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LawFuel Power Brief: Article from Scroggins Law Group, Texas
For a BigLaw partner, a high-net-worth (HNW) divorce is a unique and challenging crisis that demands a strategic, informed approach. It is not merely a personal matter but a legal and financial undertaking that can significantly impact your professional reputation, client relationships, and partnership capital.
The high-achieving lawyer accustomed to being in control needs a playbook explicitly focused on the laws and legal principles applicable in Texas, a community property state with distinct rules for asset division and child custody.
The New Battlefield: Distinguishing Community Property from Separate Property
The most important financial question in any Texas divorce is determining what assets are community property and separate property. Texas is a community property state. Hence, this means all property acquired by either spouse during the time of the marriage is presumed to be community property and thus subject to a “just and fair” division upon divorce.
Conversely, separate property is not on the table for division. Separate property includes the assets owned before the marriage, property acquired by gift, devise, or descent during the marriage, and certain personal injury recoveries [Tex. Fam. Code Ann. § 3.001]. The burden of proving that an asset is in fact separate property rests on the spouse making the claim, which requires clear and convincing evidence.
Texas focuses on characterizing property based on its origin, not on how it may have been “matrimonialized.” A common pitfall for high-net-worth individuals is the “commingling” of separate and community funds, making it difficult to trace the separate property, potentially converting it into a community asset. Furthermore, community funds are used to pay down debt on individual properties. In that case, the community estate may have a reimbursement claim against the separate estate, a complex issue in HNW divorces.
The Prenup Post-Mortem: Why Your Agreement Might Not Be Ironclad
Pre- and post-nuptial agreements, known as marital property agreements, are significant in Texas. These agreements are generally enforceable but can be challenged and invalidated under specific circumstances.
An agreement may be deemed unenforceable if the challenging spouse can prove they did not sign it voluntarily, that it was unconscionable when signed, or that they were not provided with a fair and reasonable prior disclosure of the other spouse’s assets and obligations. The most effective defense is a meticulously crafted agreement combined with a clear history of full financial disclosure plus independent legal advice for both parties, a standard requirement for a valid and enforceable contract.
Your Biggest Asset: Valuing and Protecting Your Partnership Stake
For a BigLaw partner, the most complex and contentious asset is the value of your position at the firm. Your spouse’s legal team will not simply accept the income figures on your K-1; they will demand a deep, forensic valuation of your entire economic interest. This process requires a sophisticated understanding of how law firm partnerships are structured.
In Texas, the law clearly distinguishes between “enterprise goodwill” and “personal goodwill.” The Texas Supreme Court has long held that personal goodwill—the value of your reputation, skills, and client relationships—is not a divisible community asset [Nail v. Nail, 486 S.W.2d 761 (Tex. 1972)]. However, the valuation of professional practices remains a complex and often contested area, as forensic accountants may seek to value and divide the firm’s enterprise goodwill or the firm’s value as a going concern.
A forensic accountant hired by your spouse will conduct a detailed analysis of other components, including your capital account and the community interest in unrealized contingency fees and accounts receivable, representing the pipeline of future income earned during the marriage.
The Ethical Minefield: Protecting Client Confidentiality
There is a great need to protect client confidentiality during the discovery of a divorce. This is a well-established practice in Texas HNW divorces involving professionals. Your legal team will immediately move for a Protective Order, a court-mandated agreement that strictly limits who can view sensitive documents and prohibits their use outside the divorce proceeding.
All documents will undergo extensive redaction to black out client names and privileged communications. The most effective strategy is often appointing a neutral, third-party forensic accountant bound by the protective order to perform the valuation, ensuring that sensitive client data is never seen by your spouse or their primary legal counsel.
The Playbook for Support and Custody
In Texas, financial obligations are governed by distinct statutes for spousal maintenance and child support.
- Spousal Support: In Texas, court-ordered “spousal maintenance” is only available in limited circumstances, such as a marriage of 10 years or longer where the spouse cannot earn sufficient income to meet their minimum reasonable needs, or in cases involving family violence. The duration of these payments is strictly limited by law. More common in HNW divorces is “contractual alimony,” a voluntary, negotiated agreement between the parties not subject to the same statutory restrictions.
- Child Custody: In Texas, “custody” is called “conservatorship.” The court presumes that appointing parents as Joint Managing Conservators (JMC) is in the child’s best interest, encouraging both parents to share the rights and duties of raising the child [Tex. Fam. Code Ann. § 153.001]. The real power and ability to be an active parent are defined by the specific legal rights and duties assigned in the custody order, not just the possession schedule. Even a possessory conservator (the parent with less time with the child) has a crucial slate of legal rights, including the right to information and access to medical and educational records, ensuring they can remain deeply involved in their child’s life.
The Bottom Line: You’re the CEO of This Crisis
Facing a high-net-worth divorce in Texas is a strategic crisis management exercise. The outcome will be determined by preparation, information, and the quality of the professional team you assemble. Be sure to:
- Know Your Numbers: Do not wait for your spouse’s team to define the value of your life’s work. Proactively engage a forensic accountant to get a realistic, defensible valuation of your assets, notably your partnership stake.
- Draw Clear Lines: Meticulously document the source and history of all separate assets and resist the urge to commingle funds, as clean records are your most vigorous defense.
- Hire Your A-Team: You need a seasoned Texas family law attorney who specializes in HNW dissolutions and understands legal professionals’ unique pressures and complexities.
- Manage the Narrative: Your professional reputation is an invaluable asset. High-net-worth individuals often opt for private arbitration and settlement discretion to avoid the career-damaging drama of a public courtroom battle.
In a divorce, the person with the best information and the most accurate understanding of the law wins. Make sure that person is you.
