Trying to figure out how to divide large or complicated assets during a Texas divorce can be overwhelming. There are so many factors to keep in mind that it can be hard for many spouses to focus on the different elements of a case like this. When you add onto those considerations regarding child custody and the other stresses associated with the case and property division. However, a huge benefit of having an experienced family law attorney representing you in a hearing is that you can feel confident that you can focus successfully on the various and diverse issues that you will be facing.
When it comes to property division of any type in a divorce, we need to talk about community property. This is a legal theory of property ownership for spouses that are utilized in Texas. It is not the common way that property is handled between spouses across the county so I think it is useful to go over community property so that you understand how this will impact the division not only of personal property but complex and valuable assets, as well. Without this basic knowledge, it will be difficult to understand how complex asset divisions would work in the first place.
Community property essentials in Texas family law cases
Community property is a way for Texas courts to determine how to divide up the property of spouses at the time of a divorce. It will be assumed that all property that you and your spouse own at the time of your divorce is community property. This is important because community property can be divided in a divorce by a family court judge. So, determining what property is community property and what property is not community property is an extremely important part of your divorce. If you acquired property during your marriage, then that property is very likely to be considered community property.
The “other” type of property that may be owned in your life is separate property. The separate property would be any property that you acquired or owned before your marriage. Additionally, if you acquired property during your marriage via inheritance or gift then these are exceptions to the presumption that states property acquired during the marriage is community property. Separate property amounts can vary for people in your position. If you married at an older age, then you probably own more separate property than if you got married younger. The amount of separate property that you own can have a significant impact on how community property is divided in your divorce.
Community property is not something that you think about every day. We live our lives, buy stuff, sell stuff, lose stuff, etc. Anyone who has kids has probably purchased several items only to donate them to others or have things break. It is not the norm to think about property all day long. You are too busy living your life to always have things on your mind. So how can you use your time wisely in a divorce case to better prepare for the portion of the case where your property is going to be divided? That is where an inventory and appraisement come into the picture and allow us to be better prepared for the end of your divorce.
At the beginning of your divorce, you should begin to think about the property that you and your spouse own. Some of this analysis will be simple to perform. Walk around your house with your cell phone and take videos or photos (or both) of the rooms in your home so that you don’t miss anything. Go into closets, dresser drawers, and anywhere else to start to get a good idea of all the property that you own. Take notes. Document this. The better organized you can be on your own, the less likely you will need to ask your attorney for help. This will save time and money. Write down property that you believe is your separate property, property that you consider to be your spouse’s property, and property that you consider to be community property. You can create a fancy spreadsheet on your computer or just take a piece of paper and create three columns vertically. Either way, just get this step done so you can move on to the next part.
Here is the next part. You should start to think about intangible property. Your blender and collection of bobbleheads are all things that you can reach out and touch. What you can’t do that with are things like bank accounts, retirement savings, investments, life insurance policies, etc. Begin to dig through the cobwebs of your files at home as well as your internet bookmarks to get a better idea of what you have as far as property is concerned with intangible property. This will require less walking around than going through all your desk drawers and ultimately it is probably going to be the more valuable to both pursuits. Take your time and use the opportunity to sort through these intangible investments and accounts.
Once you have done so it is important for you to be able to figure out an idea of how much of these accounts are separate property and how much is community. Depending upon your age and the length of your marriage most if not all these accounts will be community property. Many people do not start to invest until they get married. If you fall into this category, then your IRA and/or 401K is mostly community property. Bank accounts may be the same thing. If you recently got married or are an older person, then a significant chunk of your account may be separate property. Keep track of what portion of the estate you think is the community and what portion you think is separate. Round numbers are fine. You will double-check your math later. For now, a rough estimate of value should be able to suffice.
The other area that you should think about as far as types of property are real estate- including your home. Most people do not own any real estate other than their homes. Your home may have been purchased during your marriage which likely makes it community property. Take the time to confirm all these details and then think about how you would like to divide up the house, hypothetically speaking. Would you like the house to be sold and the profits divided between you and your spouse? Would you like the house to go to you in the divorce? Maybe you would like your spouse to keep the house and for you to be paid your equity share to go your separate ways. Either way, you can start to ponder these issues so that no problems are moving forward with whatever decision you ultimately make.
One thing that I will add here is that it is complex to plan what to do with the family house not because it is not easy to emotionally make a decision one way or another. A house is not necessarily a complex asset, but it is hard to think about the asset being sold or otherwise not a part of your life. So many memories were made there that it can feel very abrupt to be told that you need to decide to either keep the house, sell it or divide the equity. However, the more thought you can give to the situation now the better off you will be. Remember that these are questions that you will ultimately need to answer and there is a benefit to be gained from thinking critically about them now rather than waiting until mediation to do so.
One point I will make about the house is that while it can feel like an overly emotional subject, the reality is that it is a mathematical one when you get right down to it. Most homes for people who are going through a divorce have a mortgage on them. This is to say that most people who get divorced are young enough to have a mortgage on the home. If you and your spouse fall into this category, then you need to think hard about who (if either of you) can afford to pay the mortgage on the home on only one income. The major difference between your life now and your life as a married person is that you only have one income to utilize to pay bills, like your mortgage. You would need to run your household budget to determine whether you have the money to pay a mortgage without the help of your spouse’s income.
When you applied for a mortgage, it was probably based upon the income of you and your spouse. Now that you are on the cusp of a divorce you can no longer assume that you will have two incomes to throw toward the mortgage. A good rule of thumb that I use when talking to people about this subject is that your mortgage payment should be no greater than 25% of your take-home pay. Once you cross that threshold it becomes harder and harder to justify keeping the home. Remember that you will have other bills to concern yourself with in addition to new bills that may be relevant for you such as child support and paying your attorney. The bottom line is that you will need to work out a new budget for yourself to determine whether the home fits into your new lifestyle or if you need to just cut the house loose and go in a different direction.
This was an overview of how to prepare for a complex asset division process in a Texas divorce. Your mileage may vary depending on the type of case you have and who you are divorcing. Some spouses make the asset division process simple while others couldn’t make it any more difficult. You will be able to determine at the beginning of your divorce what kind of process this will be for you. Sometimes a spouse will surprise you in a good way and just be reasonable and not make you feel like this is going to be a situation that is akin to tooth-pulling. On the other hand, your spouse may be looking at the process like this is their meal ticket for the next several years and you need to be prepared to handle a situation like this head-on.
Once again, the attorneys with the Law Office of Bryan Fagan are equipped to help you in a situation like this. We have worked with so many people here in southeast Texas that there are not many circumstances in our time practicing law and serving clients in southeast Texas. If you consider a situation to be particularly difficult with no solution in sight that is exactly when you need an attorney with our office to help you protect your property and promote your well-being and that of your co-parent. Nobody knows better than your attorney what to look out for when it comes to avoiding mistakes and taking advantage of whatever circumstances you are facing. We offer free-of-charge consultations six days a week here in our office. Try us out and see how you feel. We would love to earn your trust and help guide you to make smart decisions in your divorce case.
Approaching complex property division
The process involved with dividing up complex assets in a divorce is not too different than the process that we have outlined today in this blog post on organizing your property at the beginning of a divorce. First, you should begin to think about the property that you own that may be difficult to divide up. An example that I think may be relevant to your situation is that of dividing a small business. A small business can be difficult to divide for many reasons. Let’s walk through this example so that you can better understand why dividing a small business in your divorce may be more difficult than you would think.
First, you need to be able to figure out how to value your business. There are multiple ways to accomplish this task. You can add up the value of all your inventory if you own a business that holds a lot of inventory. You can add up the profits you make and then subtract any liabilities that you own like debt. There are also considerations to make like your goodwill in the business. Your name and reputation may matter in your community and therefore this may be a valuable part of your business. You can take your past sales and current sales and then project into the future what your next few years’ worth of sales will look like to determine the future value of your business.
Usually, you will need to hire an expert witness or just a financial analyst or business value analyst to perform this task. Your back-of-the-envelope math may be ok for providing an estimate for yourself at the beginning of a divorce but when it comes to dividing the business (if necessary) at the end of a divorce then you should think about getting someone with experience in valuing businesses like yours. This may not be much different than taking a few of your competitors and comparing their values to whatever financials you can offer. However, if you operate a “one of a kind” business or one that has unique factors to consider you must get this estimate correct. Having an experienced family law attorney to help you find a reputable person to value your business is an important step to take.
The last part of the analysis is to determine whether you even need to divide the business. Many people operate a business that is barely profitable or not profitable at all. If your business is a startup and you have recently opened it then you may not yet have turned a profit. In that case, it is unlikely that you will need to think about the division of the business between you and your spouse. Or, if you have an established business that your spouses worked in together with you then you should think about how you want to divide the business and any other considerations that are relevant in your case.
Even if you started your business before you got married at least a portion of the business is likely Community property. In that case, you and your spouse will need to determine how best to divide a complex asset like a small business so that the business continues to be operational and both of you can walk away from the divorce with a fair deal.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained 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 in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as about how your family‘s circumstances may be impacted by the filing of a divorce or child custody case.