, and its impact on your divorce as a whole cannot be understated.
An additional variable that we need to be concerned with during this pandemic era is that our economy is not nearly as strong as it was six months ago. Much of the weakening of our economy has been self-inflicted as we saw government shutdowns and quarantines declared mandatory at the outset of the pandemic. This led to economic consequences, the extent of which have yet to be felt, in my opinion. The impact on Freetail jobs, service industry jobs, the real estate market, and many other areas of the economy may not be felt for many years.
While the full extent of those impacts has yet to be felt, it goes without saying that those impacts will almost wholly be negative. There is a great deal of uncertainty in our world, and this impacts divorce on a micro-level. Specifically, we still do not know fully what impact the tension in our economy will have on property valuations in Divorces. A lack of access to the courts and the postponement of court dates that have already been set creates a situation where disputes regarding property valuations may be more challenging to set before a judge than in prior years. You and your spouse may be less likely or able to have your disputes resolved timely. The more time you have on your hands, the likelihood of fighting on these issues may increase.
What are the big-ticket items in a divorce from a property division perspective?
I am going to bypass how personal property ends up being valued in a divorce. The reason being that private property is less likely to hinder the completion of your divorce, and the difference between how personal property is valued today and next year should not be dramatically different. Instead, I will focus our attention on three key areas of property and how valuation problems may impact your divorce as a result.
The first area of property division that I would like to discuss is regarding investments and retirement. There are two ways to divide up retirement assets investments in a divorce. The first is to get as accurate an estimate as possible on the value of each account and then to do specific dollar divisions. For example, if you had a retirement account worth $100,000 as far as community property, you and your spouse could choose particular dollar values to affect a division of that account. You could keep $70,000 of the original $100,000, leaving $30,000 for your spouse. The other method of dividing up our retirement or investment account would be to agree that you should take a certain percentage of the Community property value, and your spouse should take the other. This effectively does the same thing as the dollar amounts method that I discussed just a moment ago.
In an era where certain investments are doing well, and sure others are not doing well, dividing up retirement and investment accounts in this way protects you and your spouse from the possible fluctuations in value on a day to day or week to week basis account. Essentially, you and your spouse would be sharing in the risk and reward of the asset and would minimize the disruptions to its value over relatively short periods. Whether you believe that the stock market is set to do well or poorly in the near future, this method of dividing assets would seem to suit you no matter what your perspective is.
Next, we should consider how problems associated with valuing businesses may impact your divorce. For example, if your divorce has been going on for several months, you may have had a valuation done on the small business you own at the beginning of your case. That value may well have changed to some degree in the following months, especially in light of the economic shutdowns and quarantines. Depending on your perspective, whether you are the owner of the business or the spouse who is attempting to gain some degree of equity in that business, you may be more or less likely to want to revalue and reappraise the industry.
It is difficult enough as it is to gain any degree of certainty when revaluing a business. Since we live in uncertain economic times, this general rule is even more true. Looking at the future of your business may not be particularly enticing right now. We will not be able to predict with any accuracy what the next 6 or 16 months will look like. The performance of your business from the first quarter of 2020 until the fourth quarter of 2020 may look much different. If your business is a restaurant or other retail endeavor, you may have been closed for the better part of April in much of May. As such, you were valuing your business will be especially challenging in 2020 and even in 2021.
Finally, we get to the last area of property valuation that I would like to discuss today. Valuing real estate in a divorce most likely means respecting your family home should it be sold or should one party or the other receive their equity portion out of that house in the divorce. Often a spouse in the divorce will decide to stay in the family home and instead allow their other spouse to retain a Portion of Community property equal to the value of the house. Real estate appraisers typically perform house valuations. Appraisers will naturally look at three similar properties in the geographic area of your home as well as past sales of those properties to determine evaluation for your divorce.
The general trends of house sales in your area after the shutdowns and quarantines ended in May should be such that houses have been selling better rather than worse. I still think it is too soon to say whether or not this will be a trend that continues. It seems that there is still a great deal of pent-up demand from persons not buying and selling homes during March, April, and even into May. As a result, you may be in a situation now that property valuations are artificially high and will return to normal levels the further we get out from this pandemic.
The other economic consideration that we need to make concerning the valuation of a family home is that due to job loss. At the same time, there may be favorable valuations given to home. The reality may be that neither you nor your spouse can afford the mortgage payment without the income of the other spouse being considered. No matter what the evaluation of your home may be, either favorable or unfavorable, your economic circumstances may decide how the house is treated in your divorce.
Questions about Texas family law? Contact the Law Office of Bryan Fagan
If you have any questions about the material presented in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week here in our office, over the phone, in via video. These consultations are an excellent way for you to learn more about Texas family law and the services that our office can provide to you and your family.