High-asset divorce in Texas: tracing and valuation

Once a business, a stock plan, or twenty years of commingled accounts enters the picture, a Texas divorce stops being about the split and becomes about characterization. Which dollars are separate, which are community, and who can prove which.

The community presumption is why. Everything you hold is presumed community, and getting an asset out of that pile takes clear and convincing evidence. In a large estate, that presumption is worth more than any argument about fairness.

What makes a Texas divorce high-asset?

Not a dollar threshold. Complexity, and it usually comes from one of these:

• A closely held business, a professional practice, or a partnership interest

• Equity compensation: restricted stock, options, or units that vest across the marriage line

• Real property beyond the family home, especially rentals and land

• Separate property that was brought into the marriage and then mixed with community money

• Trusts, whether one spouse is a beneficiary, a trustee, or both

• Deferred compensation, carried interest, or a pension with a survivor benefit

• Assets outside Texas or outside the country

Any one of them puts characterization and valuation at the center of the case.

How do you trace separate property in a Texas divorce?

By following the money from where it started to where it is now, document by document. Family Code section 3.003 presumes that property held at dissolution is community, and requires clear and convincing evidence to establish that property is separate.

Clear and convincing is a real standard. Testimony that "my father left me that money" does not clear it. A probate record, the deposit slip, and the account statements that follow the balance forward do.

Texas courts accept tracing methods worked out over decades of case law:

• Community out first. In a mixed account, withdrawals are presumed to come from community funds before separate funds, which preserves the separate balance as long as the account never dips below it.

• Minimum balance. The lowest balance the account reached after the separate deposit sets the ceiling on what can still be claimed as separate.

• Item tracing. Following a specific asset through its sales and exchanges, which works well for property bought with an identifiable separate deposit.

• Pro rata. Apportioning by the percentage of separate and community contributions, used most often for retirement accounts and life insurance.

Every one of them runs on statements. A missing year in the middle of a chain is usually fatal to the claim, because the presumption fills the gap and it fills it against you.

That work is the part people underestimate. Ten years of statements across four accounts is tens of thousands of transactions, and the tracing has to hold up line by line when the other side's expert goes through it. CounselPro builds the complete transaction history from the statements and links every figure back to the page it came from, so what you put in front of the judge is a trace anybody can check rather than a spreadsheet somebody has to trust.

How is a business valued in a Texas divorce?

By an expert, using one of three approaches, and the choice of approach often moves the number more than any fact in the case.

• Income approach. Capitalizing earnings or discounting projected cash flow. The usual answer for a profitable operating business.

• Market approach. Comparing to sales of similar businesses. Useful when there is real comparable data, which there often is not.

• Asset approach. Net asset value. The usual answer for a holding company or a business that is worth its equipment.

The fights that follow are predictable: the owner's compensation add-back, whether goodwill is personal to the owner or belongs to the enterprise, the discount for lack of marketability, and the valuation date.

Personal goodwill deserves attention in Texas. Goodwill that exists only because of the owner's own skill and reputation is generally not divisible community property, while enterprise goodwill that would survive the owner's departure is. Where an expert draws that line is worth a large share of the valuation.

A business also carries a second question that is worth more than the valuation in some cases: what income does it actually produce for the owner. That number drives child support and any spousal maintenance analysis, and it is proved from the business's own records rather than from its tax return.

What is a reimbursement claim in a Texas divorce?

A claim by one estate against another for money it put in. The three estates are the community estate and each spouse's separate estate, and reimbursement is what happens when one of them pays for something the other one owns.

The common patterns:

• Community income paid down the mortgage principal on a house one spouse owned before the marriage

• Community funds paid for capital improvements to separate property

• Separate funds used to reduce community debt

• One spouse's uncompensated time and effort building a separate property business

Reimbursement is equitable, so the court weighs benefits both ways. The estate that owned the house also gave the family a place to live, and courts offset against that. The claim usually needs its own accounting, and it usually needs the closing documents and years of mortgage statements to prove.

What happens if a spouse moved money before filing in Texas?

Texas treats it as fraud on the community, and the remedy is unusually strong. Family Code section 7.009 defines the reconstituted estate as what the community would have been worth if the fraud had not happened. On a finding of actual or constructive fraud, the court must calculate the depletion, reconstitute the estate, and divide the larger figure just and right. It can award the wronged spouse a share of what remains, a money judgment against the spouse who did it, or both.

Constructive fraud does not require a plan. Large gifts to a family member, community money spent on an affair, or a transfer to a business account nobody mentioned can all support the finding.

What proves it is a timeline: the account it left, the date, the amount, and where it landed. The tools for building that timeline are in the discovery chapter, and the earlier you start, the more of the trail is still reachable.

How is equity compensation divided in a Texas divorce?

By apportioning what was earned during the marriage. Stock, options, and restricted units usually vest over years that straddle the date of marriage or the date the marriage ended, and Texas courts divide them using a time-based fraction that reflects the portion of the vesting period that fell inside the marriage.

Two details cause most of the trouble. Unvested awards can still have a community component, so ignoring them because they are not yours yet is a mistake. And the decree needs to say what happens between the ruling and the vesting date: who holds the shares, who pays the tax, and what happens if the employee leaves.

What experts do you need in a high-asset Texas divorce?

• Business valuation expert. Required for any operating business, and worth having early enough to shape discovery.

• Forensic accountant. For tracing, income determination, and fraud claims. Often the highest-return expert in the case.

• Real estate appraiser. For anything beyond an ordinary home in a liquid market.

• Pension or QDRO specialist. For defined benefit plans, military and government pensions, and anything with a survivor benefit.

• Tax advisor. Because after-tax value is the only value that matters, and a division that looks equal before tax often is not.

• Vocational evaluator. When earning capacity is disputed in a maintenance claim.

How do you protect yourself in a high-asset Texas divorce?

Start with records, before anything is filed if you can. Statements, tax returns with all schedules and K-1s, loan applications, business financials, closing documents, and deeds. Access to accounts often narrows the day a case is filed, and a standing order will limit what either of you can move after that, as covered in the filing guide.

Then get the case's temporary orders right. The power to order a sworn inventory, to appoint a receiver, and to restrain transfers all sits in the first hearing rather than the last one, and the money you protect in month one is money nobody has to trace in month twelve.