Video Transcript: Texas Divorce & Property Division
Dan Couvrette: I am speaking with Brian McNamara, a Texas family lawyer based in Kingwood. He services clients in the whole Metro Houston area and is a highly respected family lawyer. Today, we’re talking about property division in Texas. It’s a very important subject for people going through divorce as they want to know how their property will be divided. We’re going to talk about the things you should do, and the things you shouldn’t do.
Brian, let’s start at the beginning and talk about how is property divided in Texas.
Brian McNamara: At the outset of a divorce, Texas law says we must presume that everything either spouse owns is community property that gets divided. If a spouse can prove the property is separate, it is not divided. Separate properties are whatever existed before the marriage that still exists or can be traced to an existing asset. Anything acquired during marriage by inheritance, personal injury recovery with some exceptions, or a gift is also separate property. Gifts between spouses are separate. Everything else gets divided.
What are some of the terms that divorcing clients are going to hear that they may not be familiar with?
Brian: On the property side of divorce we have tracing, which is where we try to determine how much of an asset could be separate, and how much could be community. For example, if someone had a piece of real estate prior to marriage, but during the marriage, they used community funds to pay down some of the mortgage, then there may be some reimbursement claims.
Reimbursement is where one estate owes the other some money back. It is not tax accounting or traditional accounting – it’s legal. Some CPAs have a little difficulty with this if they’re not familiar with family law. But when we trace an asset, we’re trying to figure out how much of it is separate and how much of it is community. If there’s a claim for money to be reimbursed, you have two separate estates – one for each spouse – and a community estate, which is entitled to reimbursement if any.
Reconstitution of an estate is where a spouse spends money or disposes of an asset inappropriately. The court can reconstitute the estate by putting that money on that spouse’s side of the ledger as if it still existed.
Are there any first steps that you should take if you’re the person filing for divorce?
Brian: One, talk to a family law attorney. This is very important because one of the common mistakes people do is they become what I call a Google lawyer or a Facebook lawyer. They’ll join a group, which might be a California group, and try to figure out how to do a Texas divorce. They can get very bad information from such a group. I highly recommend gathering information and education and learning what you’re supposed to know. If you are building a house, you might want to learn a little bit about building, but you’re going to hire a contractor to answer questions and make recommendations. If you get sick, you’re going to go to a physician. Likewise, if you’re getting divorced, you should see a lawyer early.
Second, if one spouse is thinking about divorce, the other one probably is too, so secure liquidity. If there is money in a bank or money that can be easily removed, secure it. The best way to secure it is to simply move it to an account in your name and then tell your spouse you’ve done it. Tell them, “I didn’t know how you would respond to my moving this money. It is secure. Here’s where it is. It’s in this bank under my name. Here’s a copy of the deposit slip that shows what I’ve put there.” It’s all on the up and up, but it’s securing the liquidity.
Third, you gather at least two years’ worth of documents about what both you own and your spouse owns or owes. A lot of that’s online now. It used to be going in filing cabinets and digging out old bank statements. Since it’s online, you can download and convert the statements to PDFs and save them because your spouse could change the passwords and you will no longer have access. Things will disappear during divorce. If there’s a business, go print the office QuickBooks and keep all that information. You can’t have too much information.
Those would be my initial first-step recommendations.
What are the first steps for the spouse who isn’t filing for divorce?
Brian: It’s a lot of the same things. You may need to involve a therapist, because if you’re not seeking the divorce, you may not want to deal with the divorce. You may want to try to save your marriage – which is understandable, but it can put you at a terrible disadvantage.
You have to see a lawyer quickly; you have to secure liquidity if it hasn’t already been taken or moved; and you have to gather as much documentation as you can.
If you’re religious, you may want to involve a clergyperson who has some therapy training to help you adjust to the fact that you’re going to be in litigation with your spouse. I don’t think most normal humans can make the adjustment from being in a marital relationship – even a bad one – to instantly being a litigant with that person.
What are the top mistakes you see clients making?
Brian: Probably the most common right now are Facebook lawyering and Google lawyering where people decide that they don’t need a lawyer. They think they know how to do it themselves, and they get bad advice. One example is that I’ve been to the dentist many, many times – but I am absolutely not qualified to look inside anybody’s mouth. Just because somebody has been through a divorce or two does not make them an expert on divorce.
Every case is different. It involves anything that people can own or owe. On the property side, we deal with anything you can own or owe, and different estates have different assets and different needs.
The first mistake would be not seeing a lawyer. Another mistake would be fixating on items that will not be important later. Tangible items like a poster for example, or a piece of furniture that is emotionally important. There’s an understandable emotional attachment, but it’s important not to focus on those.
Some people try to do their own property division, and they want to divide each asset 50/50. That’s very inefficient, administratively difficult, and doesn’t really address people’s future needs. If we’re trying to get to a 50/50 division of the estate, we can do that by awarding an entire residence to one spouse and a big chunk of a 401(k) to the other one to get to the same place.
Not following up on closing documents is a big mistake. The judge signs a divorce decree, but we still have to do property deeds if the property is being conveyed from one spouse to the other. We still have to do the post-divorce division of the retirement via a QDRO.
You may have a simple auto power of attorney because the decree says one spouse gets the Jeep. Then they decide to sell or trade in that Jeep two or three years later, and the dealer says, “Your ex-spouse has to sign the title,” and the ex-spouse says, “Is that signature worth $5,000 to you? How badly do you want my signature?” There’s a document that lets you sign a title.
Those things often get overlooked and it’s very important to follow up and get them done. Set aside your anger as much as possible because you can make a very bad deal when you’re emotional.
Is there anything you would tell people who are thinking about or going through divorce regarding the marital home?
Brian: The house is always a substantial portion of the estate, unless it’s all debt because it’s a recent purchase. Realtors, as well as lawyers, will tell you to have a realistic view of the value of your house.
Don’t let the desire to keep the house for emotional reasons lead you to a bad overall deal. I have seen someone’s attachment to their house be so strong that they accepted a very bad division; later, they’d regret it, saying, “I’ve got this huge house note and nothing else. Why did I do that?”
Sometimes people think that they’ll do a line item for divorce, listing their assets and saying, “Here’s the house. I want to give my spouse this much money.” It’s better to do an overall division where we say, “The house goes here.” We’re going to assign it this value and by the time we move other things around and get to the bottom, we’re at our desired percentage
Are there any common errors you see people make when it comes to retirement and QDROs?
Brian: Retirement in the US is complicated. I say it like that because I’ve done several of these for ex-pats who’ve gotten divorced overseas, and the overseas lawyers don’t know anything about our retirement accounts. Most of our employer-sponsored retirement accounts are what’s called ERISA (Employee Retirement Security Act) qualified. That means they’re governed by ERISA, a federal law.
A Qualified Domestic Relations Order (QDRO) tells the plan administrator to carve out a new account for the non-employee spouse and move this much money from the employee spouse’s retirement to the non-employee spouse’s carved out amount with no tax consequences, no penalties, no transfer fees.
I have had people come in who tell me they have it all worked out. “I’m giving my spouse X dollars from my 401(k), and I’ve already withdrawn it out and handed the money to my spouse.” I reply that “There’s a time limit during which the IRS says you can’t put that money back. If we’re within the time limit, we might be able to move the money back. If not, the employee’s spouse is going to get a 1099 and the IRS is going to come looking for a bunch of money for taxes and penalties for withdrawing it. By doing it with a QDRO, you do not pay those.
That’s probably the most common mistake I see people make with retirement. It doesn’t happen often because there’s a lot on the internet about QDROs.
The other mistake is not getting the QDRO started early in the divorce. So they make a deal, sign it, and then they try to get the QDRO done. Then they find that the signed agreement – whether it’s a court order or an agreement – doesn’t include all the necessary provisions. Now we have to try to either reach another agreement or reopen the case – which can be done in Texas. It’s not pleasant. You have to serve your spouse, and you’ve lost a lot of the negotiating leverage you had at the beginning of or during the process. It’s a whole different scenario.
It is important to have a lawyer who knows how retirement and QDROs work because it’s not just about how to write the QDRO. When you’re negotiating the division or presenting it to a judge, make sure the important things are highlighted and included in that division.
People should be using a family lawyer who does this all day, every day – not a lawyer who dabbles in family law. If you’re not familiar with QDROs and retirement accounts etc., you may not think of it until later on in the divorce. This highlights the importance of hiring an experienced family lawyer.
I have had cases with lawyers who do all kinds of work – perhaps because they’re helping a friend – and some of them were just not very nice people. It wasn’t my job to tell them how to do it right. They left with a decree, and I knew there were things that they didn’t know they were supposed to do. I represent my client and if everybody’s getting along, I don’t mind saying, hey, don’t forget, you need to do these things. But they’ve been arrogant, then I’m like, okay, good luck.
Is there anything you would recommend for people who own a business and are getting a divorce? How is a business divided? Is it like every other asset?
Brian: The simplistic answer would be to have a prenup or a postnup that addresses the business. There’s a whole lot of information on my website about prenups because if you have two business partners who are not married, and if they’re going to end that business, it can be smooth. They could agree. One could say, “We’ve always gotten along well, but I want out. Will you buy me out?” And the other says, “I want to keep operating the business. Let’s make it a deal and I’ll pay you X dollars a month for your interest until you’re paid off and it’ll be the supplemental retirement income. Everybody’s happy.
Let’s say one of the business owners is spending too much of the corporate money without consulting their partner first. They just have huge disagreements, and they both say, “I want you out!” and that’s going to be bad litigation.
Now put a marriage and divorce on top of that partnership. There’s no simple answer. Gather records, print all of the QuickBooks, or copy the QuickBooks to the cloud or jump drive or whatever. Copy everything because you might find yourself locked out later. They get to work and find all the locks have been changed. The police aren’t going to help.
It is important to get all of the records and see a lawyer who has not just family law experience but business experience too
Are there any mistakes that you see business owners or professionals like dentists or doctors or other people you’ve done divorces for?
Brian: They sometimes assume divorce is simpler than it is. They think that they don’t need a lawyer – that they already know how to do this. Obviously, I don’t agree with that, and I’ve had this conversation with physicians, dentists, and engineers about how I’m not going to try to set a broken bone or pull a tooth or build a bridge. Why do they think they can do a divorce?
In Texas, professional licenses are separate property. The business may be community but a physician’s license, for example, is not community property. If a doctor is representing themselves against a spouse who has a lawyer, they could end up having to pay way more for than they should for the rest of their life have because they think the other spouse is entitled to a piece of the income from their degree because they were married while they went through medical school.
In terms of other business owners and professionals, the biggest mistake – and the hardest to overcome – is letting emotion get involved. If your spouse is involved in the business, divorce-related emotions sometimes causes you to make mistakes. You may take money you shouldn’t take. You start dragging customers into their divorce by saying, “You need to deal with me – not my spouse,” and the customers who don’t want to do that end up running off to a new business, and neither spouse benefits.
The most important thing is to try to set aside your emotions and listen to the advice of a good lawyer who’s not emotionally involved in your divorce.
Is there anything specific about high net worth divorce cases that you think is worth mentioning?
Brian: First of all, it depends on which spouse we represent. A high-net-worth estate is not much different from any other – except that it takes more time to gather information and create a spreadsheet of assets and debts. Sometimes it takes more time to value the debts because there could be a business, there could be real estate, there could be business holdings where they’re part of a real estate investment trust. It takes a while to figure out the value. It is better to divide a net positive estate than a net minus. When Jeff Bezos got divorced, I’m sure it was easy for his wife’s lawyers to say, “I guarantee I’ll get you a billion dollars” rather than tell her, “We’re going to be fighting over how much of this debt you’re going to have to take.”
It really is a question of gathering information and putting a value on everything initially. The dividing of it, if we can’t negotiate it, we can go to court, we can get experts, we can do all of that.
Regarding high-wage earners, it depends on whether we’re representing the wage earner or the spouse. Some executives have executive retirement plans that are not ERISA qualified. There’s no QDRO and they’re often administered through a different part of the company. So if we send a subpoena to HR, we may not get the information we need. We have to dig a little deeper to find out who administers the executive level plans, and we have to get the plan documents to understand them because they’re not subject to ERISA so they’re very different documents. The same with compensation plans. Sometimes I’ve had to get experts involved just to help me understand the compensation because there’s money coming from different places; some are quarterly, some are monthly, and some are random, and we’re trying to figure out how much this person makes and how often?
It’s not much different from any other asset except that it ends up taking more time to gather information and create the spreadsheet of assets and debts. It takes more time to value the debts because there could be businesses, real estate, and business holdings where they’re part of a real estate investment trust.
How do you help ensure that your clients get their fair share?
Brian: In Texas, most courts will order mediation before trial. Mediation is with a neutral third party, a lawyer and party on one side, a lawyer and party on the other side, and the neutral party tries to help them make a deal. The majority of cases are resolved there.
If you’ve got all the information you need and a good lawyer, then a settlement is usually within the realm of fairness. People can sign off on a bad agreement just to bring the process to an end. It’s broad and subjective because it really comes down to someone saying, “I’m willing to sign this to bring this divorce to an end and move on with my life.” Nobody’s ever thrilled about their divorce agreement. There’s no objective measure.
When you go to trial, you’re getting a judge who brings all of their proclivities and idiosyncrasies to the case. They’ll tell you what you’re getting, which you may think is unfair. The family code says it shall be divided into a just and right division, and that’s pretty vague. I know what a good divorce agreement looks like because I’ve done it long enough.
Brian, thank you for taking the time to talk with me. I want to encourage people who are in the Houston area to check out Brian’s website – www.mcnamaralawyers.com – and more importantly, to contact Brian because you would be very well served by hiring him. He’s an expert in the field who has been doing this work for a long time, and his civil experience really helps in terms of doing divorce work. Brian, it’s been a real pleasure, as usual.
Brian: Thank you, Dan.