Category: Marital Property

Personal Injury Settlement Funds in a Divorce

One of the more confusing and misunderstood assets which may be part of the marital property division in a divorce are personal injury settlement funds.

In essence, once a spouse has received funds in a settlement (or to satisfy a judgment) stemming from a personal injury claim, those funds may be community property, separate property, or a mix of both.

Keep in mind that under the Texas Family Code, all assets owned by either spouse are deemed to be community property unless and until the spouse claiming that asset as separate property provides clear and convincing evidence that it is separate.  Therefore, absent any evidence to the contrary, all of those settlement funds will be considered community funds.

What do you need to prove to show that your personal injury settlement funds are your separate property?  Funds which can be shown by clear and convincing evidence to be payment for one or more of the following damages are considered separate property:

  • Mental Pain and Anguish
  • Physical Pain and Suffering
  • Disfigurement
  • Loss of a Spouse’s Love and Companionship

Funds for settlement of the following sources of damages, however, have been explicitly held by Texas courts to be community property:

  • Loss of earning capacity during marriage
  • Medical expenses incurred during the marriage
  • Damage to credit reputation
  • Other expenses associated with the injury to the community estate
  • Disability insurance payments and workers’ compensation benefits intended to replace earnings during the marriage

What if your settlement funds were paid in one lump sum, with various sources of damages all being paid out of one amount?  This is a very common occurrence.  When there is a lump sum settlement, it will almost certainly be characterized by a court as community property when it is intended to settle claims which include damages which are a mix of separate and community assets.

Therefore, if you are concerned that either you or your spouse may seek a divorce in the future, it is important to ensure that any settlement funds paid to you in a personal injury lawsuit are clearly segregated by the type of damages sought in your lawsuit.  Your personal injury attorney can help you structure a settlement which accomplishes this.

Who Are Your Beneficiaries After Your Divorce?

After a person goes through a divorce in Texas, they should have a task list of matters that must be handled soon after the divorce is completed.  Some are obvious, such as removing a spouse from bank accounts, changing names on deeds or titles, or perhaps even changing their own name immediately after the divorce.  An often forgotten task that should be on that list, however, is changing the beneficiaries on various insurance policies, retirement accounts and bank accounts.

Many newly divorced people (and sometimes even their attorneys) mistakenly rely on Texas law to protect them in this circumstance.  Someone might tell you, “It’s okay – Texas law prohibits your ex-spouse from being a beneficiary unless you re-designate them on the policy.”  That statement, however, doesn’t tell the whole story.

Section 9.301 and 9.302 of the Texas Family Code describes the effect of divorce on a life insurance policy (9.301) or a retirement or other financial plan (9.302) in the event the ex-spouse is a beneficiary.  In a nutshell, the designation is no longer effective unless you re-designate the spouse, if the spouse is a beneficiary under the divorce decree, or unless they are named as a trustee or beneficiary of a trust to which the benefits are to be paid.

Keep in mind, however, that unless the insurance company or plan administrator is advised of the divorce before benefits are paid out, your family could lose out on the ability to go after the insurance company or plan administrator for wrongfully recognizing the old beneficiary designation.  Sure, you could still go after the recipient of the funds, but that could be a much more difficult task than going after the company handling the policy or fund.

What is the lesson to be learned from this post?  First and foremost, a divorced spouse needs to review all of their retirement, insurance and other financial plans to ensure they know who the beneficiaries are and to change those beneficiaries to reflect who they wish to ultimately benefit from those plans in their event of their death.  If, however, that is not done in a timely manner, the alternate beneficiaries or the divorced spouse’s heirs need to notify the insurance company or plan administrators as soon as possible after the death of the divorced spouse in order to invoke the protections provided under the Texas Family Code.

To find out more about the effect of divorce on your insurance policy, retirement plan or other financial matters, contact our Houston divorce attorney, Bobby L. Warren, at 713-579-9702.

Protecting Small Businesses in a Texas Divorce

One of the more complicated property issues in any Texas divorce is how to value and account for a small business owned by one or both spouses.  Unfortunately, many business owners don’t consider the impact of a divorce on that business until it is too late.

The most common and most effective means of protecting a small business in a Texas divorce is to enter into prenuptial agreements and postnuptial agreements in order to clarify the rights of the spouses in regards to the business.  With a prenuptial agreement, you can make clear that the business is to remain the separate property of the spouse who owns it.  More importantly, however, the business owner spouse can also seek to eliminate the right of either spouse to claim a right of reimbursement.

As I’ve discussed elsewhere on this blog, reimbursement is a claim made in Texas divorces which allows one marital estate (such as the community estate) to claim from another marital estate (for example, the separate estate of the business owning spouse) some form of reimbursement for increased value in the separate property business due to investment in the business with community funds or, more commonly, due to some other risk or detriment the community estate suffered in order to benefit the business owner’s separate estate.  The commonly occurs where a business owner obtains a loan on behalf of the business which includes a personal guarantee.  Most personal guarantees are written in such a way where community assets are risked in the event the business cannot meet its loan obligations.  While there may be no actual loss by the community estate, it may give rise to a reimbursement claim if the value of that risk can be ascertained.

In addition, in many small businesses, all taxes owed due to the profit from the business passes through to the owners.  The owners then pay personal income tax on the income they receive from the business in lieu of the business being taxed on the profits.  It is possible, in some circumstances, for the community estate to claim a right of reimbursement for the taxes paid on that income which would have been attributable to the small business otherwise.

In all circumstances, a properly written premarital agreement could protect against such claims.

A postnuptial agreement can also assist with changing the rules regarding income from the separate property business.  Many business owners do not realize that income from their separate property is generally defined to be community property.  A properly written postnuptial agreement can change that default rule to allow all income from the separate property business to be defined as the separate property of the spouse who owns the business.

Prenuptial agreements and postnuptial agreements are but just a few ways in which small businesses may be protected in a Texas divorce.  If you would like more information on how you can protect your business, contact our Houston divorce attorney, Bobby L. Warren at 713-579-9702.

Creative Use of Texas Temporary Orders

In my experience, temporary orders are one of the more underutilized tools available to parties going through a divorce in Texas or perhaps struggling with a child custody dispute in Texas.

In essence, temporary orders are exactly what they sound like – orders made by a Texas court on a temporary basis in order to provide some stability and predictability while a case is still pending.  When I say that such orders are “underutilized”, I don’t necessarily mean that parties don’t seek them when they should.  Instead, I mean that people don’t fully appreciate all of the options available in temporary orders.  While there are the obvious provisions concerning conservatorship, access and possession, as well as child support, there are other provisions available for use in temporary orders.

For example, temporary orders can often be used in order to cause a divorce or child custody matter to move along more quickly than it would without such orders.  In Harris County, Texas, depending on the family court you’re assigned to, it often takes several months after your filing date to receive a trial date. That trial date will likely be scheduled anywhere from 3-6 months out.  As any Houston divorce attorney will tell you, that trial date will likely be reset for another 90 to 120 days unless the parties have reached a settlement.  “Why?” you may ask.  Due to the substantial volume of cases in Harris County family courts, divorce and child custody disputes generally become backlogged, with the older cases taken up for trial before the newer ones.  The courts hope that by setting a trial date sooner, the parties will be encouraged to settle sooner.  If they do not, the court simply resets the trial date once its two week trial docket is full of the older cases.

How, then, can you as a litigant in this process, move the case along more quickly?  By proposing and entering into temporary orders with the other party, you can agree to be ordered to mediation well before the trial date.  Obviously, you will want to collect information you need in order to evaluate the marital property, as well as identify and value community assets.  Temporary orders can assist you with that task as well by establishing temporary orders which require the parties to exchange a sworn inventory and appraisement within a specified period of time (60 days is customary).  By requiring an early exchange of inventories, coupled with mediation shortly thereafter, you substantially increase the chances of settling a divorce case within a few months instead of waiting nearly a year to be called to trial.

In addition to inventories, parties can agree to exchange other documentation as part of temporary orders.  One very common set of documents ordered produced as part of temporary orders are income tax returns and paycheck stubs.  These are essential to establishing the amount of child support to be paid by the non-possessory conservator.

Finally, temporary orders can also be used to order the sale of certain assets before a divorce is final.  Most commonly, this means the sale of the marital residence.  Too often we purchase homes assuming the best case scenario – the continuation of a happy, healthy marriage.  When this plan doesn’t go as intended, my clients often find themselves with a home they cannot pay for themselves.  Selling the home is a frequent solution to this problem.  I have often drafted temporary orders which provide for the orderly and fair sale of the marital residence, with the proceeds divided up between the parties in a fair and equitable manner.

If you’re wondering whether seeking temporary orders are appropriate for your particular case, give our Houston divorce attorney, Bobby L. Warren, a call at 713-579-9702.

How to Prepare for a Divorce in Texas

While going through a divorce in Texas is never a completely seamless process, there are a few steps you can take in order to make the process a bit easier.

Much of the preparation for a divorce is centered on collecting documents and preparing yourself financially.  First, you should attempt to gather as many of the following documents as possible:

  • Income tax returns for the last five years
  • Income reporting statements (W-2, 1099, K-1, etc.) for both you and your spouse for the last five years
  • Paycheck stubs for both you and your spouse for the last three months
  • The three most recent statements for all debts owed by either you or your spouse
  • The most recent statement for any retirement funds (401k, IRA, etc.) owned by either you or your spouse
  • Any Social Security Administration statements for you or your spouse
  • Any deeds and closing files for any real estate owned by you or your spouse
  • Any titles for any vehicles owned by you or your spouse
  • Any appraisals of any property owned by you or your spouse

While this list is not exhaustive, it is a good starting point for evaluating the various marital estates involved in your divorce.  If you cannot obtain copies of these documents prior to filing your divorce in Texas, that is fine as well.  Most of these documents can be obtained from your spouse or from third parties once the divorce proceeding have been initiated in a Texas court.

In order to prepare yourself financially for a divorce, you should ensure you have sufficient funds to pay for attorney’s fees.  It is very difficult to judge exactly how much your divorce may cost, particularly at the very beginning.  If you anticipate a fight from your spouse from the very beginning, you should be prepared to have between $5,000 and $10,000 before filing for divorce.  This is particularly true if you have children.  If you anticipate reaching an agreement early on, $2,000 to $3,000 should be sufficient.  Also, don’t assume that you will not need more funds later on.  Begin making plans now for the possible need to pay more attorney’s fees later on.  Many of our Texas divorce clients find that having a very frank discussion about your finances with family and close friends can often lead to the financial assistance you need in order to make it through this very tough time.

Also, if you maintain a joint bank account with your spouse, open up a new checking account early on.  If you receive your paychecks from your employer by direct deposit, find out what process is required in order to redirect your paychecks to a different account.  Ensure that by the time you file for divorce in a Texas court, your paychecks are going to the new account to which your spouse has no access.

A critical mistake some parties make early on in divorces in Texas is leaving their spouse with absolutely no funds in joint bank accounts.  Generally, you should only take from the account what you will need in order to meet your immediate financial needs, including renting a new home and paying a retainer to your attorney.  Courts do not look kindly upon parties who take all of the money and run.

If you have questions about how you can properly prepare for a divorce in Texas, just give our Houston divorce attorney, Bobby L. Warren, a call at 713-579-9702.

An Unusual Claim of Hidden Assets in a Divorce

Fridays are always a good time for blog posts with a bit of humor.  I previously discussed the importance of having an inventory in a Texas divorce in order to catalog assets, and some of the techniques Texas attorneys may use to find hidden assets when they aren’t voluntarily disclosed.  I’m not sure I would be prepared for this particular omission from an inventory, however.

A wealthy hedge-fund boss is suing his poker-pro ex-wife for a reason that would be like a stiletto to the heart of any pump-crazy New York gal — her shoe collection.

Daniel Shak claims Beth Shak never told him about her stockpile of 1,200 pairs of designer shoes when they divorced three years ago.

The finance titan, who had shared a Fifth Avenue pad with Beth, claims that she hid the collection from him — possibly in a “secret room” — and that its value may entitle him to hundreds of thousands of dollars more in their divorce settlement.

While it may seem petty to argue over a bunch of shoes, the husband in this odd scenario estimates the shoe collection to be worth approximately $1 million.  That’s a lot of very expensive shoes.

No matter whether we’re talking about designer shoes or stock in a designer shoe company, it is important to protect yourself as much as possible from such omissions.  An inventory gives you a great starting point in a Texas divorce in order to ensure that both spouses are making a full disclosure as to all of their assets.  In the event a spouse fails to disclose certain assets in an inventory, Texas law allows the innocent spouse to ask for a division of that asset.  In some cases, a Texas court can determine whether the failure to disclose the asset was willful, thereby allowing the court to award a disproportionate share of that asset to the innocent spouse.  Without an inventory, however, it becomes much more difficult to prove a failure to disclose, much less a willful failure to disclose.

If you’re concerned about whether you have full disclosure of assets in your divorce, contact our Houston divorce attorney, Bobby L. Warren, at 713-579-9702.

Using Electronic Evidence to Find Hidden Assets in a Divorce

In various areas of law, the use of electronic data in court has grown by leaps and bounds.  Certainly the same can be said for divorce litigation.  The Wall Street Journal recently published an article discussing the use of technology to find hidden assets, particularly money being socked away:

Sometimes, uncovering mischief just takes some basic electronic detective work. Thomas Burrage, an Albuquerque, N.M., forensic accountant, had a client who asked her husband, from whom she was getting divorced, if he’d get a pension from his company. The husband said that he wasn’t sure. Mr. Burrage did a quick search on the company website and discovered the husband was in fact eligible for a large pension—something he had hidden from his spouse for more than 14 years.

Scott Maier, a forensic accountant in East Hanover, N.J., recently searched a free public database and discovered that his client’s husband owned real estate in another state. Another simple Google search discovered a client’s husband had sold his company for millions of dollars when he had told his wife it had no value.

Spouses are also doing basic detective work themselves. Gordon Cruse, a San Diego-based family lawyer, has seen spouses discover hidden assets by looking through the browsing history of the family computer and finding things like visits to bank websites where the couple doesn’t have an account.

The article also warns against the perils of attempting to use illegal or less than honorable means of collecting evidence, such as using keystroke logging programs or hacking into a spouse’s e-mail or Facebook account.  There are more than enough legitimate means of uncovering hidden assets in a divorce without resorting to these tactics.  Moreover, in Texas, the rules for discovery allow litigants in a divorce to request electronically stored data from the other party.  There’s no need to hack into someone’s account to obtain information when all you need to do is demand it from them through formal discovery requests.

Our office is prepared to use any ethical and legal means of discovering hidden assets in order to ensure that our clients receive all marital assets to which they are entitled.

The Importance of an Inventory in a Divorce

One of the most frequently overlooked aspects of uncontested divorces is the importance of a sworn inventory and appraisement.  Often times, my clients are seeking a quick and easy way to dissolve their marriage and move on with their lives.

I am always quick to ask a set of very simple questions, “Are you fully aware of all assets and liabilities belonging to your spouse?  How can you be certain?”

Most people are caught off guard.  They readily assume that their spouse disclosed all of their assets during the marriage.  Unfortunately, some people discover well after their divorce that their spouse was, in fact, hiding assets.  Sometimes this discovery is far too late.

Although it will not completely prevent the concealment of marital assets, insisting on an exchange of sworn inventories and appraisements can provide some form of safety net against this sort of situation.  It is an essential part of any Texas divorce lawyer’s toolkit.  Put simply, a sworn inventory and appraisement is a document completed by each spouse in which they list, in great detail, all assets and liabilities owned by either party.  In this document, they also provide an opinion as to the value of the asset or the amount of the liability, as well as an opinion as to whether it is community property or separate property.  Finally, the document is accompanied by a sworn verification in which the person completing the document swears, under oath, that the inventory is a complete and accurate summary of all assets of which the person is aware, to the best of that person’s abilities.

Another benefit of a sworn inventory and appraisement is that it helps each party sort through their assets and ensure that they do not forget to list the most important assets in their divorce decree.  Also, if there is any question as to whether a particular division of the community estate is fair and equitable, the values provided in the inventory can be of assistance to the attorneys to calculate the net value of each party’s share of the community estate and compare those values.

If you have further questions about obtaining a divorce or how an inventory may help you to prepare to divide your assets with your spouse, give our office a call at 713-579-9702.  We’d love to be your Houston family lawyer.