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13 April 2023

Complex Asset and High Net Worth Divorce Cases

All family law cases are not created equal; some divorces can me more complicated than the average divorce. Complex asset and high net worth divorce cases can complicate a divorce by requiring consideration of numerous issues early in, and thoroughly throughout, the divorce process. With the wealth of assets (pun intended) that are out there, and the number of other issues branching out from high asset divorces (some of which we'll identify below), it is important to have an experienced family law attorney to navigate the complex financial issues in your case, and have the expertise to simplify and effectively present complex topics to the other side for settlement negotiations or, if needed, at trial. An experienced divorce lawyer can help can help a client going through a divorce navigate a complex asset division.


No Legal Separation

There is no legal separation in the state of Texas. Community property continues to accrue even while the case is being litigated. It is possible that, while spending tens of thousands (or hundreds of thousands) of dollars fighting over percentage points in the division, the parties are doing themselves (and their children) a disservice. Here are two ways this simple, and often overlooked, concept can cause damage to both the "monied" spouse and the "non-monied" spouse.


Sometimes, the non-monied spouse hurts him or herself by driving excessive litigation costs while trying to get a bigger slice of the pie (marital estate). In doing so, he or she may reduce the size of the pie by hundreds of thousands of dollars. At the end of the process, even if successful in getting more of the pie, that bigger piece of the pie could be smaller than half of the larger amount that could have been divvied up earlier in the case. Think of it like this: the parties start their divorce with a large 16-inch pizza, and they're fighting over who gets an extra slice of the pizza. While fighting over that slice, the parties spend so much on litigation they end up with only a 12-inch pizza to divide, so even if one side ends up with a small extra slice and "won" by getting more than 50%, they actually ended up with less pizza than if they took half of the 16-inch pizza at the start.


Sometimes, it's the monied spouse that hurts him or herself by refusing to agree to an uneven division of the pie where it's probably justified that the other side gets a bigger piece. Similar to the above example, the litigation costs might reduce the size of the pie, and therefore the larger piece the monied spouse fights to get might be less than a smaller piece of a larger pie (for instance, agreeing to 45% of a $5,000,000 community estate would be better than spending $500,000 fighting over getting 48% of what's left). Another example for why it might hurt the monied spouse to drag out a case in litigation is that the monied spouse will be growing the pie while the divorce is being litigated (by continuing to earn community property income, add to a community property 401K or pension, vest into restricted stock units ("RSUs"), etc. In that situation, it can pay to be more generous to obtain a quick settlement so the wealth that would accumulate to the monied spouse would be his or her separate property instead of adding to the community estate. This is the reverse of the above example, where the monied spouse fights to prevent the other side from getting more than half but, while the process drags on, has a 12-inch pizza grow to 16 inches. The monied spouse would have been better off giving the other side a little more than half of the 12-inch pizza rather early in the case and keeping the extra dough.


Complex Assets and Issues

Sometimes, the complexity of issues is more obvious on its face. Issues surrounding the ownership of complex investments like closely held businesses, partnerships, RSUs, real estate, preferred stock, options, crypto currencies, family limited partnerships, or interests in trusts. Tracing may be needed to protect an asset's separate property character. Sometimes international issues exist, where there can be assets owned abroad that Texas lacks jurisdiction to divide, or questions of whether comity should be extended to a divorce decree or other order of that county.

Complex cases can also be created by the operation of time, or actions of a party. A spouse may own an asset acquired before the marriage, and some portion of that asset will be the separate property of the spouse that is not subject to division if properly traced. Asset can become commingled over time through no action of a party, like when stock dividends are reinvested into a position originally acquired before marriage, and tracing must be done to protect the separate property position.


Sometimes a spouse has breached a fiduciary duty to the other by mismanaging investments. Or they've improperly disposed of assets, called waste. Or, if they've been very naughty, the spouse may hidden assets, which will need to be found to have a just and right division of property.

The effect of taxes also need to be considered. These range from complex tax issues, like retained earnings in a business entity treated as a pass-through by the IRS or in a trust, to knowing to take into consideration future tax liabilities of an asset, like capital gains on an asset that appreciated in value (e.g., a stock or investment property) or on a pretax asset (like a traditional IRA or 401K).


Any of these situations can complicate a case, requiring a skilled divorce lawyer to identify, understand, and litigate the issues. That lawyer also needs to know when it is necessary to retain a forensic accountant to act as a consulting or testifying expert to trace and characterize assets as community or separate property, or determine the amount the community estate needs to be reconstituted.


Issues in High Net Worth Divorces

Having a large community estate, or high net worth individual with substantial separate property, can also create other issues beyond division of property. Alimony is not available in Texas (outside of contractual agreement or choice-of-law clause in a prenuptial agreement requiring use of another state's law), we have spousal maintenance (spousal support). However, the Texas Family Code only allows for spousal maintenance to be ordered in limited circumstances. Having a large estate to may disqualify the non-earning spouse from being eligible to receive maintenance. Conversely, if there is a premarital agreement that eliminates the creation of any community property, or most of the estate is otherwise the monied spouse's separate property, then spousal maintenance may be the most valuable claim for the non-earning spouse.

Being a high net worth spouse can affect child support issues. If the child has needs that would justify deviation, such as attending a private school that accommodates a specific issue (e.g., autism, ADHD, or behavioral disorder), then that increased ability to absorb those additional costs may be worth litigating in a request to deviate above child support guidelines.

Why You Should Hire Longino Law

At Longino Law, we have years of experience dealing with high asset cases. Tristan H. Longino obtained a business degree and worked as a financial advisor before becoming a family law litigator. He was the judge of the 245th Family District Court in Harris County, Texas, and is also Board Certified in Family Law by the Texas Board of Legal Specialization, a credential held by fewer than 1% of practicing attorneys in Texas.


Whether you are in the midst of divorce proceedings, evaluating a divorce settlement, or considering divorce litigation, you will benefit from having Longino Law on your side.


If you have substantial assets in your marital estate, let us identify and advise you of the issues those create, and give you an honest assessment not only of how the law applies to those issues, but what the return on your investment of time, energy, and money in litigation are so you can make the most informed decision. We take our fiduciary duty to our clients seriously. We'll not only tell you what the issues in your case are, we'll discuss with you which issues are worth litigating and what to settle so you aren't spending money on litigation without benefit. You've found your high net worth divorce attorney. Contact us today.

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