High-net-worth divorces in Texas involve significant assets, complex financial arrangements, and potentially high stakes. Avoiding common mistakes is essential to protect your interests and secure a favorable outcome. Here are the key pitfalls to avoid:
- Failing to Understand Texas Community Property Laws
Why It Matters: Texas is a community property state, meaning most assets and debts acquired during the marriage are divisible in the divorce. Further, any income from separate property assets are considered community property as well. In a high net worth estate, it is common for there to several types of assets with different categorizations.
Mistake: Assuming that assets titled in one spouse’s name or under one spouse’s control are exempt from division during the divorce.
Avoid It: Work with an experienced attorney to differentiate community property from separate property which are assets owned before the marriage, inheritances, or gifts. It may also be useful to hire an expert to trace any separate property assets, community property reimbursements, or other issues that might be important to the final division of the property.
- Overlooking Hidden or Undisclosed Assets
Why It Matters: High-net-worth divorces often involve complex financial holdings, such as offshore accounts, trusts, or investments, which can be overlooked or hidden.
Mistake: Failing to perform due diligence on your spouse’s financial disclosures.
Avoid It: Make sure you or your attorney are doing formal discovery or at the very least informally requesting your spouse to disclose all assets under their control. If you feel there might be hidden assets, hire a forensic accountant to uncover all assets and ensure full transparency. You may be able to recover any fees and expenses associated with this additional step in the final division of property.
- Ignoring the Tax Implications of Asset Division
Why It Matters: Not all assets are equal in value after taxes (e.g., cash vs. retirement accounts).
Mistake: Accepting a settlement without considering future tax liabilities.
Avoid It: Consult with a financial advisor or tax expert to evaluate the after-tax value of assets.
- Overlooking Business Valuations
Why It Matters: Businesses are often significant marital assets in high-net-worth divorces.
Mistake: Accepting an inaccurate or low valuation of a business owned by you or your spouse.
Avoid It: Hire a qualified expert who specializes in business valuations to ensure an accurate assessment of the company’s worth.
- Underestimating the Complexity of Retirement Accounts
Why It Matters: Dividing pensions, 401(k)s, or other retirement accounts requires precise legal and financial handling. For example, some types of retirement accounts cannot be divided or transferred to a spouse.
Mistake: Failing to value retirement accounts appropriately, determine their ability to be divided or transferred, or trace any separate property funds.
Avoid It: Ensure that all retirement accounts have been disclosed and valued prior to any final settlement or trial. Also, ensure that the type of account can be divided or transferred if necessary.
- Rushing the Settlement Process
Why It Matters: Divorces can be incredibly difficult which can sometimes make parties feel the need to expedite the process. This might mean overlooking crucial issues that are unique to high-net-worth assets such as having a complete list of all assets, figuring out the true value of all assets, or making sure all foreseeable issues are considered in the division of the assets.
Mistake: Rushing the divorce and overlooking crucial issues that are unique to high-net-worth assets such as having a complete list of all assets, figuring out the true value of all assets, or making sure all foreseeable issues are considered in the division of the assets.
Avoid It: Stay focused on long-term goals, do your due diligence, and be patient to avoid any mistakes that can come from trying to accelerate the process.
- Overlooking Prenuptial or Postnuptial Agreements
Why It Matters: Enforceable agreements can simplify asset division in high-net-worth divorces.
Mistake: Assuming the agreement is invalid or failing to enforce it.
Avoid It: Have your attorney review the agreement to determine its enforceability and application.
- Forgetting About Estate Planning Updates
Why It Matters: A divorce may require changes to wills, trusts, and beneficiary designations.
Mistake: Leaving your ex-spouse as a beneficiary on insurance policies or retirement accounts.
Avoid It: Update your estate plan and financial documents promptly after the divorce.
- Skipping Professional Financial Advice
Why It Matters: High-net-worth divorces involve intricate financial issues that require expertise.
Mistake: Not hiring expert financial advisors that specialize in divorces or relying on an attorney not experienced with high-net-worth estates.
Avoid It: Assemble a team of professionals, including a financial planner, tax expert, and attorney.
- Underestimating Legal Representation
Why It Matters: A high-net-worth divorce demands skilled legal representation familiar with complex cases. There are several issues that are unique to high-net-worth divorces that you or an inexperienced attorney may overlook.
Mistake: Hiring an inexperienced or general practice attorney or trying to handle the divorce without an attorney.
Avoid It: Retain a family law attorney with expertise in high-net-worth divorces in Texas.
- Failing to Secure Interim Financial Support
Why It Matters: Divorce proceedings can take months or years, and you may need financial support in the meantime.
Mistake: Not requesting temporary orders for spousal support or living expenses.
Avoid It: Work with your attorney to secure temporary support if needed.
- Neglecting Privacy Concerns
Why It Matters: High-net-worth divorces often attract public attention.
Mistake: Not taking steps to protect sensitive financial or personal information.
Avoid It: Request the court to seal records or use a confidential agreement incident to divorce to safeguard your privacy.
A high-net-worth divorce in Texas requires careful planning, professional guidance, and a focus on long-term outcomes. At Hunt Law Firm, PLLC, there are experienced family law attorneys who know how to avoid the above mistakes and work with a larger network of expert financial planners, tax advisors, and retirement experts.