How to Plan for a High Net Worth Divorce in Texas

At JulianJohnson, P.C., we pride ourselves on our ability to resolve difficult family law matters with genuine care and integrity.

Divorces are stressful, expensive, and difficult for everyone. For high-net-worth individuals (generally considered individuals with liquid assets worth above $1M), there is an added layer of stress and difficulty.

Because so much is on the line for both parties, the steps you and your spouse take in the coming months are going to affect your emotional and financial well-being for the rest of your lives.

Most high-net-worth individuals have so many assets in addition to their income that it is difficult to even know where to begin. Add in multiple streams of income and a business or two, and you are guaranteed to have a longer-than-normal divorce.

This means you need to start getting prepared as soon as possible. It also means your spouse is likely going to do the same. Whether you are the primary source of income or not, you need to make sure you have an experienced attorney on your side to ensure you end up in a good financial position.

However, there are still some things you can do to make sure you are prepared before you even speak to an attorney.

Identify All Your Assets (And Your Spouse’s Assets)

This is the first and one of the most crucial steps of high-net-worth divorce planning. In the beginning, you probably have just a rough estimate of what your total assets and debts are — it is time to get precise.

You need to figure out exactly what assets/debts you own, your spouse owns, and that you own together. You should look into:

Bank account balances
Cash and cash equivalents (e.g. gold and silver)
401(k), IRA, and pensions
Investment portfolios
Real estate
Mortgages
Vehicles/boats/planes/RVs and smaller motor vehicles (e.g. watercraft)
Jewelry and artwork
Furniture
Businesses and business assets (equipment, buildings, land, patents, trademarks)
Intellectual property
Credit card bills
Back taxes
Medical debts and other debts

Once all the assets are accounted for, you can start to get a sense of what will constitute community property according to the state of Texas and what you can reasonably argue is your own separate property.

Assets that constitute community property include (but are not limited to):

Income from employment during the marriage
Real estate and other purchases during the marriage
Growth of investment and retirement accounts that happened during the marriage
Balances from checking accounts regardless of whose name is on it
Business equity that was gained during the marriage

Some jurisdictions will take all community property and split it 50/50, right down the middle, for each spouse. However, in Texas, judges are allowed to use more discretion and separate community property in an equitable way that accounts for each individual’s needs.

If you have been married for a while, the division of assets becomes increasingly difficult to parse out. This is one of the reasons you need a good attorney with experience planning for a high-net-worth divorce —they will understand how your assets are likely to be divided by a judge, including rarer assets, like planes and artwork, that most divorces do not involve.

Over time, most pre-marriage assets, such as retirement accounts, savings, and investment portfolios, will become commingled. You may have received assets during the marriage that are not considered community property, like an inheritance, that were later commingled, which can further complicate what is and is not going to be divided up by a judge.

Figuring out what is what may involve hiring appraisers to get precise value estimates and forensic accountants to get the full-scale picture of what is rightfully yours and what will be considered community property.

This portion of the divorce is going to take much longer than in a standard divorce and will cost more than in a standard divorce as you are having to pay for an attorney to do additional work on top of paying these professionals. You may also have to bring in other professionals, like estate-planning experts, corporate attorneys, real estate professionals, business valuation experts, and more.

What You Can and Cannot Do With Your Assets

It is a bad idea to sell, transfer, or otherwise make changes to your property during a divorce. It may be tempting to move or sell assets, but doing this would reflect badly on you and can ultimately result in an unfavorable judgment.

Most states will prohibit these actions after a divorce has been filed, but even if they occur suspiciously close to divorce filings, that could still be enough for a judge to nullify any asset movement and put them back in the realm of community property.

One thing you can do is liquidate some assets in order to create enough cash to carry you through the divorce.

That does not mean you will get to keep all of it or that it is in any way protected from being considered community property, but ensuring that you have enough money on hand to pay for attorneys, rent, mortgages, and other debts during this time will ease a lot of stress. You just need to be transparent about it.

Child Custody in High Net Worth Divorces

For most people, it would be unthinkable to use children to leverage a spouse for financial gain. Unfortunately, during high-asset divorces, it is not uncommon to see this done.

Agreeing to custody terms should be one of the first things done after a divorce is filed. The longer you wait to come up with a legally binding agreement, the higher the chance that your children can be used against you later on when the issue of asset division is at hand.

Even though you may want to move out as soon as possible, for both financial and emotional reasons, doing so without a binding custody agreement could end up backfiring since opposing counsel can frame this as you not being serious about raising your children (and some judges might agree).

If your spouse is being stubborn and will not agree to fair terms, you can file a request to get a temporary custody order in place.

Get a Good Idea of Your Actual Income

High-net-worth individuals generally have multiple sources of income, and those sources of income may be quite variable from one month or year to the next.

For example, if you own several businesses, and some of those businesses are seasonal, you may earn the majority of your income in only a few months each year. Profit distribution needs to be taken into account, including when and how that occurs.

For C-suite individuals and other executive positions, the majority of income may be in the form of a bonus, stock options, or commissions. Many executives also have other forms of untaxed “income,” like car or expense allowances.

If you run your own business, you might use your business to pay some personal expenses, which may be considered income by some judges.

Most high-net-worth individuals have some form of passive income, including: