Parties must divide their assets during any divorce in Texas. When dividing assets, both parties want to make sure that they are dividing all the assets in the marital estate according to Texas family law. However, in some instances, one party might decide to hide assets that should be divided during the divorce. A spouse might feel that they are entitled to keep a certain asset following a divorce and therefore decides to not disclose the asset. The party might have started hiding assets during the divorce process or during the marriage years prior. The following blog will explore the question: How do I know if my spouse is hiding assets?
Texas: A Community Property State
Before we discuss how to determine whether your spouse is hiding assets, it is important to know what assets you are entitled to in a divorce. Texas is a community property state, which means that anything acquired during marriage (that was not by gift or inheritance) is part of the marital estate. Everything owned by spouses at divorce is presumed to be community property unless it is proven to be separate property. The person asserting that an asset is separate property has the burden to prove that the property is in fact separate.
Separate property is anything a person owned prior to marriage, personal injury settlements, or anything a person received during marriage by gift or inheritance. Texas courts cannot divide someone’s separate property. Rather, the Texas courts just award a spouse their respective separate property in whole.
The line between community property and separate property can sometimes get blurred. For example, one’s income from their job is clearly community property. However, people sometimes forget that income from separate property during a marriage, such as renting out a separate property residence or dividends from separate property stock, is also considered community property.
Even though you may have separate property, it must be disclosed during the divorce process. It cannot be hidden, otherwise you run the risk that the court cannot confirm the separate property as such.
Dividing the Community Estate
Courts normally require that parties attend mediation to attempt to resolve any family law dispute prior to going to court. During mediation, you and your attorney will work with your spouse to try to come to a resolution on how to divide the community estate. The vast majority of divorces are able to reach an agreement during mediation, including cases where the parties had little hope of resolution.
If the parties are not able to come to an agreement, a court will divide their property. Many people incorrectly believe that a court will divide a couple’s property 50-50. In Texas, courts divide property in a just and right manner. There is not exact definition for what constitutes a just and right division. While the division is ultimately 50-50 or close to 50-50, a family law court has the discretion to divide the estate in a manner that they believe is just and right based on the facts of the case.
Creating an Inventory
Now that we have a better understanding of which assets a court can divide and how a court divides assets, we need to discuss how those assets are divided in practice. Your attorney will create something called an Inventory and Appraisement. An inventory is basically a spreadsheet with all your assets and liabilities. This will include both community property assets and separate property assets. The inventory will have a description of the assets, the current value of the asset, and whether or not the asset, or a portion of the asset, is one of the spouse’s separate property.
As part of the divorce, the attorney will work with their client to divide the assets using the inventory. However, as we will discuss more below, it is imperative that all of the parties’ assets are captured in the inventory. If an asset is not included in the inventory, that asset is not likely to be divided during the divorce or confirmed as a spouses separate property asset.
Hiding Assets: Conduct and Review Discovery
The most common way for a party to discover a hidden asset is during the discovery process. Discovery is when you ask the opposing party, in this case your spouse, to produce certain requested documents and answer specific questions. You can do informal discovery or formal discovery. Informal discovery is more cost effective, but oftentimes you are only agreeing to exchange certain documents. This is often accomplished by signing what is called a Rule 11 Agreement where you and your spouse outline the specific documents you are agreeing to exchange with one another. Once signed, the Rule 11 Agreement is filed with the court and signed by the judge.
If you are concerned that your spouse might be hiding assets, it is recommended that you do formal discovery. Formal discovery involves the drafting of more extensive discovery requests that attempt to capture any and all documents that will truly show all the assets in the divorce and gather all possible information to aid the attorney during the divorce process. Once discovery is sent, the other side typically has 30 days to respond. Sometimes you end up getting the same documents during formal discovery as you do during informal discovery, but that is not always the case.
After you receive the documents from your spouse, it is important that both you and your attorney examine the documents. If you are concerned about hidden assets, you want to make sure you pay special attention to all the financial documents your spouse produces during discovery.
Financial Accounts
One thing to look out for is any money transfers to unknown accounts. For example, let’s say your spouse produces a Bank of America checking account ending in x4597 and you notice while looking through the statements for this account that your spouse transfers $500.00 a month to a Wells Fargo checking account ending in x6920. Did you receive a Wells Fargo checking account ending in x6920? If not, then you will want to make sure that your attorney sends a request to your spouse’s attorney for these bank statements. You are likely entitled to the funds in the Wells Fargo account, therefore, that account needs to be included in the inventory.
Income
You also want to make sure that you can account for your spouse’s income. If your spouse receives a paycheck every two weeks, you should be able to identify which account your spouse is depositing their paycheck. Sometimes a person will deposit most of their paycheck into one account which they produce during discovery, but a smaller portion of their paycheck into a different account that they do not disclose during discovery. During discovery, your attorney should request your spouse’s paystubs. Review your spouse’s paystubs in order to identify the exact amount your spouse is receiving each pay period. If the amount in the paystub does not match the amount deposited into the bank account, your attorney can again ask for more financial documents because your spouse might be hiding part of their income in a separate bank account that you are not aware exists.
Brokerage Account
Another way to identify hidden assets is when your spouse sells stocks. If your spouse owns stocks, they should be required to produce statements from their brokerage account reflecting the value of the stocks. Review the brokerage account statements to determine whether or not your spouse has sold stocks. If your spouse sold stocks, for example, for $5,000.00 last year, you should be able to trace where they deposited that $5,000.00. If you are unable to find a bank statement with a $5,000.00 deposit from the time when your spouse sold the stocks, it is possible that your spouse has another bank account that they did not disclose.
Retirement Accounts
Another reason to request paystubs is to determine whether your spouse is contributing to a retirement account. When reviewing the paystubs, try to identify whether your spouse is contributing to a 401(k) account, the most common type of retirement account, or a 403(b) account. If your spouse is contributing part of their income to a retirement account, you are entitled to ask for statements for those accounts because, remember, income is community property. Therefore, the retirement account would also be community property at least in part.
Real Property
If a spouse is hiding an asset, that asset is most oftentimes in the form of a financial account. However, it is possible that a spouse has real property that their partner does not know exists. To determine if your spouse has any real property that they did not disclose during discovery, you can do a real property search with their name in your county’s real property records. If your spouse has any other real property, it should appear on the search of the county’s real property records. Your attorney can then request additional real property documents from your spouse if you discover your spouse owns additional real property documents. As discussed previously in this blog, even if the undisclosed real property is separate property, you are still entitled to any income that real property produced. Furthermore, if your spouse has spent community property funds on the separate property real property then you are entitled to a reimbursement claim. A reimbursement claim would basically mean that your spouse would need to pay back the community estate any community funds that were spent on the spouse’s separate property.
Under Texas family law, a court can still divide an asset following a divorce if the spouse was not aware of the asset at the time of the divorce. However, in practice, it is very hard to divide assets after a divorce because a person would need a lot of proof to establish the existence of the asset and that the asset was community property. The best time to get information about your spouse’s assets, as discussed in this blog, is during the divorce process through discovery. If you think your spouse might be hiding an asset, we recommend talking with your attorney to develop a strategy about how to get the additional information necessary to either confirm or rebut your belief. You do not want to finalize your divorce with any unresolved doubts about your spouse’s assets.