Splitting is complicated. Especially the division of property in a divorce proceeding. A major misconception in divorce is that all property is divided or 50/50. Let us cut to the chase. Neither you nor your spouse is automatically entitled to a numerically perfect half of everything. The Texas Family Code tells us, “In a decree of divorce or annulment, the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage.” In other words, the Court is required to make an equitable division of the parties’ community property. Well, the “equitable” part gets tricky. Equitable does NOT mean equal.
When dividing community property, the Court can consider a variety of factors in making a just and right or equitable division of the community property. Some factors Include, but are not limited to:
- the age and health of each spouse;
- fault in the break-up of the marriage;
- the future earning capacity of each spouse;
- the future needs of each spouse;
- who will have primary possession of the children;
- the size of each spouse’s separate property estate; and
- the debts and liabilities associated with the community property being awarded to each party.
A critical barometer in the division of community property is valuation. The value of property may be determined in a number of ways. In a divorce proceeding, the two standards of value is fair market value or the actual value of the property to its owner. The primary standard of value in a divorce proceeding is the determination of the “fair market value” of the property. “Fair Market Value” means the amount that would be paid in cash by a willing buyer who desires to buy, but is not required to buy, to a willing seller who desires to sell, but is under no “necessity of selling” with both having a reasonable knowledge of all relevant facts. In the event an asset has no fair market value, the secondary standard of value in a divorce proceeding is to determine the actual value to the owner as determined from the evidence. While there are other standards of value such as “book value”, “replacement value” and “intrinsic value,” in a divorce proceeding, the standards of value are fair market value or the actual value of the property to the owner. In addition, when valuing a closely held business using the fair market value standard, there are three(3) primary valuation approaches or methodologies that are normally used. They are the “income approach,” the “market approach,” and the “asset- based approach.” These methodologies do not necessary address the issue of goodwill of a business which can be critical in determining the value of some businesses.
You will need an experienced family law attorney to guide you through this process. Particularly, one that has significant experience and aptitude in dealing with the valuation process, include the standards and methodologies used in valuing closely-held businesses. An attorney without that skill-set may not be able to achieve the appropriate outcome for you.
Thorough preparation and documentation is essential in property division. All types of property should be disclosed. This includes real property, vehicles, boats, trailers, RV’s, farm equipment, bank accounts, financial assets (e.g. retirement accounts, IRA’s stocks, bonds, mutual fund accounts, brokerage accounts and interests in closely held businesses), oil, gas and other mineral Interests, household goods and miscellaneous assets (e.g. antiques, art work, tax refunds, and deposits, account receivables, anticipated bonuses which have been earned but not received during the marriage, patents, copyrights, health savings accounts (“HSA”), and interest in trusts).
There also needs to be a complete disclosure of all debts, including mortgages, car loans, credit card accounts, pledges made to charitable organizations, tax liabilities and other liabilities owed to any individual or business.
In the meantime, really consider, are you truly prepared for divorce? We want to equip you with the necessary details to ensure your experience is less stressful and cumbersome. Download this personal inventory assessment as a check list of information and resources, to gather and document the necessary data and details in order to prepare for the best outcome.
If you have further questions on the characterization and valuation of community property, this link will define that in more detail.