Secrets of Negotiating Property Division in Texas
Negotiating the division of property in divorce is an art form all its own. It’s a three-step process: characterize the asset, value it, divide it. In Texas, Courts divide up the community estate in a just and right manner (a fair manner). That doesn’t necessarily mean 50/50.
Characterizing the Asset
Characterizing the asset means identifying whether it is community property, separate property, or a mixture of the two. Once the community estate is identified, you know what is to be divided. But that’s just the first step. Valuing it is just as important. For instance, a bank account with cash in it is pretty easy to value – look at the balance. But a retirement account, a house, or securities can have more complex issues.
Inaccurate Retirement Savings Totals
The purpose of most retirement accounts, like 401K’s or IRA’s, is to defer the tax on them. That means the tax will have to be paid at some point. As you are negotiating your estate, keep in mind that your retirement accounts are not worth the statement balance. In fact, they may be worth even less than the balance minus the tax. If one of the parties will be liquidating a retirement account early, then the highest marginal tax rate and the early withdrawal penalty might need to be subtracted from the value of the account.
That can mean a reduction of nearly 50% in some cases. Even if the account is not going to be liquidated, the taxes which will be paid on the money at the time of retirement can be considered and a reduction of the overall value of the asset might, and very often is, appropriate.
Dividing Real Estate
Real estate can be valued using market comparisons, an appraisal, or in some cases even a tax value (though tax values are often inaccurate). If the party receiving the house does not intend to sell it, Courts will often give the entire value of the house to that party (less mortgage). But if the house is to be sold in the near future, the costs of sale might need to be considered. For most houses 7.5-8% can be taken off of the value to compensate for realtor fees and closing costs.
Dividing Stocks and Bonds
When stock in a corporation is bought, it has a basis – the money spent to purchase the securities. If the price of the stock has risen since it’s purchase, the increase in value is taxable. Many people will buy shares of stock at different times, which means they may own the many shares of the same stock, but different shares have different basis’ and, therefore, different tax implications. The stock with the highest bases is the most valuable, since there is less gain on the stock and, therefore, fewer tax consequences. So be wary of cherry picking – choosing the stocks which, on their face, seem to have equal value, but in reality, have a lower tax liability associated with them.
The tax and liquidation costs of assets can easily be overlooked if you’re not paying attention. If you’re going to divide the community estate on an “apples to apples” approach, the liquidation implications should be factored in.
Help with Complex Property Division
If you need a divorce that requires a complex property division, call Jeff Anderson today to schedule a consultation at (972) 248-8383.