Episode 151

In the latest episode of the Texas Family Law Insiders Podcast, Holly Draper welcomes Scott Thompson, managing attorney of Thompson Law in Austin. Scott spent more than five years as a commercial litigator at a global law firm in New York City before building a family law practice in Texas. He shares how his path ran from New York through a grant-funded project in Namibia to Austin, and how pro bono family and criminal defense cases gave him early courtroom experience while he was still carrying the briefcase for senior partners.

Scott explains the corporate litigation philosophy he brought with him: prepare every case for trial in order to foster settlement. That means developing strategy early instead of reacting to the other side, running a strong discovery and motion practice, and using a tool most family lawyers rarely touch — the motion for summary judgment. He describes how summary judgment motions, including Texas’s no-evidence motion, can knock out invalid prenups, unsupported separate property claims, and reimbursement claims before trial, and how motions to compel can strengthen your position when the other side can’t produce key documents.

The conversation then turns to the complex compensation that comes with tech and business executives. Following up on the previous episode’s deep dive into RSUs, Scott weighs whether to buy out RSUs now or divide them when they vest, and flags the tax gap created when companies withhold at a lower rate than the employee will actually owe. He also covers stock options, private equity interests, 409A valuations, cap tables, protective orders, and what to request in discovery when your client is the spouse who doesn’t own the interest.

Holly and Scott close with business ownership issues, including entity structure, jurisdictional questions involving Delaware and foreign corporations, competing business valuation experts versus a joint expert, goodwill, piercing the corporate veil, and alter ego findings. Scott offers practical tips for educating judges with trial briefs, explains why family law is driven by return on investment, shares what keeps him in family law, and gives young lawyers advice on finding mentors who can help them navigate unfamiliar issues.

In This Episode, You’ll Discover:

How to educate judges on complex financial issues

How corporate litigation strategy translates to family law

Why preparing for trial is the best way to foster settlement

Using summary judgment motions in Texas family law cases

How motions to compel create leverage in negotiations

Why not all dollars in the marital estate are equal

Buying out RSUs now versus dividing them at vesting

What family lawyers should know about stock options

Key discovery requests and protective orders for private equity

Mentioned in this episode:

• Corporate litigation
• Summary judgment
• separate property claim
• reimbursement claim
• motion to compel
• restricted stock units
• RSUs
• sell to cover
• tax withholding
• stock options
• strike price
• private equity valuation
• 409A valuation
• cap table
• business valuation
• joint valuation expert
• piercing the corporate veil
• alter ego
• jurisdiction
• trial briefs

Transcript

Episode 151 | Scott Thompson: A Corporate Lawyer Walks into a Family Law Bar…

Scott Thompson: Not all dollars are the same, right? You, you shouldn’t treat a house the same as you treat a retirement account. You shouldn’t treat that the same as you treat a checking account because not all of those dollars are worth the same.

Announcer: You’re listening to the Texas Family Law Insiders Podcast, your source for the latest news and trends in family law in the state of Texas. Now, here’s your host, attorney Holly Draper.

Holly Draper: Welcome back everyone to the Texas Family Law Insiders podcast. Today, I am joined by Scott Thompson, who is the managing attorney of Thompson Law in Austin, Texas. He’s represented hundreds of spouses and parents in divorce and family law matters, including complex asset cases, high-conflict custody disputes, and high-profile trials.

Before entering family law, Scott represented high-profile clients in corporate litigation matters at a leading global law firm in New York City. Scott has practiced law for more than 17 years and is licensed in Texas, New York, and various federal courts throughout the United States. Thank you so much for joining me today.

Scott Thompson: Thank you so much for having me, Holly.

Holly Draper: So why don’t you start and just tell us a little bit about yourself?

Scott Thompson: Yeah. So, as you mentioned, I started my career in New York. I went to law school in New York City, undergrad in Washington, DC, and I graduated both of those private schools with enormous amounts of debt, and going to a corporate litigation firm made the most financial sense in the beginning.

And so that’s where I started my career. I was there for about five and a half years, rose up to about a mid-level associate in the commercial litigation practice at Fried Frank Harris Shriver & Jacobson. Got my loans paid off. Immediately took a job on a grant-funded project in Namibia, Africa-

Holly Draper: Wow.

Scott Thompson: where I spent about a, a little over a year serving in kind of a compliance for the grant-funded projects role, as well as taking on many other roles like one has to do when working for a small organization. And I actually met a born and raised Austin, Texas, woman while working in Namibia, Africa, which is how I ended up here in Austin, I guess it’s been almost 12 years ago.

 We have an eight-year-old child here together. And, yeah, I just, I absolutely love Austin. I don’t see myself living anywhere else.

Holly Draper: I love Austin, too. I spent three years there in law school, and of course, everybody who goes to UT wants to stay in Austin, and there aren’t enough jobs for everyone, so I’ve never made it back there, but jealous that you found a home there.

Scott Thompson: Yeah. Well, it’s been great. It’s been absolutely great. It’s a great place to be both a lawyer and an entrepreneur.

Holly Draper: So today, we are going to talk about the things that you have special knowledge in related to complex financial matters as a result of your background in a different type of law.

You spent years in corporate litigation in New York City, and I know that has played a role in making you the family lawyer that you are today.

Talk about that background and how that led to what you’re doing today.

Scott Thompson: Absolutely. Just as an initial matter, I was a corporate litigator in New York, but I spent a lot of my time doing pro bono family law while I was a corporate litigator.

We represented very large banks, the Goldman Sachs of the world. I did a lot of the background research. I did a lot of the motion practice. I would help the gray-haired partners. I was in my 20s and early 30s. I would help the gray-haired partners prepare for depositions, prepare for courts. I would draft motions. But ultimately, when we would go to court, I was supposed to be the guy keeping my mouth shut and carrying the briefcase.

And so in order to get some courtroom experience, I started very early on in my time in, in New York corporate litigation doing pro bono family cases and doing pro bono criminal defense cases. So this is not something that’s entirely new to me. It has been a part of my practice for a significant amount of time.

In terms of the part of your question relating to what carries over from one to the other, I, I think the philosophy carries over and, and that is you prepare for trial to foster settlement. When you are handling a complex case in New York, people want settlement because they want a very large potential liability off of their books because they’re probably a publicly traded company, and it doesn’t look good to have an outstanding potential multi-billion dollar liability.

And so I learned how to maximally prepare cases for trial, and I found over time that that was by far and away the best way to foster settlement. And, and that is a kind of strategy that I apply in my divorce and family law cases here.

That’s everything from developing strategy very early on in the case rather than being reactive to what the other side is doing. That is a, a good discovery process, a strong motion practice.

One of the specific things I brought over from my motion practice in the corporate litigation field are motions for summary judgment. You very rarely see them in Texas family law cases, but I found that they can be a very, very useful tool for eliminating claims before trial, which narrows the scope of the trial and then takes claims off of the table for settlement purposes.

So I guess just as a general matter, a lot of the strategies that I have learned from truly some of the best lawyers in the world, I have ingrained into how I practice law and then brought over into what I do now.

Holly Draper: I’m interested in that summary judgment piece you just brought up, because I know most family lawyers-

Scott Thompson: Yeah.

Holly Draper: or a lot of family lawyers probably have never filed a motion for summary judgment. They’ve probably never seen one be successful. So tell us a little bit about the types of issues you use that tool to deal with.

Scott Thompson: Yeah, so it most commonly comes up in the prenuptial and postnuptial context, where you have a prenuptial agreement or a postnuptial agreement that you believe is perhaps invalid on its face. And rather than going and litigating that at trial, you’re going to make a motion for summary judgment to have it declared invalid, and now you’re operating under the Texas community property laws.

And there are two types of summary judgment in Texas. They’re a little bit different than under the federal laws that I was accustomed to, to practicing under. One is essentially a no evidence summary judgment motion. It’s a little bit unique to Texas, but it’s basically saying that the person lacks the evidence to support the claim they’re making. And so this might be after the discovery process is completed, you see that the other side has not put forward the evidence necessary to prove a separate property claim, for example, or a reimbursement claim. And rather than going off to court and having a battle of the experts over whether they have met that burden or not, a summary judgment motion can be used to simply eliminate that claim before trial, again, with the goal of taking as many claims off the table as possible, because it, it shows the other side, if you go to trial, this is what it’s going to look like for you, which fosters settlement.

Holly Draper: Yeah, I was just going to ask if you’re successfully able to kill a separate property claim or reimbursement claim or something else at the summary judgment stage, I would assume your odds of settling just went up dramatically because that piece of it is off the table.

Scott Thompson: That’s absolutely right. That’s absolutely right. And I think the goal of most of what we do, whether it is filing motions to compel discovery because we know they can’t access the documents for one reason or another. So we want to get in front of a judge and say, “Hey, Judge, here’s what I need to value private equity shares,” right?

And the other side is, is perhaps not going to be able to produce those documents. That puts you in a very different position for negotiations.

Holly Draper: So let’s talk about that a little bit further. If you know the other side can’t get documents, what benefit do you get from filing the motion to compel?

Scott Thompson: You can go into trial with your own valuation.

So you might retain your own valuation expert to take a look at that private equity, and you are able to say, “Here’s what our person says, here’s what we requested from them, and they were unable to produce.” And it gives your expert a little more leverage in that conversation, because the burden is ultimately on the person who is the owner of that to put forward a value.

Holly Draper: Right. So shifting gears just a little bit, as someone who practices in Austin, I know you deal with a higher percentage of probably tech employees, tech executives, business executives, a different type of client than a lot of other people might encounter. And I know those clients can come with different types of compensation packages, different types of stock issues.

Why do these cases take on some different financial components than a typical divorce, even if it appears that their incomes are the same?

Scott Thompson: Right. Well, just as an initial matter, not all dollars are the same, right? You, you shouldn’t treat a house the same as you treat a retirement account. You shouldn’t treat that the same as you treat a checking account because not all of those dollars are worth the same.

And so, and let’s just take the example of a restricted stock unit because that, that is currently very common within the tech sector. Y- your initial problem there is that it is ultimately a speculative asset, and so that’s your first valuation problem.

And what I mean by speculative asset is- If there’s a liquidation event, they may be worth one thing. If the, if there’s a layoff, like there have been recently in the tech sector, they may never vest. And so the problem becomes when you are on the date of a mediation or the date of trial, you’re going to be dividing all of the assets on that date. How do you value it at that time?

Holly Draper: So for our listeners, the last episode we did was a deep dive into RSUs, and-

Scott Thompson: Oh, interesting.

Holly Draper: so I want to kind of follow up on something from that episode with you and get your opinion. If you have a case where there are RSUs, what is your position, and this may vary depending on who you represent-

Scott Thompson: Yeah.

…

Holly Draper: what is your position on we want to get, you know, the present… We do not want to split these RSUs.

We want to have whoever they, whoever owns them takes them, and the other side is getting compensated in some way, versus we’re actually going to split the RSUs as part of the property division. Where do you stand on that? Yeah.

Scott Thompson: I, I think it depends on each person’s risk tolerance, and I think it depends on each person’s belief in what those RSUs are going to be worth in the future, right? If they are RSUs from a company that has had a steady stock price, we’re, we’re talking publicly held RSUs at this point, just for, for clarity, like RSUs in a publicly held company.

You have a steady stock price over many years, they don’t have a history of layoffs, then you probably have a good sense that that is not a high-risk proposition to say, “I’m going to buy out my spouse now at a particular price.”

I think the scenario where you want to pump that issue by dividing… Texas has a formula for dividing them based on kind of one of three scenarios. I think you’re better off waiting for the future to see what they are actually worth at the time of vesting and divide on that basis. So I think it goes to risk tolerance and then the, the fundamentals of the underlying company that you’re talking about.

Holly Draper: So it sounds like the analysis you just gave really applies when you’re representing the client who has the RSUs, right?

Scott Thompson: Well, I think it’s both.

Holly Draper: What-

Scott Thompson: I think it’s both…

Holly Draper: if you’re representing the spouse that does not have the RSUs, ta- talk us through your analysis on what to do there.

Scott Thompson: Yeah. I think it’s the same factors you are considering. It’s just the opposite side of the coin. So are you willing to be bought out today based on what you know of your own risk tolerance and what you know of, what you believe those RSUs to be worth in the future?

If you think that the RSUs are going to be worth less in the future, it is probably a good idea to be- Get bought out today at this higher stock price. You know? If you don’t know, then it’s probably a better idea to kick the can down the road, see what they’re worth at the time of vesting and, and deal with it that way. I think the factors that you’re considering are the same on both sides. It’s just how you apply those factors is different depending on which seat you’re sitting in.

You know, the, one of the most important things with, with RSUs is also how do you handle the taxes once they are vested? A lot of, especially the tech companies, do what they call sell to cover, meaning they are automatically going to withhold RSUs at the time of vesting to cover the taxes on those RSUs.

But they typically withhold around at the twenty to twenty-two percent marginal tax rate. And if you have somebody that’s earning income where they’re getting sufficient RSUs for it to be worth going through this process, they’re probably at the highest tax rate. And so there is a fifteen-point delta between the twenty-two withholding at sell to cover and the thirty-seven percent that’s probably going to be imposed on the spouse receiving those RSUs.

And so how do you handle that fifteen percent delta? You know, if I’m representing the RSU holder, I’m insisting that it be withheld at my client’s marginal tax rate. And so all of the taxes are taken out in the form of shares, and then essentially the other spouse is receiving 63% of the shares that are community after those shares are deducted for income taxes.

Holly Draper: So another thing that we may often see with these types of employees are stock options.

Scott Thompson: Mm-hmm.

Holly Draper: So talk a little bit about what exactly those are and what family lawyers should be looking for if we see those pop up on inventory somewhere.

Scott Thompson: Yeah, so stock options are just an ability to buy a, a stock in the company that you work for in the future at a particular strike price.

And so again, this goes to what do you think those options are going to be worth in the future relative to the strike price, which is the cost to acquire those options in the future. That’s a little bit different than, like, an employee stock purchase plan, where they’re purchased through your paycheck, right?

What we’re talking about with stock options are this is a future opportunity to purchase these shares at a predetermined price, the strike price, not knowing what those shares are going to be worth in the future at the time that they become exercisable. And so I think it’s the same factors. It’s, it’s what is the risk tolerance of each party to assess, do I think this is going to go up?

Do I think it’s going to go down? If it goes down, you don’t exercise the option. You know, so if it goes up, you exercise the option and you have a gain equal to the delta from your strike price to the market price at the time you exercise the option. And so I think that’s the calculus regardless of which seat you’re sitting in in the divorce process.

Holly Draper: So if your client is the owner of stock options, what is the argument you should make for these shouldn’t be on the table, they’re worthless?

Scott Thompson: I think it depends on the entity that you are, are talking about. It also depends on when the stock options were earned and when they become exercisable. So I think those are factors you have to consider.

What a lot of people will do by agreement is they will say, “If and when these become exercisable, we will split them in proportion to whatever the property division is taking into account that the real value of that option is not its share price on the day the option is exercised, but its real value is what did it cost me to acquire it?”

Announcer: This episode of the Texas Family Law Insiders Podcast is sponsored by the Draper Law Firm, providing family law appellate representation for non-parent custody cases, jurisdiction issues, property division, standing, conservatorship, possession and access, termination, parental rights, and grandparent access.

For more information, visit draperfirm.com or call 469-715-6801.

Holly Draper: So private equity is its own animal, and I’m sure you see quite a bit of that in the Austin market. There’s no market price. We can’t go out there and look at the stock index and see what some shares are worth. They might not be liquid.

How do you approach valuing someone’s private equity interests?

Scott Thompson: So a lot of private equity interests are highly speculative. And sometimes parties will come to agreements on how they’re going to handle that, and that is typically based on the cost to acquire. That may also depend on what is the time lag between acquisition and where we sit today in divorce.

It’s a… If it’s a very recent investment or a very recent grant of private equity stock, the price that is given to you in your grant document is probably not that different from what the price is today.

Holly Draper: So if somebody is granted private equity stock, is that something that can be transferred to a spouse in a divorce?

Scott Thompson: That’s always a question, and that depends on the granting documents, and that is much easier to figure out if you represent the spouse who was granted the private equity. If you represent the other spouse, that’s a much more difficult task, and you’re probably doing more fulsome discovery where you’re looking for, like, a 409A valuation.

A 409A valuation is, is, like, somebody the private equity firm would have hired to independently value the market value of the stock at a particular point of time, and then the private equity entity uses that to determine what the exercise price should be. So if you can get your hands on that document, that is, like, the holy grail.

Private equity firms are difficult to get documents from because a lot of that is proprietary. There are other things you can do. You know, you can get cap tables just to figure out and confirm what is my client’s or the opposing party’s actual ownership interest relative to the rest of the ownership interest. That can help you get a, a sense of value.

You want to look at their governing documents. You can derive a whole lot from financial statements. So it, it, it’s a mix, depending on what you are actually able to get. And again, if it’s a small private equity place and your client is highly placed, it’s a lot easier to get your hands on these things.

You’re probably going to want a protective order that doesn’t allow these things to be disclosed publicly, because otherwise your client might be violating some of the underlying company agreements. So it’s a delicate issue, but you can get your hands on this stuff.

Holly Draper: So it’s the person whose client, or the lawyers whose client owns the private equity should be requesting, probably agreed, but you never know, you might have to get an agreed one, a protective order when that discovery is sought.

Scott Thompson: Yeah. And, and you want a judge to rule that essentially this is, this is private data. This doesn’t… There’s no purpose in disclosing this to the general public, and if it were disclosed to the general public, it would damage the community estate because you have a client who works for this entity who might lose their job by violating either the, the governing docs or even maybe the grant agreement itself.

Holly Draper: So if you’re representing the person, the spouse that does not own the private equity interest, give us kind of a short list of what you are requesting in discovery.

Scott Thompson: Yeah, I mean, I think it’s, it’s really the things I mentioned before. It’s, it’s that 409A valuation. And then on a compel, I’m going to court and telling the judge why I need it. I might be filing a third-party subpoena to the entity. They’re going to file a motion to quash it, and then we’re having a hearing on that issue.

And then I th- I think it’s the cap table, so you can fully understand what percentage ownership of the total pie we’re talking about here. And then it’s the governing docs, operating agreements, things like that, and then financial statements as a fallback so at least you can get an expert to come in and opine that based on those financial statements, here’s what I think the entire enterprise is worth, and then you combine that with the cap tables, and you can determine what your, you know, individual client’s ownership percentage, how that applies to the overall value.

Holly Draper: So shifting gears just a little bit, let’s talk about business owners-

Scott Thompson: Sure…

Holly Draper: when they are, are either our clients or the opposing party in divorce. What are some special considerations attorneys should be thinking about if one of or both parties own a business?

Scott Thompson: Well, I think the first thing is you, you have to understand how the business is owned because that affects what the court can do. If you have a corporation or an LLC or a partnership, the court can’t reach the assets of the business and, and what a court is thinking about dividing. There is an exception to that, and I’ll talk about that, and interesting, that comes from corporate law and things I litigated in corporate law.

It’s called piercing the corporate veil. But essentially, the, the court has jurisdiction to divide the spouse’s ownership interest in the entity, so maybe a membership interest in an LLC. Or it can force the sale of a membership interest in an LLC. So I think that’s the first thing is, is understanding what is the organizational structure of the entity.

 I think the next thing that you’re going to run into, which is very similar to how most corporate litigation cases started is jurisdictional. You know, you may have a entity that is incorporated in Delaware, operates primarily in Texas, and has assets all over the United States. And so you’re dealing with complex jurisdictional issues there.

You may need to retain Delaware corporate counsel to advise you on what can and cannot be agreed, what do I need to request in court that’s going to conform to Delaware law and, and that particular company’s organization operating documents under Delaware law. If property is located outside of Texas, you know, Texas courts don’t have jurisdiction over that property.

You may run into… You know, I’ve had cases with companies that are incorporated outside of the United States, and now I’m hiring international corporate counsel. And so there are just a lot of jurisdictional issues that need to be resolved that as a result of my experience handling these issues in, in big corporate cases, I know how to spot the issues, and I know who to go out and hire on the corporate counsel side in, in different jurisdictions to help with that.

So I think those are kind of issues up, up front. With businesses, you also have major valuation issues, and, and this is one of the co- most common areas where you get into what we call the, the battle of competing experts. And so I’ve, I’ve had cases where you have a, a joint business valuation expert.

I think that can work if you represent the spouse who has control of the business. I think that’s not a good idea if you, you represent the spouse who, who doesn’t control the business. But generally, I think it’s best for each side to go out, retain their own business valuation expert. Then at least for negotiation purposes, you, you have a, a delta you’re working with, and you know the negotiation is occurring within that band.

 If you go to trial, you also know that the judge is going to find somewhere within that band. So I think experts are really important in the business valuation process. It’s much easier to do the business valuation if you represent the, the owner of the business, because you’re just going to get more co- cooperation from the business itself.

Documents are going to be easier to get, and some of your experts may come from within the company itself. Whereas, if you’re on the other side, you might have to hire a forensic accountant, for example, to review what the CFO and CFA have done internally.

Holly Draper: You mentioned that about using an expert jointly and that that’s a good idea if your client is the business owner, but not a good idea- It’s a-

Scott Thompson: I would say it’s a better idea. Okay. I don’t know that it’s ever a good idea, but it, it, it is potentially a better idea if you, you-

Holly Draper: represent- So why, what are the risks or why do you see it as more problematic to do that when you’re representing the non-business owner?

Scott Thompson: Just because you are not going to have access to the same information that the other side is going to have, and what that means is, as a, as a practical matter, the business valuation expert is going to have to spend more time with your client, more time with you as the lawyer, and it just provides more opportunities for advocacy.

Holly Draper: So what’s the difference, though, if, you know, if I’m representing the non-owning spouse and we hire our own business valuation expert, the other side has hired their own business valuation expert, isn’t there the same problem? How is my expert going to get all the information and not have that bias from having to deal with the other side more?

Scott Thompson: Well, when you have a joint business valuation expert, each side is, is presumptively saying, “This is the right person to be doing this work.” Right? It’s much harder to have a joint business valuation expert say, “I don’t like that valuation. Now I’m going to go out and hire my own person to challenge it.” Because you, from the, the get-go have said implicitly, “This is the right person. This is who I have agreed to hire.” So you’re kind of fighting against yourself in that way.

And it, it goes back to what I said before. You know, if you have a joint business valuation expert and you represent the business owner and you’re the one setting up meetings with the CFO and the CPA, the books and records are coming to you first, projections for future business are coming to you first. There’s just more, much more insight you’re going to get and you’re just, as a, as a practical matter, you’re going to be the attorney ending up explaining more of these things to the business valuation expert. And it, it just provides more opportunities for advocacy along the way.

Also, for goodwill purposes, for determining goodwill, it’s your client who’s, who’s going to be providing that presentation to the business valuation expert. The other side really has no control over that and you can really help your client prepare to do that in a way that is consistent with what the business valuation expert needs to hear to make a, a good assessment of goodwill.

Holly Draper: You mentioned a little bit ago about piercing the alter ego. Let’s talk about that.

What is it? When should we be trying to do it? How hard is it? All those things.

Scott Thompson: Yeah, so it actually comes out of federal law from SEC cases, if I, if I am remembering correctly, from 12 years ago. But it’s, it’s a doctrine that basically says, if a person is using a business for their own personal purposes, and it is not functioning as a legitimate business, and really the business has been set up as a nothing more than a roadblock for reaching those assets, a judge can do what’s called pierce the corporate veil and reach the owner and treat the assets of the business as being assets of the owner.

Holly Draper: In order for a judge to do that, does the business entity itself need to be brought in as a party to the lawsuit?

Scott Thompson: I have never done it before. I think it’s really rare. I would imagine that you do. I would imagine that you do. But before I ever tried something like that, that’s something I would research.

I have had cases where I’ve thought about it. But I haven’t had a case ever where the business was so on its face illegitimate, earning no income, running expenses through it only, and then acquiring assets really unrelated to the stated function of the business. I’ve just never had that come up. But I, I imagine for jurisdictional purposes, you would. I just don’t want to tell you that it’s absolutely required because I’ve never researched it before.

But I’m trying to think back to the, the corporate cases where that has been an issue. And I believe there you would be doing the opposite. You would be joining the individual as a party to the case because that’s the person you’re trying to reach.

And so yeah, I believe you would have to. But that’s something I would want to research more fully before ever making a claim like that.

Holly Draper: One of the issues I’ve seen come up in some cases has been alter ego.

Scott Thompson: Mm-hmm.

Holly Draper: And when courts basically say, this business is an alter ego of one of the parties, they’re indistinguishable. Talk a little bit about what alter ego is, and is that something that you’ve dealt with?

Scott Thompson: I think that that would mostly come up in, like, the sole proprietorship situation. Is that where you’ve seen it?

Holly Draper: Yeah, where just one of the parties is running a business, not necessarily- And it’s not-… as a sole proprietor, but, you know, I’ve seen it where there was li- you know, LLC created.

Scott Thompson: Yeah.

Holly Draper: But they’re the only one in it.

Scott Thompson: Did you end up having, did you end up having to join the single member and the entity?

Holly Draper: The case where I saw it, they were not joined. Hmm. The judge just found that this business was the alter ego of the party.

Scott Thompson: Sua sponte. Interesting. I would think if you were pleading it, you would need to implead the business. I think judges have a lot of discretion, and not all of our, not all of our family law judges, and not to disparage them in, in any, in any way, aren’t necessarily, don’t have a business background.

And so I think they recogni- they recognize that principle, and I, I wouldn’t be surprised if, if a judge made that decision. I think you would have to have pretty unique facts. I think it, it goes back to what I was talking about before, where you don’t really have a legitimately operating business, like the business is not producing income, and somebody is running a bunch of non-business expenses through the business and claiming them as one thing for property division purposes, maybe putting a, a negative value on the business itself, and then trying to keep the assets of the business from being reached and divided in the divorce case.

And I, I think a judge under those facts could very easily see through that and say, “The business is your alter ego. We’re going to treat the assets of the business as your assets.” That would not surprise me.

Holly Draper: So you touched on something a minute ago about judges not necessarily being educated on more sophisticated business or financial issues, and that is definitely a problem, and I think it’s probably an even greater problem in smaller counties.

So do you have any tips for how to educate your judge when you have one of those more complicated issues?

Scott Thompson: Yeah, I think judges love trial briefs. That was, that was always part of my corporate practice in New York is, you know, you never walk into a hearing without a memorandum of law. I think, you know, our, our state court judges are very busy, and so I think you give them something that’s pretty concise.

You talk about the applicable law in your opening statement. You offer to hand up to the judge relevant case law. You know, you explain it to them. Some of our judges are great with business, and they regularly handle non-family court cases involving incredibly complex businesses. Other of our judges come out of more of a family law or a CPS practice and, and that’s going to be less within their wheelhouse.

 I don’t want to knock any of our judges. I think we have great judges in the, the three counties where I practice, which is Travis County, Austin, and then Williamson County, Round Rock area, and Hays County, San Marcos, and kinda everything in between. And we have some great judges. We have one judge currently who has a very, very strong business background and I don’t think likes family law cases at all. You know, so it’s, it’s just a mix.

And we also have a, a central assigning docket in Travis County, which is where I handle most of my cases. So you don’t necessarily know which judge you’re going to get going into a hearing. So I think it’s just always a good idea. You’re not going to insult your judge if you tell them something they already know, just because it might be helpful to show the other side that, hey, this is the law, even if the judge knows it and would have applied it anyway.

Holly Draper: Right before you brought up the docketing system in Travis County, and I know Bexar County has something similar, I was going to make the point about this is why you need to know your judge. Does your judge have a business background and they’re not going to need to have these things explained to them, or does your judge really not, and you’re going to need to break it down and give more education in order to get what your client is asking for or to even have it considered? But that would really present a challenge in places where you don’t know your judge.

Scott Thompson: Yeah. Well, you know, in Travis County, you have to know all of the judges, and I’m in court enough that over the years I ha- I have gotten to know all of our judges. Of course, we have new judges all the time, and then it’s a, it’s an iterative process. You have to continue learning. But that happens just by virtue of handling a lot of cases and being in court a lot.

I just think it’s if, if you prepare at least to talk about the law with the judge at the start of your case or in your closing after you have presented all of the facts and then you want to apply them or both, you know, I think it’s a win-win-win. First of all, it shows your client you know what you’re talking about and it shows the other side you know what you’re talking about. To the extent the judge already knows what you’re telling them, I think they appreciate your preparation and attention to detail. If the judge doesn’t know what you’re talking about, you’re probably not going to know that they didn’t know what you’re talking about, and they’ll be happy for the information.

So I think depending on the demands of the case, you know, it could be as easy as saying, “Hey, Judge, you know, these sections of the business code apply to this particular family law case. I printed out copies of the relevant statutes. Can I hand them up?” And that’s all you need to do.

You know, in other cases, a, a full memorandum of law submitted before the court date makes a lot of sense. So it just kind of depends. Everything in, in family law is very return on investment based. And what I mean by that is when I was a corporate litigator in New York, the mentality was leave no stone unturned.

 I, I wish I could litigate every case that way. Unfortunately, when you’re dealing with individuals, there are non, you know, several hundred million dollar budgets involved. You don’t have a team of twenty to fifty lawyers staffed on every case to leave no stone unturned. And so, as I’m sure you know, you know, one of the big difficulties is determining and explaining to a client what is the return on investment given the work involved to assert a particular claim or defense?

And you develop your strategy and your tactics around that.

Holly Draper: So we’re getting close to running out of time here, but-

Scott Thompson: Sure…

Holly Draper: what keeps you in family law after having done, you know, high-stakes commercial litigation in a much different environment? Tell us why you, what you like about family law and why you keep doing it.

Scott Thompson: Yeah, I mean, honestly, this is going to sound cheesy, but I, I like helping people. I like working with people. One of the most satisfying things is at the end of a case when I get to take a client out to lunch and talk about everything but their divorce case and, and what they’re going to do in the future, and just have a nice conversation with somebody who truly appreciated how, how I helped them.

You know, the stakes are really high in what we do. There may not be billions of dollars on the line, but when you’re working in corporate litigation, your client is in-house counsel. That’s somebody who used to have your job at the corporate law firm. You know, that, that is not somebody who is worried about their children as a result of this case.

That’s not somebody who is worried about their life savings as a result of the outcome of the case. And so there’s a lot on the line, and I like being that person to protect the things that are most important to an individual in their life.

And then just selfishly, I, I like going to court. I think it’s what I’m best at as a lawyer, as an oral advocate, as a strategic advisor to clients, and I think that family law provides me the best opportunity to kind of harness my skills as a lawyer and, and apply it for people who are in a really difficult situation and who, you know, nine times out of 10 are, are super appreciative for helping to get them through what might be the, the most difficult part they’ve ever been through in their lives.

Holly Draper: So one thing I like to ask everybody who comes on the podcast is, if you could give one piece of advice to young family lawyers, what would it be?

Scott Thompson: I would say find a mentor who you can go and ask questions to. And that doesn’t mean you necessarily nee- even need to be an associate at a law firm working for that person.

I would say get involved in a lot of the organizations. Like in Austin, we have a great Austin local bar, and they have tons of resources for developing those types of mentoring relationships. So I would just say is attend as many events as you can with your local bar. Get to know the judges and just, you know, say, “Hey, I’m a young lawyer.

Do you have any advice for me?” and then find somebody who is a more experienced practitioner, who’s somebody you can send a text message to and say, “I need an expert to value a business, and I’ve never done it before. Who do I call?” I had a case just a couple w- weeks ago where I had to, to value, like, a ver- a, an airplane hangar and, like, some antique airplanes, and I, I had no idea who to call.

So I, I called one of my gray hair mentors. And I mean no offense by the, the gray hair. I have… I’m, I’m working on my own bald spot. So, so we’ll all get there. But it, it’s important at every stage in your career to have people like that, and I think it’s critically important for, for young people.

And I would be happy to be that person for anyone else, and anyone who’s in that position should feel free to contact me.

Holly Draper: So if our listeners do want to find you, where can they go to do that?

Scott Thompson: Yeah, absolutely. So our website is austintexaslaw.com. That’s all spelled out, T-E-X-A-S, austintexaslaw.com. Our office is located in the South Congress kinda shopping area of South Austin.

Our exact address is at 3601 South Congress. We’re in a, a cool little office park that actually used to be a, a… It was built to be a World War I airfield for training pilots, and then the war ended, and they just turned it into this really cool spot. So that’s where we’re located. I’m happy to give out my phone number as well, if anyone wants to contact us that way.

It’s 512-222-8287. And then we have some social media presence online as well.

Holly Draper: Well, thank you so much for joining me today. I think we got a lot of good information about cases that maybe most, a lot of us don’t see that often, but you need the information so that when it shows up in your office, you’re ready to go.

 So for our listeners, thank you so much for tuning in today, and if you enjoyed this episode, please leave us a review and subscribe to enjoy future episodes.

Announcer: The Texas Family Law Insider Podcast is sponsored by the Draper Law Firm. We help people navigate divorce and child custody cases, and handle family law and appellate matters.

For more information, visit our website at www.draperfirm.com.