Divorce has a way of exposing financial secrets, often with costly consequences. Duffee + Eitzen attorney Devin Kerns recently shared essential financial advice on The Melinda Eitzen Show, addressing common pitfalls in complex property divisions. Her message: financial literacy is crucial for anyone facing a marital split.
Surprises During Property Divisions
Ms. Kerns noted that family law disputes often reveal surprises in married couples’ finances — sometimes the result of honest matters like sloppy record keeping and budgeting practices. Spouses may discover that they’ve been too passive in financial decisions and are unaware of key details about their shared finances. It’s also not uncommon to discover a spouse has concealed financial details to keep from sharing assets in divorce.
“It is common for one spouse to let the other spouse handle all of the finances and all of the paperwork, but I think with any property matter, whether it’s a house or business interests, you should be aware of what’s going on and at least have someone explain that to you if you’re going to get married,” Ms. Kerns says. “What’s the harm in making sure you know what’s out there?”
The Importance of Financial Literacy in Marriage and Divorce
Married couples may spend a lifetime together oblivious to how financial literacy and record keeping may be impacting their financial stability and wealth. In divorce, these habits can create conflict over the fair division of real estate and other assets.
Under Texas law, financial assets acquired during a marriage are considered “community property,” which means they are subject to division by the court in a divorce. The community property concept can get complicated for couples who may have had assets before marriage like real estate that are considered separate property that the court cannot divide.
For example, if a wife owned a house before marriage but refinanced it with her husband during the marriage, this could result in a divorce court finding that she gifted her separate property interest in the house to the husband (which may not have actually been the wife’s intent during the refinance). Understanding the three elements of a valid gift — intent, acceptance, and delivery — is crucial in divorce-related property matters, Ms. Kerns says.
“You get married, you’re excited, maybe you refinance a house that someone already bought or you go in together on a new house. The way that deeds are drafted and names are taken on the title can impact divorce later on, so it can get complicated and have unintended consequences,” she says. “People don’t fully realize the impact that legal documents can have later if they get divorced.
“If one party is claiming ‘You added me to this title — you gifted me that house,’ the other party can say, ‘No, I had no intent to gift you that property and here’s why.’ You can do that by testimony and documents and through other people.”
Business Valuations, Asset Protection & Property Division
Negotiations over community property often reveal sloppy record keeping, particularly with closely held businesses. That might include the use of business accounts to pay for non-business purposes or the questionable establishment of business entities. These actions may be unintentional, but they can also be efforts by a spouse to avoid sharing an asset or conceal a business’s true value.
“There’s the risk that someone could want to hide assets during a divorce, which comes up again and again in our practice,” Ms. Kerns said. “Unfortunately, real or imagined, people are stressed and sometimes they are not feeling very good towards their soon-to-be ex spouse. They want to hide assets they don’t want to disclose — maybe real property, maybe certain accounts — so they’ll stick it in an LLC or limited partnership.”