The Cost of Proving Separate Property in Divorce

The spouse claiming property is separate in divorce has the burden to prove it.  In a long term marriage the proof can be hard to find, and expensive to provide.  It requires that the source of the funds used to create and maintain separate property be “traced” by a forensic accountant or CPA and requires, in Texas, that the funds stayed separate throughout the marriage.

Whether the cost of this analysis is worth it is debatable. As some of you already know, I like to start a good debate.  Please feel free to chime in.  I’d like to hear your thoughts.

Here we go: *Husband in a 22 year marriage to Wife. Wife, educated but left the workforce to stay home to raise their child. Husband spends $50,000 for a tracing to prove that $200,000 of his retirement plan was separate property. (I’m thinking it was to show/include the growth of the separate money in the plan and the cost was associated with the analysis and the liability of providing the report in court).  If the account had been divided equally – $100,000 to Husband and $100,000 to Wife.  Instead, Husband got $150,000, Wife got zero.  Accountant (and attorney?) got $50,000, not from the plan but from the couple’s cash, just on this issue.

To Husband’s attorneys this may (must?) seem like a ‘win’.  Husband and the divorce professionals walked away with $50,000 more each. Unemployed Wife with limited job prospects after 15 years out of the workforce, $100,000 less in retirement.

I see the $50,000 as an unreasonable cost of divorce that destroyed part of the future economic security of the family.

Which is it?  Would you change your answer if you knew that the family’s net worth was under $1 million? Over $1 million?  How should divorce professionals advise these clients? Should we be guiding our clients to a ‘win” and what is a ‘win’ when it comes to money in divorce?

Other solutions?  Here’s one.  Could the couple agree that an estimate of the amount and growth of the separate property retirement account was $200,000 (we could make an educated guess but getting some attorneys or clients to accept one is a big leap, I know)? Then instead of spending money on a tracing, negotiate that the husband keep the retirement plan but set aside $50,000 for the daughter’s college education – and if unused divided.

One last thing, I can’t help but wonder whether the wife would have spent – or would have had access to the money to spend – $50,000 on a tracing if she had a decent sized retirement plan from her employment before marriage?

Robertson Stephens Wealth Management and Divorce Planning of Austin work with clients and their attorneys to help insure that financial accounts are divided in the most efficient manner possible.

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*This is a hypothetical example. It does not illustrate any investment products and does not show past or future results