Even the humblest divorce involves concerns about the division of marital property. High-asset divorces, however, tend to be far more complex and contentious. If you’re facing a high-asset divorce, protecting your investments and inheritance are primary concerns, and an experienced Round Rock divorce attorney has the legal insight and skill to help.
Texas: A Community Property State
The State of Texas is a community property state, which means that all the assets a couple amasses over the course of their marriage are community property—or belong to both of them. If the couple divorces, these assets, as offset by marital debt, must be divided between them fairly—or in a just and right manner—given the circumstances.
While this can mean evenly, it doesn’t necessarily mean evenly, and the kinds of circumstances taken into consideration include all the following:
The duration of the marriage
Whether either spouse’s wrongdoing played a role in the divorce, such as spending significant sums on an affair, which can affect property division even in a no-fault divorce
The contributions each spouse made to the marriage, including in terms of homemaking and caring for the children
The tax implications of the division under consideration
The size of the marital estate and each spouse’s separate assets
Each spouse’s earning power
Each spouse’s financial needs
The child custody arrangements and the best interests of the involved children in the context of property division
Anything that either of you receives by gift, devise, or descent – or anything that either of you inherits or is gifted during the course of your marriage – is that spouse’s alone. The same is true of those assets and properties that either of you brought into the marriage with you, which can include separate investments, real estate, or anything else.
While separate assets remain separate, there are circumstances that can erode their separate nature, which makes protecting your financial right to your separate property in a high asset divorce that much more challenging and important.
Overcoming the Court’s Presumption
Texas courts presume that everything you and your spouse own at the time of your divorce is marital property. This means that if your divorcing spouse questions the separate nature of your investments or inheritance, you will bear the burden of proving that these assets belong to you alone, and you’ll need clear and convincing evidence to do so.
All of the following factors can play an important role in how the issue is resolved:
If the inheritance was made in only your name, the court is more likely to classify it as a separate asset.
If you owned your investment accounts prior to the marriage, they remain in your name alone, and there’s been no commingling with your marital financials, you’ll have a much stronger case for proving they’re your separate property.
If the asset in question has increased in value over the course of your marriage, the amount that it increases by is likely to be classified as marital.
If you added your spouse’s name to your investment accounts, it can weaken their separate nature.
Any commingling of funds can weaken the distinction between separate and marital property, and some assets can be identified as both separate and marital. Assets can commingle in a variety of different ways that include the following:
Using marital funds in support of or to grow your separate asset, whether an inheritance or investment, blurs the dividing line between them.
Using separate funds to finance your family life without carefully and specifically accounting for the transactions is a form of commingling.
Failing to keep a strict separate accounting of your separate assets and your marital financials will also weaken your position.
If earnings from your investment or inheritance flow into your marital accounts, it can strengthen the claim of marital property.
Pouring your own time into managing your investments or inheritance without paying yourself accordingly – and thus contributing to the community estate appropriately – is another form of commingling.
If you and your spouse live off of your inheritance – rather than working – there is a very real commingling of funds. Upon divorce, however, you may be able to establish that part of your inheritance’s value remains your separate property.
Using separate assets to purchase a marital asset will likely dissolve the original funds' separate nature.
If you didn’t specifically keep your separate assets strictly separate throughout the years of your marriage, the court’s presumption that they are marital is more likely to hold. Working closely with a seasoned divorce attorney is advised.
Considering Your Inheritance
If you received an inheritance in your name alone prior to or during your marriage, it is your separate property to begin with, but this can change as time passes. It’s important to understand that you can’t take too many precautions when it comes to keeping your inheritance separate.
While you and your spouse may have agreed all along that your inheritance was yours alone, things can change considerably once divorce enters the picture. It’s not unusual for a spouse – in response to divorce – to focus on their financial outcome, which will directly affect their financial future.
Your spouse is motivated to keep their fair share in the divorce, and they very well may have their sights set on your separate assets – regardless of their prior attitude. This is a common theme in divorce and is one you’ll need to address as effectively and efficiently as possible.
Your Estate Plan
Your inheritance came to you through estate planning, and you can help protect it through your own estate planning efforts. When you put assets in a trust, you create a separate legal entity that is not subject to property division in a divorce. This is an excellent tool for protecting the separate nature of an inheritance.
Prenuptial or Postnuptial Agreement
If you have a legally binding prenuptial or postnuptial agreement in place, the terms included will prevail. And if you addressed your inheritance in this contractual agreement, the matter should be settled.
If you fail to take any proactive steps, you’ll need to prove the separate nature of your inheritance, and your savvy divorce attorney will help to ensure that you get the job done right.
Considering Your Investments
Protecting those investments is key if you have separate investments and are facing divorce. If you have investments that are classified as marital, protecting your just and right division of these assets is just as important. Toward this end, there are several primary steps you should consider taking.
Hold Off on Making Significant Decisions Regarding Your Investments
While your divorce is pending, it’s a good idea to avoid making substantial investment decisions. The stress of divorce and your concern about how your investments will be divided can leave you vulnerable to making decisions that are less than optimal. Withholding your consent to any rash financial decisions your spouse may be inclined to make at this juncture is also advised.
This is important from a commonsense perspective, but there is also a legal component. If your divorce involves complicated financials that relate to determining what’s separate and what’s marital, it’s very likely that a temporary financial restraining order or standing order applies, which means there are financial ground rules in place.
In Round Rock, which is located in Williamson County, there are standing orders that apply to every divorce, and they require both spouses to refrain from all the following:
Destroying, removing, concealing, encumbering, transferring, or otherwise harming or reducing the value of any marital property or of either spouse’s separate property
Misrepresenting an asset or assets or refusing to disclose information about an asset or assets upon proper request by the other spouse or by the court
Damaging or destroying documentation of any asset or assets that are either marital or separate property
Selling, transferring, assigning, mortgaging, encumbering, or otherwise alienating property – whether separate or marital – from the other spouse
Incurring significant debt
Withdrawing or borrowing from any retirement accounts
Signing the other spouse’s name on any financial instrument
Taking any action to terminate or limit the other spouse’s credit
Exercising any control over the other spouse’s vehicle
Reducing or discontinuing federal tax withholding
The State of Texas is invested in maintaining the financial status quo – or the current financial situation – while your divorce is proceeding, and it’s in your best interest to follow suit. Ultimately, the court is paying attention, and making any major financial moves in the buildup to divorce could come back to haunt you.
Pay Close Attention to the Tax Implications
As you strategize the best path toward divorce, it’s important to consider the tax implications of your property division carefully. For example, if one or more of your investments is a retirement account that you owned prior to marriage, they are separate assets, but the amount they have increased in value over the course of your marriage is likely marital.
This means you’ll need to address your spouse’s partial ownership in your property division, which can be accomplished in both of the following ways:
Allowing your spouse additional marital assets to compensate for their fair division
Buying your spouse’s ownership out directly
A retirement account can also be divided through a court-ordered Qualified Domestic Relations Order. This is separate from your divorce decree, and it directs your employer to divide your retirement benefits in accordance with the QDRO’s terms. In the process, you bypass the early withdrawal penalty associated with many retirement account transactions.
The bottom line is that there are significant tax considerations to keep in mind when it comes to your investments and divorce, and a trusted divorce attorney with a wealth of experience handling complex property division cases is standing by to help.
Address the Matter of Your Beneficiaries
It's critical to update the financial tools that have beneficiaries attached upon divorce. Up to this point, your spouse has likely been listed as your beneficiary, but you may want to change that upon divorce. Unless you want your assets to flow to your ex upon your death, now is the time to change your beneficiaries, which is a detail that can get lost in the shuffle.
Don’t Forego Legal Guidance
The division of your marital property will have a profound effect on your financial future, and if you have separate property, such as an inheritance or investments to protect, the sooner you secure skilled legal guidance, the better protected you’ll be. Even when a divorce involves only marital assets, property division has the potential to become very complicated very quickly.
When complex separate assets like an inheritance or an investment portfolio are claimed by one spouse or attempted to be claimed by the other, the matter becomes more difficult. Reach out for the professional legal counsel you need early in the divorce process.
Turn to an Experienced Round Rock Divorce Attorney for the Help You Need Today
A high asset divorce that involves separate assets, such as an inheritance or investments, is a complex legal matter, and protecting your financial rights from the outset is paramount. Brett Pritchard at The Law Office of Brett H. Pritchard, proudly serving Round Rock, Texas, for over 20 years, is a practiced divorce lawyer who is well prepared and well positioned to help.
For more information, please don’t wait to contact or call us at 254-781-4222 and schedule your free consultation today.