The Division of Marital Property in a Texas Divorce
If you are going through a divorce, one of the most challenging aspects may be the division of your marital property. In fact, this division of property has a bad reputation for being one of the most contentious elements of divorce (which has plenty of room for contentiousness, to begin with). Better understanding the process can help you better protect your financial rights and move forward through toward divorce with increased confidence.
If you are facing a divorce, a major factor involved is the division of your marital property, but what exactly is marital property – you may be wondering. It is an excellent question, so let’s take a closer look. Marital property refers to those assets that you acquired over the course of your marriage. It does not matter who wrote the check or whose name is on the title or deed – if you obtained the asset during the course of your marriage, it is very likely marital property. The two exceptions to this blanket rule include:
An inheritance that either of you receives in your own name only
A gift that either of you receives in your own name only
Separate property refers to those assets that either you or your spouse owned prior to marriage brought into the marriage with you and kept separate throughout. It is often this last bit that is the most difficult to accomplish. What often happens with separate property is that it becomes so mired with the marital property that it no longer qualifies as separate property. Additionally, assets such as retirement accounts that you bring into your marriage with you are separate property, but any increase in their value over the years of your marriage becomes marital property. In other words, it is very complicated.
The Division of Your Marital Property
Upon divorce, your marital property will need to be divided equitably, which means fairly given the circumstances involved (rather than necessarily meaning equally). In determining this equitable division of property, the court takes a wide range of factors into consideration. Most of these factors have to do with how well each party is able to support himself or herself (and his or her available resources for doing so). The court’s general goal is for the property division to help balance each spouse’s financial means post-divorce.
Each Spouse’s Financial Standing
If one of you will be scraping by post-divorce while the other will have no such problems, the court will factor this into the division of marital property. If one of you owns your own separate successful business while the other spent the last ten years staying home with the kids (ignoring his or her own career), this financial discrepancy will not go unnoticed by the court.
The younger each of you is, the better able each of you will be to forge a career and support yourselves moving forward. If you are divorcing after many years, however, the fact of your age can make overcoming having little earning potential nearly impossible, and the court will likely address this fact with the division of marital property.
While financial support for your children will be addressed with child support, if your children will be living primarily with one of you, the court recognizes the considerable expense, and this may affect its decisions regarding the division of marital property. If you have a child with special needs, the effect can be even more significant.
Typically, attorney fees come out of the marital property, which means they tend to decrease the amount there is to be distributed between the two of you. If one spouse, however, is determined to unnecessarily increase the legal cost of your divorce – by making the divorce especially contentious, for example, or by hiding assets and forcing you to have your attorney engage in investigative efforts – the judge may adjust the division of marital property in response.
Relationship to Creditors
In addition to your marital assets, your debts will factor in, and these will likely be divided equitably between you. If, however, the debts that one of you assumes are held by a relative or close personal friend, the court may factor the likelihood that this spouse is unlikely to ever be required to pay the debt back into consideration. Further, the overall extent of your marital debts can significantly affect the division of your marital property.
Level of Education and Overall Employability
The court will take your level of education – relative to your divorcing spouse’s level – into consideration. This is because earning potential is generally closely related to your level of education, and if one of you has a Ph.D. while the other has a high school education, it will very likely play a role in how your marital property is divided. Your level of education correlates with your employability overall, which can also be a deciding factor in the division of marital property. Attributes that can affect employability include:
Overall health (both mental and physical)
The court will attempt to balance a serious discrepancy regarding employability with the division of marital property.
If you are seeking an at-fault divorce and can prove that your spouse is indeed responsible for your divorce, the court can take this fact into consideration when it comes to property division. In fact, in this situation, the court is not bound by the equitable division of property and can grant the spouse who was harmed a more considerable division of the assets. Common causes for at-fault divorces include:
If your spouse attempts to hide assets, spend down assets, give away assets, or do anything else that artificially reduces the overall value of your marital property, it is considered fraud on the community, and the court does not take kindly to it. If your spouse gets up to no good with your finances prior to or during the divorce process (and there are many ways to do so), it is time to take action.
There are many important reasons why the length of a marriage can affect the division of marital property, including:
The longer your marriage, the more likely your separate assets are to have commingled.
The longer your marriage, the more likely the spouse with less personal wealth is likely to be financially dependent on the other.
The longer your marriage, the more considerable your overall marital assets are likely to be.
Although owning a valuable property is obviously beneficial, it is probably not going to help you come up with the funds to buy a new house or rent a new apartment upon divorce. The court will take the liquidity of the assets each of you acquires into careful consideration – attempting to balance necessary cash flow with the overall value of the division.
Nature of the Property in Question
If one party is far better suited to take over a property and continue to maintain it, the court will factor this in. A spouse who has absolutely no interest in running the family business, for example, is unlikely to be awarded the family business by the court. Further, if the business that supports your family is a dentist office and only one of you is a dentist, the court will endeavor to offset the other spouse’s share in the value of the dentist office with other assets (while likely awarding the dentist office to the dentist himself or herself).
Value of Separate Property
That separate property that you establish as being truly separate remains your own and does not need to be included in the division of your marital property. However, if one of you has a considerable chunk of separate property, it can affect how the court decides to divide your marital property.
The court will take the tax implications of the property division into consideration and will strive to ensure that one of you does not walk away with a division of marital property that leaves you unduly taxed.
RELATED READINGS: What Factors Go into the Division of Community Property
The division of marital property tends to be complicated, to begin with, but there are several factors that can make it even more so, and one of these is high assets. The higher your assets, the more complicated their division will likely be for all the following reasons:
The greater your assets, the more likely they are to be complicated and intertwined.
The greater your assets, the greater the chance that separate and marital property will intermingle.
The greater your assets, the more contentious the division of them is likely to be.
The greater your assets, the more difficult it becomes to obtain valuations that both of you are willing to agree upon.
The greater your assets, the easier it is to hide assets from – or otherwise cheat – the other spouse.
If your marriage involves high assets, it is likely to require more preparation and more time to fairly resolve the division of your marital property.
Owning a business – even a relatively small business – has the capacity to seriously complicate the division of marital property for many important reasons.
Selling the Business
Selling a business for the purpose of divorce is often a less-than-optimal option. Generally, the value of a small business is in running it – not in selling it. And selling a larger business is a massive endeavor that is typically a strategic business move – not something that is entered into to generate cash quickly. As such, one spouse will likely continue running the business, but if it employs both of you, the other will be walking away from his or her job and income. Finding a balance that divides the value of the business fairly between the two of you and that takes all the mitigating circumstances into consideration can be complicated in the extreme.
Determining the Value
Determining the value of a business that you may have both poured your blood, sweat, and tears into and that has supported your family over the years can be a serious challenge. In fact, it can be difficult to put a price on that. Further, the spouse who is keeping the business is probably invested in keeping the value as low as possible, while the spouse who is being bought out needs the valuation to be as high as possible, which can lead to a valuation war. Suffice to say that landing on a valuation that both of you consider fair can be one of the most difficult challenges you face.
Purchasing the Other Out
Finally, purchasing the other spouse out of his or her percentage of ownership can prove onerous in and of itself. Generally, the best options include:
Providing the spouse being bought out with other assets that make up for his or her ownership, which can be difficult to do unless you own another property of significant value
Obtaining a loan to buy out the spouse who is walking away, which can be a great way to go if a loan with decent terms can be obtained
Buying the spouse who is walking away out over time, which may or may not be a good option for the spouse who is being bought (who may be looking for more liquidity)
Regardless of how you parse the matter, a business can throw a serious snag into the division of marital property.
Turn to an Experienced Killeen Divorce Attorney for the Legal Guidance You Need
Brett Pritchard at The Law Office of Brett H. Pritchard in Killeen, Texas, is an accomplished divorce attorney with the experience, legal insight, and personal commitment to skillfully advocate for your beneficial division of marital property. To learn more about what we can do for you, please do not wait to contact us online or call us at 254-501-4040 today.