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How to Protect Your Separate Property in Divorce: Part I
Clint Westhoff | February 19, 2021
Avoid Losing Your Separate Property When You Set Up a Company
You can do most estate planning, asset protection, and business entity planning and structuring in a way that protects any separate property interests that you may have during your divorce in Texas. The problem arises when working with an attorney who does not even know you have separate property, or when you are working with an attorney who does not specialize in an area of law that deals with separate and community property rights. Your business lawyer may be the best in Texas at structuring an asset purchase agreement for your separate property company but may have no idea how a covenant not to compete being part of that transaction can impact your separate property rights.
by Clint Westhoff
Clint: You may already know that Texas is a community property state. Everything that you own and that your spouse owns, regardless of when you acquired it, is presumed to be community property. But if you can prove something as your separate property, then you will have important and valuable rights. This is part one of several videos where I’m going to cover ways that you can lose your separate property. But first, a quick refresher, your separate property is property that you owned before marriage, property that you received as a gift before or during your marriage, property that’s an inheritance, and recoveries for personal injuries. The main right that you have regarding your separate property, if you can prove something is your separate property, is that not even a judge in a divorce case can take it away from you, and not even a judge in a probate proceeding after you die can change what you properly decided to do with your separate property before you died.
Woman: Can I lose my separate property if I use it to set up a company?
Clint: The most common way that people lose their separate property is not properly keeping track of it. But this video is going to be about engaging in transactions with your separate property that somehow make you lose your separate property. In this video, I’m going to use the example where you own a piece of real estate that is clearly your separate property, but this would apply with all different types of property. So in this case, you own real estate, you are going to rent out and you decide you’re going to set up a company and put that real estate in a limited liability company. In fact, you get advice from a lawyer telling you that that’s a good idea, and so you decide to take that advice and you set up an LLC. As part of that process, you deed the real estate into the LLC. Unfortunately, in this example, a few years later, you’re in a divorce situation and what your divorce lawyer is going to have to tell you is that you no longer own that piece of real estate. What you own at that point is an interest in an LLC that you acquired during marriage and is therefore presumed to be community, not separate property. So even though you owned a piece of real property that you clearly could prove was your separate property, by putting it into the LLC, you likely lost your right to claim that property as your separate property. There are many ways that you can lose your separate property rights, and this is just one example. Here at Goranson Bain Ausley, we often see these situations and by the time we see them, it’s too late. There’s nothing that can be done to undo the transaction, but there are many things that can be done before engaging in a transaction with your separate property so that you can get all the benefits of using your separate property in various ways and to keep the value as your separate property. As one example, you can enter into a marital property agreement with your spouse that lays out what will happen with your separate property, that way you both agree what’s going to happen. Another way is to involve a family law lawyer before you do a transaction with your separate property because, again, there is often a way that these transactions can be done to preserve your separate property value. By seeking the advice of a family law lawyer before you engage in a transaction with your separate property, it’s likely your separate property can be preserved.
We here at Goranson Bain Ausley are available to help to make sure that your rights are protected and your separate property rights are preserved.