How Are Assets Split In A Divorce?
Divorce is never fun. It’s the culmination of a lot of hard decisions, and there’s usually some degree of disagreement about what to do with assets that are jointly held.
If you want to know what your rights are for property division in Texas, this blog post is for you.
Find out how assets are split in a divorce in Texas, including what types of property are divided, who keeps what, and the role faults play.
What is community property in Texas?
In the United States, community property laws are determined at the state level. Currently, there are nine states that have community property laws in place: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Under community property laws, all property and debts that are acquired during a marriage are considered to be jointly owned by both spouses. This means that if the marriage ends in divorce, the property and debts will be divided evenly between the two parties.
Community property laws can have a big impact on how property and debts are divided in a divorce.
Texas is a community property state, which means that all assets and debts acquired during the marriage are considered to be jointly owned by both spouses. This includes all income, whether from employment or investments, as well as any debts incurred during the marriage.
There are some exceptions to this rule. For example, if one spouse inherited property or received it as a gift, that spouse may be able to keep that property separate from the community estate.
Similarly, if one spouse had debt solely in their name before the marriage, that debt will not be considered part of the community estate.
What is separate property?
In Texas, separate property is anything that either spouse owned before marriage or that was inherited by one spouse during the marriage.
Property purchased with separate funds during the marriage is also considered separate property. Generally, any increase in the value of the separate property during the marriage is also considered separate property.
If you want to keep your separate property in a divorce, you will need to be able to prove that it is indeed separate property. This can be done by keeping good records and documentation of all separately owned property, including any inheritances, gifts, or purchases made with separate funds.
How will community property be split in a divorce?
In Texas, community property is generally divided evenly between spouses at divorce. This means that each person gets half of the community assets and half of the community debts.
This is generally applicable in a no-fault divorce.
In Texas, it is possible to file for a no-fault divorce where you do not have to prove that your spouse did something wrong in order to get a divorce. You can simply file for divorce and cite any of these three reasons as a ground for divorce:
- irreconcilable differences
- living apart for three or more years
- mental illness that requires hospitalization
However, there are also fault-based grounds for a contested divorce including:
- Felony conviction
In case of wrongdoing such as felony or adultery, the at-fault spouse may not be entitled to an equal share of the community property. Additionally, if one spouse has abused the other spouse or their child, the court may award a larger share of the community property to the victim.
In Texas, the court will look at a number of different factors when dividing up community assets in a divorce. These include:
- The earning capacity of each spouse. This includes things like education, job skills, and work experience.
- The age and health of each spouse.
- The needs of any children from the marriage.
- Any special circumstances that may exist, such as one spouse being unable to work due to disability.
This is where the skills of an experienced attorney come into the picture. They can help you protect your rights and interests if you believe you deserve a larger share of the community property.
Dividing employment and pension benefits
In Texas, both retirement and employment benefits are considered assets that can be divided in a divorce. This includes pensions, 401(k)s, and other similar retirement accounts. As for employment benefits, these would include things like health insurance and stock options.
When a couple divorces in Texas, the court may issue a Qualified Domestic Relations Order (QDRO) to divide the pension and retirement benefits of one or both spouses. A QDRO can be used to divide any type of retirement account, including 401(k)s, pensions, and IRAs.
In order to be valid, a QDRO must meet certain requirements set forth in the Texas Family Code. For example, the QDRO must:
- Be in writing
- Be signed by the parties to the divorce
- Be approved by the court
- Include specific information about the retirement benefits to be divided
- Be approved by the ERS (Employee Retirement System of Texas)
Once a QDRO is issued, it must then be submitted to the retirement plan administrator for approval. Once approved, the administrator will then make the necessary changes to the account(s) in accordance with the QDRO.
How is a professional practice or business divided?
Much like in other states, businesses owned by either party in a divorce are subject to division during property settlement proceedings. The court will first consider whether the business is a community or separate property.
If it is community property, then the court will divide the business equally between the divorcing spouses.
If the business is considered separate property, then the court will not divide it unless there is a compelling reason to do so. These reasons can include fairness or preventing one spouse from being unduly burdened financially.
Before the business or practice can be divided, it is necessary to determine its value. The value of a business for purposes of division in a Texas divorce is determined by its fair market value.
There are a number of ways to determine the fair market value of a business, but typically it is done through appraisals by experts in the field. These appraisers will consider factors such as the value of the business’s assets, its earning potential, and any goodwill associated with the business.
Typically, experienced Richmond TX attorneys work with appraisers or real estate professionals who will factor in available inventory, buyer demand, expected economic benefits, and other market dynamics to arrive at a value.
When a closely held business or professional practice has to be divided in a Texas divorce, the court will consider the factors set forth in Section 7.05 of the Texas Family Code. These factors include:
- The date of establishment of the business or practice
- The value of the property to each spouse.
- The contribution of each spouse to the acquisition, preservation, or appreciation of the property.
- The source of capital used to start the practice or business
- The duration of the marriage.
- The child-rearing responsibilities of each spouse.
- The physical and emotional condition of each spouse.
- The financial resources of each spouse (including income, earning capacity, debts, and expenses).
- The contribution by one spouse to the education or earning capacity of the other spouse (such as by paying for schooling).
- Whether either party has been convicted of an act of family violence during the marriage
- Whether either party has committed adultery during the marriage.
In some cases, it is possible for the parties involved to continue to jointly own the business after a divorce.
Alternatively, one spouse can opt to buy out the other’s share of the business. This is the ideal option if the one buying has enough cash available to complete the buyout.
Yet another way to divide the business is where the buying spouse can offer other assets in exchange for keeping the business. These can include equity, 401(k), or securities.
Complexities often arise when the business is owned by a separate legal entity such as an LLC or a C-Corporation with multiple stakeholders. It can also be challenging to divide a family business that typically has emotional elements in addition to financial considerations.
What is the “just and right” division of marital assets in Texas?
Just and right division of marital assets in Texas is based on the factors set forth in Chapter 7, Section 7.001 of the Texas Family Code. These factors include:
- The length of the marriage
- The age, health, employment history, earning capacity, education level, and financial resources of each spouse
- The couple’s standard of living during the marriage
- Whether either spouse has committed adultery or engaged in other marital misconduct
- Each spouse’s contributions to the marriage (including homemaking, child care, education, career building, and financial support)
- Each spouse’s dissipation of marital assets (such as wasteful spending or destroying property)
- Whether either spouse has been convicted of a felony or misdemeanor offense
- Whether there are any children born of the marriage and whether they are minors
- Special needs of children
- The relative custody arrangements for any children born of the marriage
- Any written agreement between the spouses regarding the division of their property
Converting separate property to community property
In Texas, the court presumes that all property acquired by either spouse during the marriage is community property. Community property is jointly owned by husband and wife and will be divided evenly between the spouses in a divorce.
In some cases, separate property can be converted into community property.
To do this, the spouses have to sign a community property conversion agreement, a legal document that shows the intention of the parties to convert their community property into separate property.
There are certain requirements that must be met in order for a community property conversion agreement to be valid in Texas.
First, the agreement must be in writing and signed by both spouses. Second, the agreement must identify all of the couple’s community property, including real estate, personal property, bank accounts, and other financial assets.
Third, the agreement must state how the couple’s community property will be divided between them. In addition, the language used in the agreement must be specific and clear.
Above all, the agreement is only enforceable if it was voluntarily entered into by both spouses and if each party has clearly understood the legal consequences of the property conversion.
Once a community property conversion agreement is executed, it is binding on both spouses and cannot be changed or revoked except by mutual agreement. This type of agreement can be very helpful for couples who are going through a divorce and want to divide their assets in an orderly and fair manner.
Will ‘faults’ affect property division in a Texas divorce?
Even in a fault-based or contested divorce, the property is generally divided according to the rules of community property.
The court can consider several factors in dividing community property, including:
- The length of the marriage
- The age and health of each spouse
- The earning capacity of each spouse
- The education and employment history of each spouse
- The contributions each spouse made to the marriage (including homemaking and childrearing)
- The relative needs of each spouse
Generally, a court can award a higher share of the community property when there is a significant difference in the spouses’ experience, skills, earning abilities, and education. If one spouse gets the custody of children, for instance, the court can award the custodial parent a higher share of the property.
Faults such as adultery may or may not play a huge role in how the community property is divided. However, a felony conviction, cruelty, and adultery can affect other matters such as child custody and spousal alimony.
The accusing spouse, in this case, has to prove that the other spouse committed these wrongdoings in order to get a higher share of assets.
How can a Texas divorce attorney help you with property division?
A divorce attorney can help you with property division in a divorce by:
- educating you on the property division process in Texas
- helping you determine what property is considered marital or separate property
- identifying and valuing all of the assets and debts that need to be divided
- negotiating a fair and equitable settlement with your spouse
- drafting a divorce decree that includes all terms of the property division agreement
- representing you in court, if necessary
If you are going through a divorce in Texas, it is important to have an experienced attorney on your side who can help you protect your assets. With over three decades of experience in family law, The Vendt Law Firm, P.L.L.C., is committed to helping Texas families through divorce, property division, and other family law matters.
To learn more, contact us at (832) 345-9973 today.