How do I protect my assets in a divorce?
When faced with the prospect of a high net-worth divorce, some people’s first instinct is to attempt to hide their assets from their spouse. However, this is one of the worst ways you can respond to a divorce filing: If the court discovers evidence of hidden or wasted assets then you could be liable for massive penalties, even criminal charges.
The best way to protect your estate in a divorce isn’t hiding your assets, it’s getting serious and retaining an attorney who knows how to correctly characterize property, how to precisely trace the establishment of separate property, how to make sure your property is properly valued, and how to effectively and efficiently navigate your case to avoid huge attorney fees.
Your first line of defense for protecting your assets in a divorce is the temporary restraining order. Some Texas counties have a standing order(a court order that automatically takes effect when a case is filed) preventing either party in a divorce from liquidating accounts, accruing debt, or engaging in other financially harmful practices. In counties without standing orders your attorney can file a temporary restraining order that has the same effect.
Community vs. Separate Property
One of the most important things to understand about asset division in Texas is the difference between Community property and Separate property:
- Community Property is all property acquired during the marriage. In the absence of other mitigating factors, all community property defaults to a 50/50 split between parties.
- Separate property is property acquired before the marriage, such as inheritance, gifts, and the original value of real estate purchased before the marriage. Separate property remains the sole property of its original owner after a divorce.
In the absence of a prenuptial agreement, there is a heavy burden of proof for the party making a claim for separate property. Without compelling evidence that your asset was acquired before the marriage, the courts will default to the prevailing assumption that all property is community property.
The process of tracing your assets to demonstrate Separate property status is highly technical and almost always involves experts who use forensic accounting to figure out if your separate property commingled with the community property and, if so, how much. Correctly tracing your separate property establishes the validity of your separate property claim to the court.
Properly valuing your property is just as important in a divorce as establishing your separate property in the estate. When a divorce is finalized, the sum of the value all your community assets are tallied on a spreadsheet that determines what you get and what your spouse gets according to the court’s judgement. If your property is incorrectly valuated, it can lead to enormous inequalities in the settlement.
For example: You and your spouse reach an agreement to split the estate 50/50. You keep the family home, they keep the vacation home. Let’s say the selling cost (or correct valuation) of the family home is $500,000. If the home is incorrectly valuated at $750,000 in the court documents, when all the assets are tallied up, you would walk away from the divorce with $250,000 less than you should have.
The importance of property valuation in a divorce can not be stressed enough; securing the services of an attorney with a robust and deep understanding of property value protects your assets and can provide a major advantage in your divorce.
Ending a marriage is always difficult, usually heartbreaking, and never cheap. Lawyer’s fees and court costs add up quickly and, as a divorce case drags on, they can wreak havoc on an otherwise healthy estate. Particularly acrimonious cases can balloon in cost until the entire community property is eaten up by retainers and fees. That’s why we strive to litigate not only effectively, but efficiently. Sometimes a legal battle calls for an all-out war of attrition (outspending your opponent can be an enormous advantage in the courtroom); however, representing our clients’ best interest often means avoiding an expensive, drawn-out, unnecessary battle by working with both sides to find a solution that doesn’t involve a financially devastating trial that can drag on for months.