When it comes to a divorce in Texas, marital property is a subject that typically receives a lot of headlines, given the importance of marital property in a divorce. Is there then subject matter related to children under the age of 18? Marital property accounts for a great deal of a person's net wealth and their ability to sustain themselves in the period immediately following a divorce. It is essential to ask to understand why we highlight topics surrounding the family home, retirement savings, income, and other matters related to marital property. This allows you to better prepare for your divorce case.
Why is marital property important in a divorce?
We devote a lot of our lives to work. Whether we love our jobs, hate our jobs, or fall somewhere in between, the fact is that we derive a lot of benefits from the work that we do. Not only does that mean income, but also a sense of self and a sense of belonging in our community. Losing your job can feel as bad to some people as losing a loved one to an illness. Especially during this age of the pandemic, our sense of safety and stability is essentially a function of the work that we perform. The income that we earn at work is directly translated into the property that we own.
Does income equal wealth? Not always
If you are a high-income earner, does that necessarily mean you also have a great deal of wealth? In theory, it certainly should mean that is the case. One of the key points that I try to impress upon clients going through divorce cases is that the most direct way to build wealth is to save money and invest using your income. By paying your payment to other people, you are losing out on your most remarkable ability to build wealth for yourself. Where does that money tend to go for most of us? To creditors, that's where.
Marital property sometimes is outdone by matrimonial debts.
These days, we are becoming more and more comfortable with being overloaded with debt. I say I overloaded with debt given how hesitant prior generations have been with borrowing money at interest. Our grandparents may have taken out a home loan to buy their first house after getting married. Our parents took out that home loan (a much bigger loan, mind you) and also started to pile on consumer debt in the form of a credit card bill. Department stores were getting into the act, and our parents began to take on debt associated with specific stores.
Now flash forward to the current day, and we are downright in love with debt. Consumer debt, house debt, second mortgages, and student loans are just the tip of the iceberg. Many of us, especially when just starting in our careers, often have more debt than assets. In that case, you would have a negative net worth. This can be a harsh reality to stomach, given how hard we may work in our jobs. Having more in debt than we do in property can have significant impacts on your divorce, as well.
How much community property you own will go a long way towards determining if you can receive spousal maintenance. If you have a significant amount of marital or separate property, you are unlikely to receive spousal maintenance. This is because you can liquidate your property to get cash to live on after the divorce. Not having much property puts you in a position where you likely need to ask for spousal maintenance after your divorce, primarily if you have not worked in some time.
Splitting up marital debt is part of divorce just as much as splitting up marital property. The only difference is that it is much more enjoyable to think about having property than having debt. Debts that you accumulate during your marriage can be able to become community debt and be divided in your divorce. So, even if your spouse took out the debt and it was applied to their business or their interests, it is conceivable that a creditor would want to come after you even after the divorce dividends the debt into their column of responsibility.
This is because while a family court judge will sign their name to your final decree of divorce, that does not mean that the document has any authority to change anything associated with agreements with creditors. For instance, you could divide up payments on the debt with your spouse, but the particular lender whose debt is being divided does not comply with that. The debt is owed in an amount to a creditor, and a final decree of divorce does not change that.
For this reason, I always recommend to people that they carefully consider how to divide up debts in a divorce. Again- you can have the most well-conceived divorce decree, which knowledgeably divides property, but that does not mean that the creditor will look to the rule as their guiding light. Instead, the original document you signed with the creditor will still have precedence. Bear this in mind as you sign up for loans during your marriage. That debt may come back to bite you in your backside even if you and your lawyer have thought through the issues on how to account for that loan.
The best practice is to limit the debts that you can incur during your marriage. You never know how a family court judge will divide that debt up or how willing your spouse will be to be reasonable in terms of a division of your community estate. With property not at all a given in many divorces, the debts in your family need to be looked at closely before you even file for divorce. You may be able to eliminate these debts early and often rather than wait until after a divorce to handle them as a single person.
How do you even know what you own at the time of your divorce?
When you file for divorce or get served with divorce papers, there is a good bet that you will not know of every item you own. This is entirely understandable given how much most of us accumulate stuff at breakneck speeds. Toss into this equation the reality of how our kids also have their things, and we have a potentially big problem on our hands; how you and your spouse deal with that problem are up to you and will go a long way towards determining how long, expensive, and stressful your divorce case becomes. Bear in mind that you can chart the course of your divorce. It is not necessarily up to a judge to determine every issue of your case that you and your spouse are not settled. Instead, the judge will only intercede if you and your spouse absolutely cannot agree on the issues of your case related to property, your children, and every subject in between.
Many, if not most, family courts in southeast Texas will require that you submit an inventory and appraisement at the beginning of a case. An inventory is a list of all the property that you and your spouse own. Once you track down all of your property and put it into a list form, you can note whether you believe the property belongs in your separate property, your spouse's separate property, or is part of the community estate. This is the foundation for determining how property will be divided up in your divorce.
Next, an appraisement of the property will be due. Take a look at the property you own and then give the judge an educated guess of how much the property will be worth. Sometimes this can be relatively easy, as in the case of trying to sell household items like furniture or silverware. Other times it can be downright impossible, and you may need to hire an expert who can help you determine a value for a particular property item.
My favorite example of this is for the family business. If you own a business, then state what your net income was at the beginning. Of those items in a company that can be difficult to value, goodwill associated with your business and the particular method you chose to employ for valuation will be heavily scrutinized by the judge. Use the beginning part of your family case to learn more about how property is valued in a divorce and what of yours may be subject to this fact.
The best way that I tell clients to make sure that they get an accurate idea of the property they own is to go around to each room in their house and take photos of everything as soon as possible. For one, going off of memory is not great since our memories can fail us. Your brain will not function as well at the beginning of divorce as you are used to. As such, you should not rely on your memory to do this work for you. Instead, take out your phone and snap photos of rooms, closets, garage spaces, attics, and everywhere in between.
An important reality for you to be aware of is that you are not guaranteed access to your home throughout the divorce. Take advantage of the time you have to get inside your residence and perform a thorough inventory of your property. The time to do this is at the beginning of a case- not the middle and certainly not the end. If you thought you owned something that seems to be missing that is not there, you could address that immediately with your spouse. It would help if you did not plan on your property "disappearing" in a divorce, but stranger things have happened.
Marital property equals community property.
Texas is a community property state. If you get a divorce in Texas, you will become familiar with this phrase and what it means for your property division. The presumption is that all of the property you and your spouse own is community property at the time of your divorce. This is important because community property can be divided in a divorce. It doesn't matter whose income was utilized to purchase the property or who used the property more. Community property is a massive component of this discussion.
Both you and your spouse will likely have separate property estates. Separate property is any property that is not community property. That isn't very clear, but let's try and break that down a little bit for you. Separate property is any property that either you or your spouse owned before your marriage. This property cannot be divided in the divorce. Being able to prove that a particular piece of separate property is truly yours and not part of the community estate can be difficult in some cases. Showing a receipt, title transaction, or other proof of ownership is essential to this part of the discussion.
Community property division means that the judge will look to a host of factors when determining how to divide your property up. Either your or your spouse's role in the breakup of the marriage, each of your separate estates, the type of property in question, the role each of you played in purchasing the property, and any other factor that the judge deems necessary and relevant will be looked at. Property division can occur right down the middle regarding marital property, but that is not always the case. You and your attorney should examine your circumstances closely to determine how best to approach this subject.
What if you don't like how courts stand to divide your marital property?
At least in Texas, you have options for how your property is going to be divided. Without much of a doubt, community property will be divided in your divorce. The only question is how that property is going to be divided up. The judge can do it for you after a trial is held, you and your spouse can do it in mediation, or you can render the entire discussion moot by coming to an agreement before your marriage or at least before your divorce in a premarital or marital property agreement.
First, you can go to a trial and present arguments and evidence on how the property should be divided. A judge will consider a host of factors when determining why or why not to divide the property in the question of how you believe it should be split. Of course, the risk you run by having your case go to trial is that you are relying on a judge to sort out your fate for you. Even after a multiple-day trial, it is not easy to do this. Consider your alternatives before placing all your trust in the hands of a family court judge.
Next, you and your spouse can attend mediation. I say "can" attend mediation, but the reality is that you and your spouse will have to mediate your case before going to a trial. Mediation allows both you and your spouse to choose a third party, neutral attorney to step in and help you all agree on all issues of your divorce, including community property. This way, you and your spouse can play a central role in dividing the marital property.
Preparation is critical when it comes to attending mediation. Make sure you and your attorney prepare adequately with multiple settlement offers before attending mediation. Next, come in with up-to-date figures in retirement savings, investments, etc. Having out-of-date figures can harm your ability to finalize and settle a case before trial.
Finally, it may be too late in the game for this method of diffusing a potentially tricky family law-related matter. Still, you can try to negotiate a premarital or marital property agreement before ever finding yourself in a divorce. In one of these documents, you and your spouse can determine how your community estate will be divided ahead of time. Why not negotiate with your spouse when you all are on good terms rather than during a divorce? This can save you time, money, and heartache. It sounds like a win, win, win to me.
Questions about the material presented 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 an excellent 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.