Real estate in a Texas divorce - What do you need to know?

I read with interest Jeff Landers’ (@bedrock_divorce) Personal Finance Column on Forbes.com about real estate in divorce. He had seven points that he believes divorcing women need to know about real estate and real estate appraisals. I actually think that his point is relevant whether you are a man or a woman – anyone going through divorce that has real estate needs to be aware of how real estate is handled, especially in Texas since the rules in Texas are a little different than most other states.

In Texas any asset purchased during the marriage is considered community property and is divisible in the final divorce. (Any property purchased before marriage or received through gift or inheritance is separate property. For a discussion on Texas characterization and division in divorce, click How to Divide Marital Property in a Dallas, Texas Divorce.) In reaching a fair division of the marital estate, first the values of the assets must be determines. For real estate, it is always best to get an appraiser to give an opinion of value under the current market conditions.

Landers’ points are:

  • Most real estate appraisals are based on comparable sales.

A real estate appraiser evaluates a property based on the recent sales of comparable properties in the area, considering whether the features of the real estate in question make it more valuable or less valuable than the other properties considered. Some people try to use the tax appraisal value in divorce, but that value may or may not be related to the actual fair market value of a house.

  • Unique features may be evaluated differently by different appraisers.

How the unique features of a property are valued is a subjective standard that can differ from one appraiser to another. Appraisers won’t consider the extravagant window treatments or fancy paint on the walls. Features that effect value include a swimming pool or a 4-car garage. If one side of the divorce gets an appraisal and the other side disagrees, then a second appraiser can be hired. If there is a substantial difference in the two opinions, then a third appraiser can be appointed by a judge to “break the tie”.

  • One woman’s peaceful Zen garden may be another woman’s backyard eyesore.

Like appraisers view things differently, so may buyers. The seller may be really into fruit trees and think the orchard is of great value to the property. A buyer, on the other hand, may find the falling rotting fruit to be an annoyance that attracts critters to the yard. So, a seller’s viewpoint of the value of costly improvements they performed on the house may not be indicative of the value that an appraiser or a buyer may find.

  • Make sure you use an appraiser who’s knowledgable in the local market.

Realtors like to say, “all real estate is local” – that holds true in valuing real estate in a divorce. The local market conditions drive the prices of real estate. An appraiser in Dallas may not be familiar with the under currents of the housing market in Houston to give a fair assessment of value.

  • Real estate values change over time.

Over the past few years we have seen with great emphasis how the real estate market can change over time. Economic factors – like the availability of mortgages, how high or low mortgage interest rates are, or whether the job market is shrinking or growing – affect housing prices. Just because a house was worth something when it was purchased does not necessarily carry over to the present value. Likewise, some cases need to have a historical value to show what the property was worth in the past.

  • Fair market value is only part of the story.

In considering a division of property in a divorce in Texas , finding the fair market value of the property only provides part of the information needed. The mortgage balance is also important to know, which then provides the equity position in the property.

  • Equity in the property is not the same as money in the bank.

Obviously, you can’t spend home equity at the grocery store or use it to pay the electric bill. So, different spouses may have different priorities in achieving a fair division of property. One spouse may have more interest in spendable cash; where another spouse may be more interested in the long-term equity of the real property. But, even if the house gets sold for more than was paid on it, there are tax considerations to take into account. If the house appreciated in value since it was purchased, there may be capital gains taxes to pay. This will decrease the cash available to spend.

Photo Credit: © Remygerega | Stock Free Images & Dreamstime Stock Photos

Happy Birthday Recently Divorced Buzz Aldrin

Yesterday was Buzz Aldrin’s 83rd birthday and what better time than now to discuss his recent divorce from his third wife, Lois Driggs Cannon.  According to numerous reports including the Huffington Post article Buzz Aldrin And Ex-Wife Lois Driggs Cannon Settle Their Divorce, Lois is receiving one-half of Buzz Aldrin’s fortune. 

After 23 years of marriage, the parties signed their settlement agreement on December 28, 2012.  Lois is reportedly receiving one-half of their bank accounts, $9,500.00 per month in spousal support, her automobile, and 30% of Buzz Aldrin’s annual income.  

In a divorce in Texas, property division can be quite complicated when you have an estate the size of the Aldrins as well as the length of their 23 year marriage.  Texas does have spousal maintenance.  The laws changed recently with regards to the amount of monthly spousal maintenance as well as the length of time for the spousal support payments.  

There are numerous factors the Court considers when deciding if to award spousal maintenance to a spouse as well as the amount and duration of court ordered spousal maintenance.  Factors include the length of the marriage, the age of the spouses, the education of the spouses, the employability of the spouses, the size of the estate, the monthly reasonable and necessary expenses of the person requesting spousal maintenance, marital misconduct, and family violence. 

The following is a break-down of Texas’ Spousal Maintenance amount and duration:

The amount of Texas Spousal Maintenance is the lesser of the following:

a)         $5,000.00 or

b)         20% of the spouse’s monthly gross income

 The duration of Texas Spousal Maintenance is as follows:

a)         5 years if the parties were married 10 – 20 years

b)         7 years if the parties were married 20 – 30 years

c)         10 years if the parties were married over 30 years.

This is not meant to be a complete discussion of Texas Spousal Maintenance and if you believe you qualify to receive spousal maintenance, you should consult with an attorney.

 

Do Kanye West and Chris Humphries Share More Than Kim Kardashian?

As reported by NBC News, Kim Kardashian and Kanye West (named “Kimye” by the press) entered into a contract over the weekend to purchase a home together in Bel-Air, California reportedly worth $10.75 million. The question discussed amongst the legal community is “What effect does this purchase have on the Kim Kardashian and Kris Humphries divorce?”

As discussed in my blog last week, What if Kim Kardashian Was Pregnant and Going Through a Divorce in Texas?, Kim Kardashian and Kris Humphries are in the midst of a divorce in California. If Kim Kardashian and Kris Humphries were going through a divorce in Texas, Kris Humphries would have an interest in the home purchased this past weekend by Kim Kardashian and Kanye West.

Texas is a community property state. This means that any property acquired during marriage is presumed to be community property and is thus divisible by a Court. Kim Kardashian has entered into a contract to purchase a home. Because this contract was entered into during her marriage to Kris Humphries, even though they are in the process of a divorce, the Bel-Air mansion would be community property in Texas. This means that Kris Humphries would have a legal claim to the Kimye Bel-Air mansion.

It is interesting to see what additional legal issues will arise as a result of the “Kimye” relationship and pending divorce. I doubt this will be the last one.
 

Is My Bonus Community Property?

 

It is beginning to be that time of the year where end of the year bonuses and holiday bonuses are being calculated and given by employers. Knowing whether or not your bonus is something that can be divided by the Court in a divorce in Dallas, Texas will aid you in your property settlement and plans for the immediate future.

What differentiates bonuses and whether or not the bonus is considered community property and thus divisible by the Court or your separate property and awarded solely to you is the purpose for the bonus. If you are being paid a bonus for work that you performed during the marriage, that bonus is community property and thus divisible by the Court. Even if you receive the bonus a few months into the next calendar year and/or after your divorce has been finalized, it is still community property if the bonus was for work performed during the course of the marriage.

If your bonus is conditioned only upon work in the future and your work in the future occurs after your divorce, then your bonus will be considered separate property and thus solely yours. 

Employers usually provide documentation as to the benefits they provide to their employees. If your spouse is entitled to receive a bonus, it is important to receive your spouse’s employer’s benefits information during the divorce process so that you can anticipate whether a bonus will be received as well as the purpose for the bonus.

 

The Inception of Title Rule - A Primer.

Frequently I receive a lot of questions regarding how to prove the character of a certain piece of property.  Recall that community property in Texas is defined in the negative as all property acquired during the marriage except through gift, devise or descent.  Thus, community property is pretty much every piece of property obtained during the marriage what wasn't gifted or inherited to one particular spouse.  Separate property is property that does not owe its existence to the marriage.  Put another way, everything that is not community property is defined as separate property, including property which was owned prior to the marriage. 

Under the Texas Family Code there is a statutory presumption that all property owned by either spouse during or upon dissolution of marriage is community property.  See Tex. Fam. Code Sect. 3.003(a).  Once it is established that property is in the possession of either spouse, there is a presumption that the property is community property and belongs to the community estate.  In order to over come this presumption, a spouse is required to show through clear and convincing evidence that the property is not community property. 

One of the ways spouses frequently show that property is not community property is to rely on the inception of title rule.  Under the inception of title rule, a property's character is based on the time and manner in which a person first acquires an interest in the property.  Generally, if a person first acquires an interest in the property before marriage, the property is considered separate property; if a person first acquires an ownership interest in the property during marriage, the property is considered to be community property.  Once the character of the property is established under the inception of title rule, that character will not change because of mutations in the property's form.  For example, if the property was sole or exchanged for other property. 

By way of example, the inception of title rule provides that the day the interest is earned in an bank account is the crucial date which decides whether the property was owned prior to marriage.  Therefore, if the interest in the bank account was earned prior to the date of marriage, then under the inception of title rule, the bank account interest earned (as of that date) would be considered separate property.  Another example might also be helpful.  Assume a car was purchased on the eve of marriage.  Under the inception of title rule, the car would be characterized as separate property because its title pre-dated the marriage. 

Where things can get a little tricky is what happens when the separate property goes through mutations during the marriage.  Here, we have to apply the concepts of tracing to the inception of title rule in order to determine the correct characterization of the property.  Although the concepts of tracing could encompass volumes of other posts, simply put tracing follows the changes of the original property to its current state.  So, if the bank account that was opened prior to marriage was closed out to purchase a car during the marriage, and the tracing concepts are satisfied, then the care would remain separate property under the inception of title rule and tracing concepts.

 

 

Question to Dallas Divorce Lawyer: My spouse got in a car wreck, can they take my separate property?

Recently I had a potential Dallas divorce client present the following scenario to me.  Wife was involved in an at-fault car accident.  Wife is sued by the other driver.  Husband is concerned that the person his wife was in an accident with will go after "all" the property they own, even husband's prized baseball card collection he had before marriage.  The question then became, can they take my separate property for my wife's negligence?

There are two steps for determining what marital property can be seized and sold to satisfy a liability created during marriage.  First, determine whether the property in question (to be seized) falls within an overall class of marital property that would be liable for or exempt from seizure under the Texas Family Code

For a debt arising out of a tort (in this case negligence in a car wreck) the at-fault spouse's separate property can be seized to satisfy the debt.  In contrast, the separate property of the not-at-fault spouse (in this case, Husband's beloved baseball card collection he owned prior to marriage) is not subject to seizure to satisfy the debt arising out of the tort.

So, bottom line, the answer is NO.  The separate property of a not-at-fault spouse is not subject to seizure for a liability arising out of a tort committed by the other spouse. 

Alter Ego and Piercing the Corporate Veil in the Context of Divorce

Businesses can pose special challenges upon divorce. As Dallas divorce attorneys, we deal with these issues in many of our cases, with businesses acquired during the marriage and also businesses owned by one spouse before marriage.

Texas law typically treats corporations, partnerships, and other types of businesses as a separate legal entity – existing apart from shareholders and partners. Because these businesses are separate legal entities, only the spouse’s interest in the corporation, partnership or other business is up for division by the divorce court. This means that specific corporate assets are often off-limits in a divorce action. But, there is an exception to this rule when alter ego can be established.

If the business is found to be the “alter ego” of a spouse, divorce courts can “pierce the corporate veil” to move assets out of the corporation and divide them between the parties as part of the shareholder's community estate. A finding of alter ego sufficient to justify piercing in the divorce context requires the trial court to find:

 

 (1)       unity between the corporation and the spouse such that the separateness of the corporation has ceased to exist, and

 

(2)        the spouse's improper use of the corporation damaged the community estate beyond that which might be remedied by a claim for reimbursement.

 

The concepts of alter ego and piercing are applied in divorce cases to achieve an equitable result, that is, a just and right division of the marital estate. Generally, the divorce court will pierce to avoid leaving the community estate with virtually no property.

 

Whether you are a business owner, spouse of the business owner, or the attorney representing either party, when a business interest is part of the community estate, or owned by one spouse during the marriage, keep the equitable principles of alter ego and piercing the corporate veil in mind when evaluating the strategy for a divorce proceeding.

How to Divide Marital Property in a Dallas, Texas Divorce

Part of any divorce in Dallas Texas is dividing the marital estate. A marital estate includes both the assets and debts that are considered community property and does not include any separate property assets of either spouse.

1.  Identify the property.

The first step in dividing the marital estate in a divorce is to identify all of the property that either spouse owns, without regard to when or how the property was acquired.

2.  Characterize the property.

The second step in dividing the marital estate involves characterizing the marital property as either community property or separate property. Community property includes any asset that was obtained during the marriage. For example, a person's earnings received during the marriage are community property so anything purchased with those earnings would also be community property. Any asset owned before the marriage or acquired through gift or inheritance would be that spouse's separate property and would not be subject to division by the divorce court. Likewise, any debt incurred during the marriage based on the spouse's credit would be a community debt. Any debt that was obtained prior to the marriage or during the marriage but where the creditor agreed to look only to the spouse's separate property for satisfaction, the debt would be separate.

3.  Value the community property.

Before a court -- or the parties in negotiations -- can assess whether a division of the marital estate is "just and right" under the law, a value must be assessed to each asset. For example, a residence or antique collection may need to be appraised. Often the marital estate will own an interest in a business entity, so the business entity will need to be valued. Pension plans can be troublesome to value because of the future time value of money. Debt values also need to be obtained.

4.  Undertake a just and right division of the community estate.

The legal standard for division of property in Texas is that the division must be "just and right". The courts are required to begin with a 50/50 division of the entire estate (assets and debts) and adjust from there based on whatever equities exist in a particular situation. Such equities may include that one spouse has a disability, or the other spouse has much greater earning capacity. Custody of children and the size of a spouse's separate estate can also be considered. The division does not have to be half of each asset. Much like a balance sheet in the business context, one asset can be awarded to one spouse and another asset can be awarded in its entirety to the other spouse with an adjustment for the value of each asset. Also, one asset may not be worth the same to a particular spouse as another asset. One spouse may value cash in the bank more highly and the other spouse may value maintaining retirement assets. All of these factors must be considered in the division.
 

Fair market value vs. Intrinsic value: Which one to use?

I received a question from a client today asking how the court would determine the value of the piece of property in the community estate.  Often times, the parties will litigate over the value of a piece of property, so it is important to know how, in the absence of an agreement, the court will determine a property's value.

As a general rule, property is valued according to its fair market value as of the date the marriage is dissolved.  Texas courts have routinely defined fair market value as the price the property will bring when it is offered for sale for one who desires, but does not need to, sell, and is bought by a person who desires, but is not required to, buy.

If a piece of property doesn't have a fair market value, the property can be valued using its intrinsic value.  The intrinsic value of property is the actual monetary value of the property's use to the owner, excluding any fanciful or sentimental consideration.  In determining intrinsic value, the fact finder cannot consider any evidence of the property's fair market value, but can consider the property's original purchase price, its replacement cost, its uses, and any other facts that might shed light on its intrinsic value.

In sum, the majority of the time the court will determine value by using the fair market value approach at the time the divorce is granted.  Obviously parties frequently have differing opinions as to property values, but using the fair market value approach is a relatively objective means to obtaining a value.

'Til death do us part, or until I sue you.

On July 8, 2009, the Tyler Court of Appeals affirmed a judgment for monetary damages in favor of one spouse against the other.  In Colvin v. Colvin, the husband sued his wife for personal injury damages caused by his wife in an automobile collision.  Wife was the driver of a car and the husband was the passenger.  Wife and a third party were in a collision, third party sued wife, and then husband intervened in the lawsuit and sued third party and wife (husband and wife were married at the time and are still so). 

The trial court awarded damages to husband against wife, and wife appealed.  On appeal, the Tyler Court Appeals affirmed the trial court's ruling.  Interestingly, the Colvin opinion does not mention whether or not husband and wife are still married. 

The Colvin opinion presents an interesting situation.  Under Texas law, community property is divided into two types: (1) joint management; and (2) sole management.  The community property characterization is important because if one spouse is held liable for a tort (i.e. negligence) during marriage, then the court may satisfy the judgment by looking to the community property jointly managed by the spouses as well as the sole management community property of the non-culpable spouse.  In result in Colvin is that in a sense the trial court could look to the community property jointly managed by the husband and wife, and the husband's sole management community property, to satisfy the judgment.  

As a Dallas divorce lawyer, our clients frequenltly are unaware of the concepts of joint and sole management community property.  In a nutshell, if either spouse is held liable for tortious conduct during marriage, then all property other than the non-culpable spouse's separate property may be used to satisfy the judgment. 

Tips to Surviving a Divorce

Recently I came across a blog discussing tips to surviving a divorce.  Interestingly, the blog wasn't written by an attorney but the divorce survival tips all come back to one thing - the importance of hiring a good lawyer.  The blog has some good tips that apply to a divorce in Dallas Texas which I will outline in the order they were presented.

  1. Hire a good divorce lawyer.  Hiring an attorney that is compatible with your personality is absolutely critical in protecting your rights and best interests during such a troubling time.  The right attorney serves not only as a mediator but also as an advocate of your interests.
  2. Keep written records of everything.  Keeping a journal of who said what and when often shows which of the parties is more organized.  Also, written records of conversations are helpful during the division of community property.
  3. Keep your cool.  Although this is a stressful time, keep in mind that everything you say or do is going to be looked at under a microscope.  If you lose your cool, you can stand to lose a lot.  Not only in terms of property, but also in custody determinations. 
  4. Read everything.  Obviously, a good attorney will ensure that you understand everything relating to the division of property and custody issues.  However, never assume that just because your attorney reads everything that you are not responsible for doing the same.
  5. No guilt trips.  This ties in closely with number three.  Remember, nobody likes a sneaky, passive aggressive person.  Communicate your concerns to your attorney in a direct manner.  Address any problems as they arise - not after everything has built up and is coming to a head.
  6. Never use children as leverage.  All to often we see clients who put their interests (i.e. revenge) before those of their kids.  Remember that the divorce is not their fault, and that you have absolutely nothing to gain (but very much to lose) by using your children as a bargaining tool.

Although these may seem like common sense, it is easy to forget them during a divorce proceeding.  A good divorce attorney who clicks with your personality will help you remember them.

Our firm would like to help you with your divorce.  We represent people getting a divorce in Dallas, Collin, Denton, and Tarrant Counties in Texas.

 

 

Hidden Assets in Divorce

Frequently we are asked what recourse is available when one spouse attempts to hide assets of the marital estate during a divorce.  Not only is such conduct highly unethical, it is fraudulent as well.  Typically a forensic accountant is called in to help search for hidden assets.  In our experiences, here are some reoccurring methods used to hide assets:

  • Purchasing lavish antiques, artwork or hobby equipment.  Often times property such as this is overlooked and undervalued;
  • Collusion with an employer to delay the payment of bonuses, stock options or raises;
  • Setting up a custodial account in the name of a child;
  • Repaying a "debt" to a family member or friend when such payments were no previously made;
  • Salary paid to a non-existent employee if the spouse is a business owner;
  • Money paid to close friends or family members for "business" services not actually rendered; and
  • Investment in municipal bonds or Series EE Savings Bonds for which no interest is reported on tax returns.

If you suspect you spouse is hiding assets it is a good idea to review all financial records prior to filing for divorce.  If you are responding to a divorce we suggest you retain the services of a qualified forensic accountant.