Texas is a community property state, and there is a presumption that ALL property in the name of either party at the time of divorce is community property.  Certain types of property are classified as separate property, specifically any property owned before the marriage or any property received by inheritance or gift during the marriage.  The big problem here is proving the amount and existence of the property as separate.

For example, Husband had several 401(k)s from employers he had before the marriage.  At some point during the marriage, he rolled the 401(k)s into a new account.  He is able to show the creation of the account during the marriage and that the funds came from these other accounts.  The only way the husband can show by clear and convincing evidence that the money in the account is his separate property is to produce statements from right before the marriage and trace those accounts to their current location.  If the account has been rolled over and there is no paperwork from the prior account, this can be very difficult to do.   Husband would have a much more difficult time in this scenario if he had rolled the separate property accounts into an account co-mingled with community property.  Establishing what is separate and what is community in a co-mingled account can be extremely difficult.

If you happen to receive separate property during the marriage, either by inheritance or gift, it is advisable to keep that property in its own, separate account.  Once you co-mingle the funds, it can be hard to prove which funds were separate and which funds were community, especially if some funds have been spent or moved around.  It is also critical to keep records reflecting where the separate funds came from so you can prove that money is, in fact, your separate property.

Although very few people expect to get divorced, the bottom line is that many people find themselves in that situation some day.  The moral of the story is to keep records of separate property accounts going all the way back to before the marriage or to the date you received the separate property.

Divorce

 

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When a retirement account is split in a divorce action, you must have a Qualified Domestic Relations Order (“QDRO”) signed by the Court.  QDROs must meet certain specific requirements set out by federal statute.  If your case will involve a QDRO, it is highly recommended that you have an attorney.  An improperly prepared QDRO will be rejected by the retirement plan administrator.

When a QDRO is required in a case, I ask clients to request sample QDRO language from their plan administrator.  Most plans have either sample language or guidelines for QDROs that they will provide.   The QDRO will specify either a percentage or a dollar amount that is going to the soon-to-be-ex-spouse, along with a division date.  Even though the account will not be technically split until a later date, the date listed in the QDRO will be used by the plan to determine the appropriate amount for each party.

Once the QDRO is accepted by the plan administrator, the plan is essentially split in two.  The alternate payee (ie: the person who did not originally own the account) will be given several options.  He or she can generally (a) cash out his or her share, taking on any tax consequences of doing so, (b) leave the money in the new account that has just been created by the plan, or (c) roll the money over into another retirement account.  I recommend that clients speak with a financial adviser and/or accountant before choosing which option is best in his or her situation.

Child Support

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In most Texas divorce cases, each party will complete a sworn inventory and appraisement and exchange it with the other side.  These inventories are generally quite helpful when it comes to dividing property and debt, especially in cases where one spouse has controlled the majority of the finances in the marriage.  In some cases, the inventory and appraisement leads to additional discovery requests where one side wants backup documentation in support of certain items listed on the inventory.  The benefit here is that the inventory usually allows discovery requests to be narrowed down to only very relevant documents.

When a client needs to complete an inventory and appraisement, I send them a blank form to complete.  It lists every imaginable asset and debt that either of the parties could have.  I tell clients to simply delete any sections that are not relevant to them so the document is easier to get through.  The inventory will include everything from real property to bank and retirement accounts to frequent flyer miles to firearms and artwork.  The party will also list a value for each item of property, along with a date for the valuation.  The inventory also includes itemized descriptions of debts, such as credit cards, student loans, mortgages, etc.  After the form has been completed and reviewed by an attorney, it must be sworn to and notarized.

In my experience, most attorneys will voluntarily agree to exchange an inventory and appraisement.  If the other side will not agree, a judge will almost universally order the parties to complete an inventory and appraisement by a certain date upon request.

Child Support

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When a married couple owns a house, dealing with the house is a very important aspect of the divorce.  The first question is whether or not either spouse can afford to keep the house on his or her own.  If not, then the house must be sold.  If the parties are in agreement, the house can be sold while the divorce is pending and the proceeds split as part of the division of the estate.

If the parties are not in agreement about selling the house, either side can request that the court order the sale of the house.  Normally, the parties will have a certain amount of time to sell the house after the divorce is finalized.  If they cannot agree on a sales price or there are other issues with the sale, a receiver may be appointed to help finalize the sale of the property.

If one spouse is keeping the house, the other would want to ensure that the spouse keeping the house refinanced the property into his or her own name within a certain amount of time after the divorce is finalized.  If the house cannot be refinanced, the house should be sold.  I would never recommend that a client allow the other party to keep a house without having my client’s name removed from the mortgage for two reasons.  One, if the spouse who kept the house fails to make the mortgage payments, the other spouse’s credit will be damaged.  Two, the spouse who did not keep the house may be prevented from buying his or her own house in the future due to the large mortgage debt still in his or her name.

Once the spouse keeping the house has it refinanced into his or her own name, the other spouse would need to deed over his or her interest in the house.  I usually do this with a Quitclaim Deed, but there are other options as well.

If a house is involved in a divorce, I highly recommend having an attorney to make sure that everything is handled properly.  You cannot change a decree years down the road if you made a mistake in how the house was dealt with in the decree.  I have seen this destroy people’s ability to move on with their lives.  It is well worth the cost to ensure it is done right.

house pic

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