Division of property during a divorce can be tedious and legally complex. In Texas, a community property state, all assets acquired during the duration of a marriage are presumed to be community property. The party claiming separate property has the burden of proving its separate status. In high asset divorces, accurately valuing assets and distinguishing between separate and community property is essential.
An experienced divorce lawyer often collaborates with expert appraisers and financial professionals to ensure the community estate is accurately identified, valued, and divided. The goal of any reputable Dallas high asset divorce attorney is to ensure a fair and appropriate outcome for their client from the property distribution, while also protecting the client’s separate property.
Asset Allocation Between Divorcees
Determining whether an asset is classified as community or separate property often depends on the inception of title to the property. Spouses who wish to prove that an asset is not community property can show that they acquired the title before marriage. This is because, under the inception of title rule, the nature of the property is established based on the timing and manner of the initial acquisition.
In Texas, the default assumption is that all property is community property — and thus must be divided equitably, considering both parties’ interests. To claim an asset as separate property and exclude it from division during a divorce, the claimant must provide clear and convincing evidence of its separate or independent status.
Separate Property
Separate property in Texas includes assets acquired before marriage or received during the marriage as a gift, inheritance, or through descent. Additionally, compensation awards for injuries suffered by one spouse during the marriage, except for lost wages, are considered separate property.
Community Property
Community property covers a wide range of assets, such as:
- The Marital Home
- Family Business
- Retirement Accounts
- Savings
- Stock Options
- Royalties
- Vacation Homes
- Investment Properties
These are some examples of assets that must be divided during a divorce. In long-term marriages, the division can be even more intricate due to the commingling of separate and community assets or the concealment of certain assets.
For instance, if an investment property purchased before marriage is renovated using both community and separate funds, the spouse may have a compelling case that the community has an interest in the property.
Pre-marital or Post-marital Agreements
If either spouse enters a marriage with substantial assets, drafting a pre-marital or post-marital agreement can protect those assets from being classified as community property in the event of a divorce.
A premarital agreement or postmarital agreement allows couples to decide in advance which assets will be considered separate property and which will be community property — thereby reducing potential conflicts during divorce proceedings.
At the Dallas Divorce Attorney, our high asset divorce lawyer can assist in drafting agreements that protects separate properties — helping to preserve their distinct nature throughout the marriage.
If neither a pre-marital nor post-marital agreement was made, it is still possible to challenge the presumption that an asset is community property through a process known as “tracing.” Tracing requires an expert to thoroughly examine the documentation trail of an asset to determine whether it qualifies as separate or community property.
For example, let’s take assets like rental homes or stocks that appreciate in value during the course of the marriage. Any increase in the value of separate property remains separate. However, any income generated from that property (such as rental income from a home owned by one spouse before the marriage) is considered community property.
For example, let’s take a gift that one of the spouses received from family that was used as a down payment on a house. The house is community property, however, the down payment, if it can be properly traced, can be characterized as separate property. Additionally, the proportionate appreciation from that down payment can also be identified as separate property. It also depends on being able to trace that initial down payment.
Allocating Trusts and Trust Funds
Trusts represent a form of property ownership where a settlor transfers legal title to a trustee and equitable title to beneficiaries. In Texas, irrevocable spendthrift trusts created before marriage can effectively protect separate property. If the beneficiary of such a trust lacks a present possessory right to any assets, the income from the trust is not subject to division during a divorce.
However, when a spouse has a present possessory right to any portion of the trust, the income can be classified as community property. If distribution is mandatory or the beneficiary spouse controls the timing and amount of distributions, the trust income is typically considered community property. Conversely, if the spouse is not a trustee and the trustee has discretionary power over income distribution, the income is usually deemed separate property.
Similarly, if a trust fund established by one spouse’s parents serves as an inheritance, the trust’s principal remains separate property. Nonetheless, any income produced by the trust and distributed during the marriage is considered community property.
A lower-earning spouse must, therefore, be vigilant about the potential for a wealthier or higher-earning spouse to divert income earned during the marriage into separate trusts, potentially depleting and defrauding the community estate.
Talk to a High-Asset Divorce Attorney in Dallas
Navigating the complexities of characterizing assets, tracing funds and understanding trust allocations during a high-asset divorce can be daunting. Each case presents unique challenges and intricacies, necessitating a seasoned expert to protect your interests effectively. Ensuring proper legal guidance is paramount to achieving a fair and equitable settlement.
If you are facing a high-asset divorce in Texas, do not leave your future to chance. Reach out to an experienced Dallas divorce attorney who can provide you with the essential expertise and dedicated support you need. Schedule a consultation today to secure your financial well-being and peace of mind.