The Ultimate Texas High-Net-Worth Divorce Checklist: Protect Your Wealth

Going through a divorce is never easy. However, high-asset divorces come with equally high stakes. Even a seemingly small error can cost you millions when it comes to the distribution of marital assets. Property division, taxes, and a potentially public court battle are particularly challenging points of conflict.

The right divorce lawyer can’t completely erase the stress of divorce. But a strong advocate in your corner can help you understand the process and avoid common mistakes. At Mims Ballew Hollingsworth, we provide custom-tailored solutions for high-net-worth individuals facing divorce.

When you work with us, we’ll use our experience and our unique collaborative approach to help you protect your wealth. This high-net-worth divorce checklist takes you through some of the most critical steps.

What Qualifies as a High-Net-Worth Divorce in Texas?

A high-net-worth divorce is one where the divorcing couple has at least $1 million in combined assets. Some will be liquid assets such as cash, securities, bonds, bank accounts, and the like, while others will be non-liquid assets such as real estate, vehicles, collectibles, and art. In many cases, one or both of the spouses own a business. Since the couple likely owns a range of complex assets, the divorce and subsequent division of assets is usually more complicated.

By contrast, most low- or moderate-net-worth marriages involve a few relatively simple assets — a family home, vehicles, bank accounts, and retirement accounts.

In a high-net-worth marriage, the following assets aren’t uncommon:

• Stock options
• Jets, fine art, jewelry, and other luxury goods
• Businesses
• Trusts
• International holdings

In any situation, dividing these assets between two people is difficult. However, Texas community property laws complicate things further. In Texas, both assets and debts acquired during the marriage are considered to be jointly owned by both spouses.

When the court divides community property during a divorce, it strives for a fair and equitable division. That does not always mean a 50/50 split.

Before dividing property in a high-net-worth divorce, the couple must determine what each asset is worth. Even with up-to-date, accurate valuations, it can be difficult to divide and distribute illiquid assets.

High-Net-Worth Divorce Checklist

If you’re going through a divorce or think you may be soon, securing representation from a skilled divorce attorney is essential. While your attorney will guide you through the process, our Texas high-net-worth divorce checklist can give you a good idea of what to expect.

Step 1: Document All Assets and Debts

Documentation is an important first step in any pre-divorce checklist. Preparing for a high net worth divorce requires meticulous organization of financial documents to ensure a fair and equitable division of assets. Here’s a comprehensive list of documents you should gather:

Income and Employment Records

• Tax Returns: Personal and business tax returns for the past 3-5 years (including all schedules and attachments, W-2s, 1099s, K-1s). These provide a holistic view of income, deductions, and financial health.
• Pay Stubs: Recent pay stubs from all sources of employment for both spouses.
• Proof of Income: Documentation for any additional income sources, such as bonuses, commissions, royalties, investment income (interest, dividends, rental income), unemployment benefits, and any legal documents regarding settlements or past support payments.
• Employment Records: Detailed employment records showing dates of employment, wages, and all other forms of income and benefits.

Bank and Investment Account Statements

• Bank Statements: Statements for all joint and individual checking, savings, and money market accounts for the past 1-3 years.
• Investment Account Statements: Statements for all investment accounts, including brokerage accounts, stocks, bonds, mutual funds, hedge funds, and cryptocurrency.
• Retirement Account Statements: Statements for pensions, IRAs, 401(k)s, 403(b)s, 457s, executive compensation, stock options, and other retirement plans.
• Digital Assets: Documentation for digital assets such as NFTs and cryptocurrency.
• Safety Deposit Box Contents: A listing of the contents found in all safety deposit boxes.

Real Estate Documents

• Property Deeds and Titles: Deeds and titles for all primary residences, vacation homes, investment properties, and other real estate.
• Mortgage Statements: Current mortgage statements and documents related to any refinances, home equity lines of credit, and second liens.
• Purchase Documents: Documents from the initial purchase of all properties.
• Property Tax Records: Property tax statements for all real estate holdings.
• Appraisals: Recent appraisals for all properties.
• Homeowners Insurance Policies.
• Documentation of Separate Property: If any real estate was owned before the marriage or acquired through gift or inheritance, provide clear documentation to prove it is separate property (e.g., purchase price, fair market value, and mortgage balance at the time of marriage).

Business-Related Documentation (if applicable)

• Business Valuation Reports: Professional valuation reports for any businesses owned by either spouse.
• Business Tax Returns: Business tax returns for the past 3-5 years.
• Business Bank Statements: Bank statements for all business accounts.
• Financial Statements: Income statements, balance sheets, cash flow statements, and profit and loss statements.
• Business Ownership Agreements: Partnership agreements, shareholder agreements, or operating agreements.
• Documentation of Business Expenses: Receipts and other records related to business expenses.

Debt and Liability Records

• Credit Card Statements: Statements for all joint and individual credit cards.
• Loan Agreements: Documentation for all outstanding loans, including personal loans, student loans, vehicle loans, and any other lines of credit.
• Mortgage Statements: (as mentioned above)
• Documentation of Outstanding Debts: Any other records of outstanding debts (e.g., medical bills).

Other Important Documents

• Prenuptial or Postnuptial Agreements: These are crucial in high net worth divorces as they can significantly impact asset division.
• Life Insurance Policies: Policies on your own life, your spouse’s, or children’s lives, including cash surrender values, loans taken against policies, and designated beneficiaries.
• Automobile Titles and Registrations: For all vehicles owned individually and jointly.
• Valuables and Collections: Documentation and appraisals for expensive household items such as designer clothing, jewelry, artwork, antiques, instruments, firearms, coins, etc.
• Estate Planning Documents: Wills, living trusts, medical directives, and powers of attorney.
• Children’s Documents: If you have children, include documents related to their education costs, healthcare expenses, and any trusts or custodial accounts (e.g., 529 plans, UGMA/UTMA accounts).
• Household Bills and Living Expenses: Records of monthly household costs (utilities, food, childcare, activities, etc.) to establish a realistic budget for post-divorce life.
• Social Security Statements.
• Any other information you feel is pertinent to your financial situation.

Proving ownership of these assets is important, but so is establishing their history. You should collect three to five years of records for assets like businesses and investment accounts.

Step 2: Value Complex Assets

Once you have gathered documentation of your debts and assets, it’s time to move on to the next step in your divorce checklist: valuing complex assets. You may need to engage the following professionals to help with this.

• Forensic Accountants: To value businesses and investment accounts
• Appraisers: To value real estate, art, jewelry, vehicles, and collectibles
• Actuaries: To value pensions and retirement funds

Select reliable professionals since inaccurate valuations can delay the divorce or even mean you’ll receive less than your fair share of your marital assets.

When valuing assets, you should also account for potential tax triggers. For instance, selling a high-value asset in order to split the proceeds may trigger capital gains tax, and these taxes can be substantial.

Step 3: Identify Community Property vs. Separate Property

In Texas, the court doesn’t divide all assets between the spouses. Only community property is subject to division. The term “community property” refers to any assets or debts accumulated during the marriage. These are some examples:

• Salaries earned by both spouses during the marriage
• Loans or credit cards taken out during the marriage
• Homes purchased with marital funds
• Cars bought during the marriage (no matter whose name is on the title)
• Bank accounts (whether joint or in one spouse’s name only)

Many assets count as community property, but there are exceptions known as “separate property.”

Separate property includes debts or assets one spouse owned coming into the marriage, assets given to one spouse (as a gift or inheritance), and personal injury settlements.

However, separate property may become community property through a process called “transmutation.” This can happen when you commingle funds or revise the title of a separate asset to be jointly owned.

Step 4: Analyze Tax Implications

In any divorce, tax implications are worth considering. However, in a high-asset divorce, you could end up with a significant tax liability if you aren’t careful.

Capital gains taxes are a major concern. While dividing existing assets between spouses won’t trigger capital gains tax, this tax may become due if an asset is sold to a third party.

For example, if you and your spouse can’t agree on who gets a rental property, you may elect to sell it and split the proceeds. However, you may have to pay capital gains tax on any profits after selling.

In the past, alimony or spousal support payments were tax-deductible. However, in divorces executed after 2018, alimony is not tax-deductible for the payer. It is also not taxable as income for the recipient.

Working out a division of property that is favorable from a tax standpoint is important, and having professional assistance is highly advisable. We typically recommend that our clients consult with a CPA to model the tax impacts of a potential settlement.

Step 5: Protect Business Interests

If you and your spouse own one or more businesses together, your divorce checklist may be more complicated than you anticipated. When handling mutual business interests, most of our clients choose between three different options:

• Co-Ownership: You and your spouse continue to own the business together
• Buyout: One spouse purchases the other’s interest in a given business
• Sale: You sell the business and equitably distribute the profits

If you choose the buyout or sale option, you need an accurate valuation of your business. A business valuation expert can help you understand the best strategy for valuing your company, but two of the most common methods are EBITDA (earnings before interest, taxes, depreciation, and amortization) and DCF (discounted cash flow).

EBITDA is a key indicator of a business’s profitability and earning potential, while DCF estimates a company’s value by projecting future cash flows and discounting them to present value.

Step 6: Structure Support Payments

Many high-net-worth divorces involve the payment of child support, spousal support, or both.

Spousal support allows the spouse with lower earning potential to maintain a standard of living similar to the couple’s during the marriage. However, Texas imposes caps on spousal support. Monthly payments are limited to the lesser of these two numbers:

• $5,000
• 20% of the payer’s average gross monthly income

The duration of spousal support is also limited according to the length of the marriage. If you and your spouse were married for less than 10 years, spousal support payments may continue for up to five years. If your marriage lasted between 10 and 20 years, payments may last up to seven years. For longer marriages, there is no statutory limit.

Texas also places caps on child support payments — or more accurately, it limits how much of a parent’s income may be used to calculate child support. Support payments are based on a percentage of the paying parent’s net monthly resources:

• 1 Child: 20%
• 2 Children: 25%
• 3 Children: 30%
• 4 Children: 35%
• 5 Children or More: 40%

However, the state only considers up to $9,200 of the payer’s net monthly income. Even if your net income is well over $10,000 a month, the state may cap support payments at a percentage of $9,200.

This is not a strict rule, however. The court can order a parent with a net income of over $9,200 to pay more on a case-by-case basis. This is possible if your child needs extra support and you are able to pay for it.

For instance, if your child attends private school, participates in expensive extracurricular activities, or has costly medical needs, the court might order you to pay additional support.

Step 7: Safeguard Privacy

If your divorce proceeds through the court, it will likely become a matter of public record. Court filings can reveal sensitive information, and if you’re a prominent figure in your community, someone may seek them out.

Fortunately, you can likely prevent this. Choosing private arbitration, asking to have court records sealed, and using NDAs can protect your privacy during the divorce and asset division process.

Critical Pitfalls to Avoid

While you’re following your divorce preparation checklist, you should be aware of these common pitfalls.

Not Searching for Hidden Assets

Unfortunately, some spouses will try to hide assets to avoid having to divide them. Warning signs that your spouse may be hiding assets include:

• unexplained transfers
• missing funds
• new/undisclosed accounts
• inconsistent or overly complex financial disclosures
• unexplained foreign travel
• new/unusual investments or interests abroad
• foreign mail
• transfers to friends/family
• secrecy/evasiveness

If you notice several of these red flags, it’s wise to consult a divorce attorney or forensic accountant experienced in uncovering hidden offshore assets. Early action can help ensure these assets are included in the marital estate and subject to equitable division.

Not Hiring Qualified Experts

In a high-asset divorce, the quality of the tax advisors, appraisers, and other professionals you hire matters. Take your time to look into each expert before making a choice.

Rushing a Settlement

It might be tempting to settle your divorce and get it over with, but you should resist the urge to do so. It takes time to accurately value your assets and create a plan to equitably divide them.

How MBH Helps You Protect Your Assets

When you choose MBH, you get more than just an experienced divorce lawyer. Our team of forensic accountants, business valuators, and tax strategists works collaboratively at every step of the process. And by prioritizing efficiency and communication, we reduce costly delays in complex cases.

Let us put our proven negotiation tactics to work for you in your Texas high-net-worth divorce. Contact Mims Ballew Hollingsworth to schedule a consultation today.