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iHQ: Article II

About the Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters:

Frye, Oaks, Benavidez & O'Neil, PLLC has a boutique estate planning practice serving the GLBTI community’s unique needs Post-Obergefell and assisting their allies in the broader Texas community as well with family wealth preservation and transfer during life and at death. We work with all individuals and families of all sorts of backgrounds since we know how important it is that we provide for the beloved family, friends, and/or charitable entities we will leave behind.

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Original publish date of 11 January 2016

Prepared by Daniel L. O’Neil, Partner

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Article II: Marital Property Characterization & Yoü

Listing of topics:

Easy mode

§027: So, what is a character anyhow?

§028: The interplay of SP and CP

§029: Partition and Exchange

§030: Gifts between spouses

§031: Gifts to strangers of the marriage

§032: Sole management over community funds

§033: Will contracts between spouses

§034: There is no legal “separation” in Texas

§035: Marital torts

§036: Tax returns are not valid marital property agreements

§037: Good faith and fair dealing in marital property agreements

§038: Just and right division

§039: Characterization issues on appeal

Hard mode

§040: Are you really married?

§041: Judge & Jury

§042: Large assets

§043: Divorce lawyers

§044: Texas divorce basics

§045: Discovery

§046: Nonreimbursable claims

§047: Reimbursement claims

§048: Offsets to reimbursement claims

§049: Beginning balance

§050: Commingling

§051: Tracing

Legendary mode

§052: Divorce tax

§053: Mediation for GLBTI family law

§054: False allegations of abuse

§055: But a special note on real family violence

 

ARTICLE II

MARITAL PROPERTY CHARACTERIZATION AND YOÜ

IMPORTANT NOTE FOR ARTICLE II: If you are reading this article because you are contemplating divorce or other family law litigation (not estate planning!) then you should consider calling Angela Oaks and starting a conversation with her about those issues - http://liberatinglaw.com/index.php/about/team/50-angela-oaks. She handles everything from adoptions to contested divorces, modifications, and anything else you need in the arsenal to assert your lawful property rights and access to your children in the family law arena.

 

ARTICLE II topics on EASY MODE

This article discusses “your” stuff and whether you really own it or not.

§027: So, what is a character anyhow?

Marital Property Characterization matters because if you don’t own it, you can’t give it away. Savvy?

Texas is one of nine community property states.

The marital property “system” provides a number of rules addressing ownership, dominion, control, liabilities, and disposition of all property entering into the marital estate, which then needs to be divided when the end of the marriage is nigh.

The power to “manage” marital property includes the abilities to do such things as: sell assets to an unrelated third party for money; gifting; devising; litigating; incurring obligations in contract and in tort; and more.

Post-Obergefell we have three important characterizations to be concerned with: Spouse 1’s Separate property, Spouse 2’s Separate property, and the community estate. There are also two other important categories to take a look at: Community property subject to sole management of one spouse and Community property subject to joint management.

Characterization of property (and debts) along with identifying management require analysis to determine what marital property can be reached by a creditor or unrelated third party in satisfaction of an obligation.

This article contemplates an obvious discussion of all things divorce and family law – just because you are married today doesn’t mean that you always will be, especially to that person who is glaring at you right now as you read the rest of this article. You should also understand what you own in the context of Estate Planning; and also appreciate the liabilities that might arise within the marital relationship which will reduce the type of assets you have to give away in a Will or Trust.

Separate property

Separate property is identified by the Texas Constitution Article XVI section XV. Separate property consists of: property owned or claimed prior to the date of marriage; property acquired during marriage by gift, devise, or descent; and recovery for personal injuries sustained during marriage*. This list of what is Separate property is important to note how specific the list is, which gave rise to the doctrine of implied exclusion. Since the Constitution mentioned these things specifically, not generally, then anything not in that list is NOT included.

Separate property needs to be established by clear and convincing evidence. This is a very high standard in civil court (most often a lower standard, the preponderance of the evidence) but still less burdensome than that required in criminal trials with the beyond a reasonable doubt standard. If your Separate property is not established by clear and convincing evidence then it is Community property. Your Separate property is not going to be divided by the judge or the jury – it is yours, when it is confirmed as Separate property.

The main importance of Separate property is that the court cannot give away Separate property of one spouse to the other. Even giving a 0.9% interest of a house is too much, because it is above 0, and the court cannot divest a spouse of their Separate property.

However, a lien may be placed on a spouse’s Separate property to enforce a reimbursement claim, but not simply to enforce a just and right division of the Community estate.

Because of the importance of Separate property, Texas Family Code 3.004 allows a person to record a schedule of their Separate property in the deed records of a county. This preserves a historical record of what is claimed as Separate property. The recorded schedule also serves as constructive notice only as to realty located in the county in which the schedule is recorded.

The asterisk on personal injury can get unnecessarily complicated. As long as the recovery is not allocated to loss of earning capacity or lost wages during marriage (the personal injury thing requires serious attention in allocation of the award – just receiving a lump sum can cause numerous problems, both for tax purposes and for marital property purposes) or actual & necessary expenses recovered for hospital expenses, medical bills, expenses undertaken to recover the award, etc etc. then it is probably Separate. The intention is that for personal suffering (damage to body, disfigurement, physical pain or suffering, loss of use of body …) that is yours as Separate since you owned the arm or leg or whatever before you got married. However the asterisk comes with an asterisk that the injured Spouse, even if some of the recovery is characterized as Community, has sole management over those community funds. This is probably best exemplified in the case where a spouse cannot prove with clear and convincing evidence that none of the personal injury recovery constitute lost earning capacity or lost wages, the entirety of the settlement could be Community property. Beyond that you have something of a Court of Appeals split between the 1st District in Houston (Osborne) and the 9th in Beaumont (Kyles) that legal issue has not been resolved. These are some of the things your personal injury lawyer needs to be looking out for when allocating the settlement; or they should be calling their malpractice insurance carrier.

Community property presumption

If it’s not explicitly Separate property it is Community property. This is what is called the Community Property Presumption. To rebut that presumption you need to show by clear and convincing evidence (the highest standard used in civil courts) that it is your Separate property. Why does this matter? Community property is split up by the court in what is termed a “just and right division” which the judge eventually needs to sign off on.

Management factors into Community property though. Each spouse has sole management, control, and disposition of the Community property that they would have owned if single – including personal earnings, revenues from Separate property, recoveries from personal injuries, and mutations of sole control Community property.

§028: The interplay of Separate property and Community property

Things that are Separate property and things that are Community property will always interact with each other. It is important to understand a few basic concepts before we get into commingling and other advanced issues.

Onerous Title

Because this is Texas, one of the most important early marital property cases addressed the concept of “increase” in the unfortunate historical context of slave labor producing cotton. This is a helpful explainer on the interplay between Separate property and Community property.

Spouse 1 owned the slaves and the land that produced the crops as their Separate property.

Spouse 2 lost big in court on an unrelated matter and had a judgment against him personally.

Spouse 1’s Separate property in the land “increased” in value from $1,000 to $10,000 during marriage, which is Spouse 1’s Separate property.

However the cotton grown on the land and the rent collected on the land is Community property.

Which leads into the doctrine of onerous title – property acquired by the labor of spouses is Community property. Growing cotton is labor, otherwise it’s just a bunch of land to look at and enjoy. It’s all a larger part of what is considered toil, talent, industry, or other productive faculty.

This has branched out further that money doing the work for you (as Uncle Phil from the Fresh Prince of Bel Air once said: “our money makes money!”) still constitutes labor – dividends, interest, rent, and other income derived from Separate property all funnels into the community estate.

Because this is Texas, of course this was further fleshed out that if you own a goat as your Separate property but that goat makes some goat babies, the goat babies are Community property. The goat that birthed the goat babies is still your Separate property so if it gains a bunch of weight and makes a lot of money at the slaughterhouse that is still Separate property.

Mutations and changes

If Separate property is traced and meets the clear and convincing evidentiary hurdle, it can undergo what are called mutations and/or changes, and still preserve its Separate status. This is important for the concept of depletion.

Oil, gas, and other mineral interests are depleted as they are removed from the ground. But crops are not generally depleted in the same way, they can just be replanted. This basic concept explains mutations and changes, where Separately owned oil and gas interests that come out of the ground remain Separate; but the corn taken out of the ground at the end of the season is Community. The oil and gas mutated from a thing in the ground to a thing you put in your car.

A stock split is another sort of mutation which preserves Separate character. There is no change in ownership so the character follows.

Purchase money resulting trust

When record title (like on a house) is conveyed to one or both spouses, the legal title goes to the spouse or spouses named as Grantee, with equitable title retained by the Community. But there are new rules when it is shown that a spouse’s Separate property paid for the house.

For your basic rule: if a transfer of property is made to one person when the purchase price is paid by another (payor) a resulting trust springs forth in favor of the person that paid the money.

Basic example:

Draco pays $150,000 to Lucius for title to a house

Lucius passes title to Ron

Ron holds the house in trust for Draco who is now the beneficiary of the trust

Variation 1:

Draco pays $100,000 down and signs a note for the remaining $50,000 as title passes

Ron pays off the $50,000 note

Draco still owns 100% of the interest

Variation 2:

Draco pays $100,000 and Ron pays the remaining $50,000 as title passes

Draco owns 50% and Ron owns 50%

But the resulting trust will not arise if the payor manifests an intention that no resulting trust should arise. No example on this one is necessary.

The resulting trust will also not arise if the purchase was made in the name of a relative – unless the payor manifests an intention that the relative not receive the beneficial interest in the property.

Example 1:

Bilbo pays $100,000 for a cottage in Rohan

Title passes to Frodo at time of payment

Frodo owns 100%

Example 2:

Bilbo writes Frodo a short note before title passes, asking Frodo to hold the property which will be eventually passed to him

Bilbo pays $100,000 for the cottage

Title passes to Frodo after payment

Bilbo owns 100%

The trust has to arise out of the actual transaction itself. There needs to be an enforceable agreement and payments need to be made in pursuit of that agreement.

Significant recitals

This all leads toward the topic of significant recitals. What makes a significant recital? One of three things:

Significant recitals cannot be rebutted unless there was fraud or mistake.

Marital property liabilities

Spouse 1’s Separate property is exposed to:

Spouse 2’s Separate property is exposed to

Spouse 1’s sole management Community property is exposed to

Spouse 2’s sole management Community property is exposed to

Joint management Community property is exposed to

Joint liabilities of spouses expose all of their assets (Separate and Community) so wary is the person that marries a known tortfeasor.

Regarding only debts: debts contracted for during the marriage are presumed Community debts (including your divorce attorney fees!) unless it is shown that the creditor agreed to look solely to the Separate estate of the contracting spouse for satisfaction of that debt – which is called a “Ray debt.” Side note: this probably never happens unless someone is really bad at being a creditor.

Property acquired outside of Texas

The court shall divide in a just and right manner the property (and mutations thereof) acquired by either spouse while domiciled outside of Texas if the property would have been Community property if the spouse who acquired it had been domiciled in Texas at the time of acquisition.

Omitted property

If the court fails to deal with any Community property, it is owned by the ex-spouses as tenants in common. Either divorced spouse may file suit to divide property not divided or awarded in a final Decree. This property is still subject to a just and right division.

Retirement benefits

Determining specifics of dividing retirement benefits in divorce turns on whether the divorce occurs prior to the spouse that is the plan participant’s retirement or employment termination; also whether the plan is defined contribution (“DC”) or defined benefit (“DB”). Side note: defined benefit plans are increasingly rare these days.

The Taggart formula is for divorces where the plan participant spouse is already retired:

(1/2) * (# of months married under the plan / # of months employed under plan as of date of retirement) * (value of benefits as of the date of retirement) = non-plan participant spouse’s share

The Berry formula is for defined benefit plans, not defined contribution:

(1/2) * (# of months married under the plan / # of months employed under plan as of the date of divorce) * (value of the benefits as of the date of divorce) = non-plan participant spouse’s share

The Pelzig application applies for defined contribution plans:

Community property share = value at divorce – value on date of marriage

A Qualified Domestic Relations Order (“QDRO”) nails down the particulars of splitting up the retirement benefits.  We handle all of your QDRO needs here at Frye, Oaks, Benavidez & O’Neil, PLLC. Just ask us. Because many family law related firms will not handle QDROs.

§029: Partition and Exchange

A partition is splitting something in half. During marriage you buy a nice house and the down payment comes from a Community bank account. This is a simple example obviously. The nice house is Community property. But you decide to partition it so it is one-half Separate property to Spouse 1 and the other half Separate property to Spouse 2.

An exchange involves shuffling interests. Say the spouses own two houses. They exchange interests in both houses so Spouse 1 owns House 1 as their Separate property and Spouse 2 owns House 2 as their Separate property.

Partitions and exchanges are most important in the context that they actually be done, not just contemplated. If the spouses really wanted to do it but they never did it, it was just not done. The court is never going to read a partition or exchange into a space where one never actually occurred. Intent is meaningless if the spouses never followed through on it.

§030: Gifts between spouses

Texas Family Code 3.005

If Spouse 1 makes a gift to Spouse 2, the gift is presumed to include all of the income and property related to that property.

Say Spouse 1 owns several rent buildings as Separate property and doesn’t have time to run down to the Godiva for a box of chocolates for the anniversary gift that year. So Spouse 1 signs over one of the rent buildings to Spouse 2 as a thoughtful gift that year. Spouse 2 now owns that building as their Separate property and the rent money pouring in from that property is subject to their sole management over those community funds.

Facts matter

The main problem with interspousal transfers, especially in the divorce context, is whether an effective gift has actually been made. So, the facts matter in determining the intent to make a gift; delivery of that gift property; and acceptance of that gift property.

Parol evidence

Inception of title looks at who is buying stuff, when they are buying stuff, with what sort of money they are buying stuff, and then in the case of titled assets whose name actually gets put on that title.

Say Spouse 1 buys a house during marriage with the entire down payment paid from their bank account that only contains Separate property funds. But Spouse 1 titles the house in the name of Spouse 1 & Spouse 2. It is presumed that Spouse 1 made a gift of an undivided half of that house to Spouse 2 as Spouse 2’s separate property. This presumption can be rebutted with additional evidence to demonstrate that a gift was not intended.

§031: Gifts to strangers of the marriage

Courts take a dim view towards gifts to “strangers” of the marriage, especially if it appears to be of the sexual impropriety variety.

Constructive fraud

Constructive fraud is a topic that gets thrown around when a married person starts making gifts (with Community funds) to a person they are not married to. A trust relationship exists between the spouses regarding the community property subject to sole management. So when a spouse unfairly disposes of the other spouse’s one-half interest, it is a problem unless the disposing spouse is well prepared to argue the fairness in disposing of the other spouse’s one-half interest.

When a donor (married spouse) is making these gifts to strangers it becomes their burden to prove that the gifts were fair. There are three primary factors looked at: the size of the gift in relation to the size of the Community estate; the adequacy of the remaining Community estate to support the innocent spouse in spite of the gift; and the relationship of the donor to the donee.

Usufruct

A concept relative to this topic is the usufruct. Yes that is spelled correctly. It is the right to use another person’s property for a time without damaging or diminishing it; but the property might naturally deteriorate over time. This can be seen with a Will provision giving someone a life estate in a house or other property, then the property passes outright to the beneficiaries they have named. This type of thing causes problems if you gave your boyfriend a life estate in the beach house (Community property) and this arrangement then angers the wife you leave behind after widowing her. 

There are three types of usufructs to mention just to complete the thought: “natural profits” such as timber, fruit, and milk; “industrial profits” such as crops or grain; and “civil profits” which include rents, freights, and revenues. The example of the beach house would be a “civil profit” given to the usufructuary paramour to enjoy for the rest of their life, rather than generating rent income from tourists. These arise in the context of a “Marshall claim.”

Actual fraud

The spouse claiming actual fraud has the burden of showing that the other spouse made gifts to someone outside the marriage with the primary purpose of depriving the innocent spouse the use and enjoyment of the gifted assets. Dishonesty of purpose or intent to deceive are required in connection with a claim of actual fraud.

Fraudulent conveyances

A spouse can (without the consent of their spouse) make gifts of their community property and moderate donations for just causes. There is a line that can be crossed that renders gifts as excessive or capricious.

One classic example of “too far over the line” is using Community funds to provide life insurance benefits to someone outside of the family – which raises a strong inference of misappropriation, absent special justifying circumstances. In the case of a decedent spouse, it then falls to the beneficiary of the life insurance policy to justify the use of the decedent spouse’s Community funds.

§032: Sole management over community funds

We have addressed sole management with quick mentions so far, but let’s talk about it in more detail. You own the asset as your Separate property but the income received is Community – but it is subject to your sole management. What does that mean? You have an absolute right to manage it individually. However you cannot commit a fraud on the Community. If you make large financial gifts to an unrelated person you just met on grindr, your spouse might consider that to be something in the way of fraud on the Community.

And with a valid marital property agreement you can also partition and/or exchange future income arising from your Separate property to make the income your Separate property rather than Community property (the natural default) where it would just be subject to your sole management over the community funds.

§033: Will contracts between spouses

A contract between spouses to make a Will (or not to revoke a Will) involves a Will provision stating that the contract exists and restates the relevant provisions of the contract.

It is important to also note in this context that the execution of a joint will or reciprocal wills does not constitute by itself sufficient evidence of the existence of a contract.

In the Probate Code this used to be 59A; but now in the Estates Code it is 254.004

§034: There is no legal “separation” in Texas

The most common misunderstanding about family law we hear in the community from our neighbors and friends from high school we haven’t talked with in fifteen years until they have a legal question relates to the concept of separation. Other states and foreign jurisdictions have a concept like legal separation. However in Texas, you are married until the day the judge confirms in court after the prove-up that you are divorced. So until the prove-up has happened, the Community estate still exists and is still increasing - unless you have a valid marital property agreement in place that there will be no Community estate with a partition and exchange. So unless you have a valid marital property agreement in place, your Community estate is still growing day by day even though you are no longer talking to your spouse. So the Community estate is one of many things that needs to be addressed with a Mediated Settlement Agreement or agreed decree; or needs to be included with the other issues that are going to trial on such things as characterization issues.

§035: Marital Torts

Arguing “cruelty” in a divorce case can lead to a just and right division that is a disproportionate division in favor of the victimized spouse.

Interspousal tort immunity was abrogated long enough ago that there has been some good guidance over the years in how to proceed. However, Texas does not have a cause of action for negligent infliction of emotional distress. So the main cause of action is the intentional infliction of emotional distress which requires: intentional activity; which is outrageous; which causes emotional distress; and the emotional distress is extreme.

In plain English the conduct needs to go beyond all possible bounds of decency and should be regarded as atrocious and utterly intolerable in a civilized community.

The issue with tort damages is the bar against a “double recovery” in naming the activity in grounds for divorce – it double dips to get tort damages and a disproportionate division in their favor.

§036: Tax returns are not valid marital property agreements

While tax protesters are never short on interesting arguments to make, sometimes other people try their hand at making new arguments relating to tax returns. One such couple tried to claim that filing a joint tax return constituted a partition agreement. A tax return is not a valid agreement to partition since it is missing all of the language required to actually do that. An interesting argument to say the least since there are huge tax consequences, but agreements need to meet minimum requirements – and utilizing a tax return was not the correct “form” to use.

§037: Good faith and fair dealing in marital property agreements

There are some basic requirements to enter into a valid marital property agreement. There are also a limited number of ways to challenge marital property agreements. One case tried to make laziness and stupidity eligible challenges to an otherwise valid marital property agreement.

The duties of good faith and fair dealing are required in marital property agreements. These same fiduciary duties are required of business partners, trustees, and so too on the person you are married to. If there is a breach of good faith or fair dealing, the marital property agreement has a serious and good challenge as to its enforceability.

However, a spouse knowingly choosing NOT to inquire into any financial matters (out of laziness, stupidity, or love) that affect their interest has no protection. It was their knowing decision not to ask any questions – so they have no ability to complain later on that they didn’t know the full circumstances of the transaction.

Another angle in marital property agreements is the issue of duress. But it is never considered to be duress if you “threaten” to do what you have the lawful right to do – such as have the draft agreement read by a lawyer. That is not duress. Holding a gun to your beloved’s head and yelling “SIGN IT!! SIGN IT NOW!!!!” that is probably duress.

Better challenges to marital property agreements involve: involuntary; unconscionable when signed; no disclosure and you didn’t waive disclosure; and reasonably could not have known property & liabilities at issue.

§038: Just and right division

The Community estate needs to be divided in a manner that the court deems “just and right” having due regard for the rights of each party and any children of the marriage. This does not mean that it needs to be a 50/50 split of course. The basic fact that there was not a 50/50 split, by itself, does not constitute an abuse of discretion that is going to justify an appeal, without more facts and evidence.

Factors considered in dividing the Community estate include such factors as: the relative earning capacity and business acumen of the spouses; educational discrepancies; the relative size of the Separate estates; age, health, and overall condition of the spouses; fault contributing to the demise of the marital relationship; benefits the innocent spouse would have received if the marriage had lasted; the probable need for future support; and more.

§039: Characterization issues on appeal

If you don’t get the result you wanted at trial and you are appealing the division of property then you need to marshal your evidence that the property at issue was wrongly characterized AND had it been properly characterized the court probably would have made a proper division then.

 

 

ARTICLE II topics on HARD MODE

This section discusses some of the more unusual mechanics, and specific issues likely to affect “your” stuff and whether you really own it or not.

§040: Are you really married?

Common law marriage

In Texas you don’t need a ceremonial marriage. We are one of the 13 states that think likewise. We have common law marriage so the government can stay out of your bedroom (Post-Lawrence [2003!] and Post-Obergefell [2015!] of course) so long as you meet a few basic requirements.

There is no time bar to file a declaration of informal marriage, but there is a presumption that a claim not within the first two years of the “relationship” ending means that there was no informal marriage. The informal marriage can be proved by circumstantial evidence, but many of these types of cases are unsuccessful and they are quite public fiascos. The most locally famous one involved a lawyer I worked with at Fulbright & Jaworski which you can no doubt google.

Common law marriage simply requires a present agreement to be married; cohabitating in the State of Texas; and holding out to others in public that you are married. Carrying a cardboard cutout of Justin Bieber down the street does not meet the basic requirements of being common law married to a millionaire.

Perhaps the best evidence of a present agreement to be married admitted in Probate court involved a lovely note written on the back of a receipt stating simply, “Damn it wife, leave me alone” – which was better evidence of a marriage than if the person had not been referred to as a wife, and instead simply as “Janet.”

On the issue of cohabitation, one Probate court entertained testimony of a man acting “husbandly” around the house fixing stuff with tools and a tool belt. More circumstantial proof could look at leases or joint payments on household items such as the large screen 4K TV.

From the criminal defense arena sometimes a common law marriage leaves a bad taste in people’s mouths since many defendants have tried using “common law marriage” as a defense to statutory rape of a minor. But both parties must possess legal capacity to marry – 12 year olds cannot legally marry so they cannot be a party to an informal marriage at that age.

Putative spouse

If your “spouse” forgot to divorce their prior spouse, then you are not “really” married to them. This arises often in the common law marriage realm with the misconception that if you move out on your common law spouse, that serves as a common law “divorce” – but that is not how it works. The court has to divorce you, same as if it had been a ceremonial marriage; or the marital relationship terminates upon death of one of the spouses and then it becomes a Probate problem to deal with.

A putative spouse is deemed to have never had a valid marriage, because the earlier marriage was valid and ongoing, and Texas doesn’t allow bigamy. So the fallback is on contract law where the putative spouse then gains some property rights, so long as they entered into the “marriage” in good faith – if they had evidence the other person was still married and they still proceeded, that is not good faith.

The issue of reasonableness is important in applying the putative spouse doctrine. The same legal capacity to marry as in a common law marriage are required for the putative spouse – they need to old enough to marry; they need to not be married to someone else themselves; and they need to have mental capacity to make decisions for themselves. They also need to say “whoa we have a problem” when they find out about the spouse’s other valid, currently still going marriage. Reasonableness is not finding out about the other spouse, shrugging, and then continuing to play house for another 20 years.

However, a presumption exists that the most recent marriage is valid. The burden of proof to overcome that presumption rests on the party attacking the legitimacy of that marriage – in the case of the putative spouse, it is going to be the person that is currently married to the other spouse most likely, as there could be a significant windfall (or detriment) in Probate court depending on how that shakes out.

Obergefell backdating

One Probate Court in Travis County recently decided that a couple would have been married, had they been legally allowed to marry Pre-Obergefell. It was, of course, the first time that a common law same-sex marriage was recognized in Texas history.

This is of particular importance in Will contests and other contested probate litigation that will likely go much differently in the future than it did in the past, Pre-Obergefell. Especially in the context of couples that were in civil unions or other long term intended arrangements, back when the Texas Family Code stated that same-sex marriage and civil unions would not be recognized. But what if there was a “common law marriage” retroactively read into a same-sex relationship – it was never dissolved – and then one of the partners entered into a same-sex marriage with a new partner Post-Obergefell. Is this going to definitively create a putative spouse situation, or some other outcome?

This has a number of implications to look out for in the future as it relates to marital property rights in the probate arena

§041: Judge & Jury

Texas is the only state to allow a jury to determine the fate of a child in the family law arena. Additionally, only one other state joins us in allowing jury to answer some questions of property. Texas has been referred to as the “wild West” if you can afford to litigate family issues through a jury trial.

There are three flavors of limited issues that can go to a Texas jury in the family law arena

Child Issues

Property Issues

Marriage Issues

Judge decides the following

Visitation schedule;

Child support;

Parental decision-making powers;

Effecting a just and right division of the Community estate;

Spousal maintenance;

Adoption;

Paternity;

Enforcing the terms of a prior order.

Appellate

§042: Large assets

Large assets come with large responsibilities.

Mortgage

After divorce, as “the ex” you are still liable for the mortgage on the house you no longer live in until there is a refinance and your name is removed.

Debts

The final Decree can say one spouse takes full responsibility for a debt, but that is not binding on a creditor – if a debt is unpaid, the creditor can sue the other ex. Which then gives the innocent ex an option to sue the guilty ex for failing to comply with the Decree. Which will give the innocent ex a money judgment. In Texas that is going to require a renewal every ten years to stay valid – since it might take a long time for the guilty spouse to accumulate any non-exempt assets that can be collected on.

Partnership interests

Inception of title determines when the partnership rights accrue. If it is during marriage then the partnership interest is Community property, even if the actual payment leaving the bank account as the buy-in is paid after divorce.

Homestead

Homestead is subject to a lien for federal taxes. Pay your taxes. But a nondelinquent spouse must be compensated by the federal government for their homestead interest regardless of whether the property is Community or Separate.

§043: Divorce lawyers

You do not necessarily need a divorce lawyer, but it is almost always a good idea to have one to ensure things are done correctly, you are protected as well as possible, and it is a fair fight if it is a contested divorce. But you are not legally required to have a lawyer to go into court: you can be a Pro Se litigant. Pro Se litigants make costly mistakes, especially if they have been relying on “doc shop” businesses online for their legal forms – because these are not drafted or reviewed by a Texas lawyer, ever. They are usually not even done by a lawyer licensed in another jurisdiction. So they are not worth the computer printer paper they are printed on, since they create more chaos than they will solve if you have any means and assets you want to protect, rather than jeopardize.

If your spouse has a lawyer it is a much more fair fight in discovery and at mediation if you also have a lawyer. And divorce lawyer fees are a Community expense.

Divorces are stressful and you will be discussing intimate details of your private life with them. You are hiring them for a service and paying them for a service. So it is important that you find one you can work well with and that “speaks your language” since they will be helping to navigate you through the process rather than leaving you in the dark about what happens next in the process.

§044: Texas divorce basics

Necessities to file:

Fault grounds:

Quickest method of speeding through a contested divorce:

Otherwise, prepare for trial (one year and longer) because you will have to go through the full discovery process. And discovery, in our opinion, slows divorces down to a crawl for the most part because every document needs to be reviewed and litigation strategy needs to be constantly updated based on what documents turn up.

§045: Discovery

Discovery is your opportunity to collect evidence on the children, assets, debts, and any odd allegations made in the pleadings. Not every case needs discovery (such as in cases where there is an Affidavit of Inability to Pay Costs) and not every case requires every tool in the toolbox of discovery. But in contentious cases discovery is an essential element of bringing everyone down to Earth on the facts and the issues.

Requests for Disclosure

Request for Interrogatory

Request for Admission

Request for Production

Deposition

Inventory

Subpoenas

  1. Trial Subpoena – demand witnesses appear at trial to give testimony
  2. Records Subpoena – addressed to custodian of record
  3. Subpoena duces tecum – demands a witness show up and bring certain documents with them

Agreed Decree

  • If you agree to everything
  • The court must recognize it as a just and right division of the Community estate
  • All of the other required paragraphs are in there
    • Danger if you got your document from a doc shop online
    • Everyone signs it
    • Go into court one morning on the uncontested docket and answer a few easy questions to prove up the divorce
    • If children are involved then the court has to find that the agreement is providing a parenting arrangement that is in the best interest of the child
    • Then the divorce is granted
    • Type of Expense #1: Tax planning advice or services incident to divorce litigation potentially deductible
    • Type of Expense #2: Specific divorce litigation expenses potentially deductible
    • Type of Expense #3: Spousal support expenses potentially deductible
    • Type of Expense #4: Specific divorce litigation expenses potentially capitalized
    • Type of Expense #5: Miscellaneous civil litigation with respect to the business potentially deductible
    • Spouse 1 is sole shareholder of a Classic C and S-Corp that operates a cash intensive business.
    • Spouse 1 is hospitalized due to heart attack.
    • Spouse 2 immediately files for divorce.
    • Spouse 2 obtains a temporary restraining order and ex-parte protective order.
    • Spouse 2 now has emergency possession of both Corps and bank accounts are in escrow.
    • Spouse 2 fires all employees, take large amounts of cash on hand and equipment, and removes all corporate records stored on site.
    • Nearly all of Spouse 1’s legal fees to regain control of the businesses were deductible since the origin of the claim arose from profit seeking (that would produce taxable income) rather than his personal activities.

§046: Nonreimbursable claims

Reimbursement is not an option for certain kinds of claims. These include: payment of child support, alimony, and spousal maintenance; living expenses of a spouse or child of a spouse; contributions of property of a nominal value; payment of a liability of a nominal amount; a student loan owed by a spouse; and more.

§047: Reimbursement claims

In terms of issue spotting, we take a look at potential reimbursement claims under column A: when one marital estate pays unsecured liabilities of another marital estate; and under column B: when the Community estate has in some way improved the Separate estate of one of the spouses; or when one of the Separate estates has in some way improved the Community estate.

A spouse claiming reimbursement move prove that the act giving rise to reimbursement occurred and that it is reimbursable.

A claim for reimbursement for funds expended by an estate for improvements to another estate is measured by the enhancement in value to the benefitted estate. At the time the court generated that rule, it was reasoned that this was more likely to ensure equitable treatment of both the contributing and the benefitted estates.

The importance of a reimbursement claim is not necessarily in it’s calculation to a specific dollar amount. But rather, even if the specific dollar amount is not calculated, it is still a thing that can be considered by the court in effecting an overall just and right division – which includes that reimbursement claim floating out there in the ether as an intangible concept.

Reimbursement is purely an equitable remedy. It is not a property right or an enforceable debt in the way that those things traditionally operate.

And the reimbursement claim only comes into being and has the potential to be pursued in court when it arises out of dissolution of the marriage through divorce, annulment, or death.

See that last word, death. That is why the world of Texas family law operates so closely with what we do in Estate Planning & Probate. That is why we have an entire article on family law in an Estate Planning publication! Also because our boutique firm is looking out for these sorts of things whether you are an estate planning client or a family law client.

Time, Toil, and Effort

An equitable claim for reimbursement exists when there has been inadequate compensation for the time, toil, and effort of a spouse by a business entity under the control and direction of that spouse.

These sorts of issues bring to light how important it is to incorporate a small business. A business not incorporated and not Separate property that grew substantially over time during the marriage, would result in the boon going to the Community. Sole proprietorships are characterized as Community assets. Additionally, if a corporate entity is an alter ego then the corporate formality will be disregarded and the outcome will be the same as if it had been a sole proprietorship. This veil piercing of the alter ego occurs when the separateness of the corporation has ceased to exist independent of the spouse and the improper use of the corporation damaged the Community estate.

The time, toil, and effort belong to the Community to improve the Community estate. So if one spouse spends 18 hours a day, every day for years, working at their business (which is Separate property) then the Community estate can be reimbursed for that lost time, toil, and effort that did not benefit the actual Community.

At a basic level, a spouse may expend a reasonable amount of talent and labor in managing and preserving their Separate property. Beyond the reasonable amount, that is what gets looked at in a reimbursement claim.

The actual dollar value of the increased value in the business is not going to be the value of the time, toil, and effort though. Experts are needed to calculate a reasonable value – a good baseline for the calculation is essentially what the business would have needed to pay an unrelated person to do the same job the spouse did. Which in the case of a small business, we know how many different hats a person has to wear in that context to really get their business going. This is why experts are needed to reach a reasonable number and then defend it in discovery, depositions, and at trial.

The most important application of time, toil, and effort in the probate arena can impose a Community interest on the increased value of the decedent spouse’s Separate property, where the increase was due to a manipulation of what would have been a reasonable flow of Community income derived from that Separate property. The discrepancy between the reasonable value of the effort the spouse put into the business and the actual compensation that spouse received (including salary, bonuses, dividends, and other fringe benefits) is calculated and then the enhanced value of that Separate property asset in the decedent’s estate is used to satisfy that obligation.

§048: Offsets to reimbursement claims

Since reimbursement is resolved using equitable principles, an important principle is that claims for reimbursement can be offset against each other when appropriate. This is important when the equitable argument against a reimbursement claim fails. You can also offset another reimbursement claim by claiming the Community owes your Separate estate, or that the Community enjoyed the benefit of certain transactions.

A basic strategy is that if a reimbursement claim is a Community asset it can be awarded to the benefitted spouse as “pretend money” and you can take real assets in a property division at that point.

Benefits for the use and enjoyment of property may be offset against a claim for reimbursement for expenditures made to benefit a marital estate.

The spouse seeking the offset to a claim for reimbursement has the burden of proof with respect to the offset.

§049: Beginning balance

If tracing is not an option then reimbursement is sometimes the suitable plan B for the monied spouse since they provided the economic base for the later success of the Community. However, reimbursement is likely not allowed when the monied spouse purposely and hopelessly commingles their Separate estate with the Community.

§050: Commingling

When you don’t keep careful records, things get commingled. This is bad when you want to divorce and you are worried about losing your Separate property – which you know is yours, but you don’t have the records to really prove that up just yet.

Commingling means that Separate and Community property are in such a jumble that the current state it is in defies resegregation and identification. Which means if you don’t get some proper tracing done that is convincing, the end effect is that all of that property is Community and is going to be subject to the just and right division that the court needs to sign off on.

§051: Tracing

Clear and convincing evidence is required to confirm Separate property. This is a high burden and people do not always keep careful records. So the concept of tracing developed in the context of divorce litigation. Tracing has to convincingly take the current property and look back in time to previously owned property and/or funds to establish the Separate nature. If tracing is not convincing it is not going to reach that clear and convincing evidence hurdle required, so it drops out into the Community property presumption and is subject to just and right division along with the other assets composing the Community estate.

Dollar for Dollar

One dollar has the same value as any other dollar. This becomes important when we know how many dollars the spouse owned as their Separate property. That way there is no commingling since we know how many dollars in the disputed bank account were Separate – even though they all dollars are in theory just electrons on the computer screen, the Community property presumption is not that harsh to say the spouse’s name is not stamped on each individual dollar. So if we know how many dollars are Separate, we can exclude them from a larger account that also has Community funds. Dollar for Dollar is inappropriate when you don’t know how many dollars the spouse had as Separate property though.

Fancy Subtraction

Another method for a spouse distinguishing their Separate funds from Community funds in a commingled account operates by demonstrating that Community withdrawals (rent, pharmacy, dinner, etc.) equaled or exceeded Community deposits. Since the extra amount was not Monopoly-money, it had to be something other than Community funds since those were all gone.

Intactness

With fluctuating bank balances, sometimes this becomes favorable to demonstrate the intactness of Separate property. Say a spouse has a large account prior to marriage – $30,000. Times are tough and it dips to $19,000 at its lowest point during marriage. It never ever goes below $19,000. All of that $19,000 is protected and intact as Separate property – there could not have been any Community property injected in that amount. Sometimes this is helpful.

Dating checks

The “day” the check was written is never used in tracing since it can be subject to manipulation. Instead, only the date the check cleared is used by forensic accountants assisting with tracing.

Onerous title back in the mix

Property acquired during marriage by either spouse via onerous title is Community property. But not with an asterisk: the spouse asserting that a portion of that property is Separate, takes the burden of proving that portion as they attempt to meet that clear and convincing evidentiary hurdle.

Sole proprietorships

Sole proprietorships are usually terrible ideas for tax and liability reasons. That stern judgment aside, we have an entire practice area devoted to Entity Formations and Business/Tax Planning. But in the divorce context sole proprietorships generate additional problems establishing inventory as Separate property – unless the most pristine records have been kept identifying what was pre-marriage inventory. In the event good records were not kept, the sole proprietor potentially has a reimbursement claim – but that is a whole different minefield to navigate in the world of equitable remedies.

Community out first rule

When funds are hopelessly commingled it is presumed that the mystery money coming out of the account is all Community.

Say a bank account has $3,000 in it that is all Community funds earmarked for rent, pharmacy prescriptions, and a nice night out at Masraff’s. A distant cousin from Transylvania gifts you $20,000 (so it is your Separate property) because they want you to buy something nice. That $20,000 gets dumped into the account with $3,000 in it. Before you pay rent, pharmacy prescription bills, or go enjoy a fabulous meal at Masraff’s you buy a new car. That $3,000 of Community funds is the first money coming out of the account with this presumption so it is a Community asset.

Expenditure’s intent method

Different than the Community out first rule, the facts and circumstances surrounding the intent of the purchase start to matter. So that distant cousin’s gift explains the intent that you wanted to use that gift money to buy your new car since it is your “something nice” you are buying – it was not your intention to use the Community’s rent money for that. So the entire car is your Separate property and you can now divorce the spouse without a problem.

Intermediate balance analysis

Because tracing is working to support the highest civil burden possible with clear and convincing evidence, it needs to be pretty solid. So it is not convincing just to look at the beginning balance of an account prior to marriage, look at the ending balance in divorce discovery, and ignore everything that happened in between if the amounts are about the same.

What could have happened is that the account dipped severely (let’s say it was Separate) and then was replenished over time with Community funds. If it was $150,000 before marriage and $150,000 in divorce discovery, it’s not good enough to say it looks the same – as there are more facts and circumstances involved. The beginning balance just does not “characterize” the ending balance.

Conjecture

Clear and convincing evidence is a high burden so it is also not good enough to show that Separate funds COULD have been the source of payment to acquire an asset by inception of title. This “theory” does not overcome the Community property presumption.

 

 

ARTICLE II topics on LEGENDARY MODE

This section discusses some of the most complex and sensitive topics encountered in the divorce arena.

§052: Divorce tax issues

Tax law touches on almost every aspect of a divorce. Your friendly neighborhood tax lawyer is also a divorce lawyer for certain kinds of divorces. But the “cheapest guy on the street” divorce lawyer you hire is probably not a tax lawyer. By maintaining careful records and knowing a bit about the tax laws, certain clients can save thousands of dollars in divorce.

When your divorce lawyer has tax training or brings in a tax lawyer to work on part of your case, these are the tax benefits you might be looking at on money you will already be spending one way or another:

General rule

Fees paid to an attorney or other experts in connection with a divorce, child custody, and paternity matters are not tax deductible. There are exceptions to this general rule.

Regarding our friends that are small business owners

Before diving into the exceptions let’s just take a minute to talk quick facts:

Small businesses make up 99.7% of U.S. employer firms, 64% of net new private sector jobs, 49.2% of private sector jobs, 46% of private sector output, 43% of high-tech employment, and 98% of firms exporting goods. We protect your investment in a small business if you come to us for assistance with your divorce.

Leading up to 2015 a number of states and foreign countries had legalized same-sex marriage which created the first-wave of the new normal where businesses previously immune to state divorce laws were first feeling the burn of divorce along with divorce tax implications. After Obergefell, there are a lot more small businesses that are now getting drawn into divorce litigation with somewhat serious tax consequences that can threaten a small business’s survival as a going concern.

Origin and Character of the claim

Legal fees incurred to resist actions that interfere with business activities of corporation can possibly be deducted. Valuation is a personal expense which is probably not deductible. The distinction is whether it is a personal expense.

My favorite example fleshes this out in more detail to explain what is a personal expense and what is not:

Your silver bullets

IRC § 162: business expenses that are ordinary and necessary in the conduct of business are deductible

IRC § 212: expenses that are incurred to produce taxable income are deductible

IRC § 263: certain expenses can be capitalized to increase the basis of an asset

A business owner will often attempt to reduce taxes by paying their lawyer bills through their business. These are personal expenses and not deductible by the business, even though the divorce may have important business implications. However the corporation, once joined in the divorce action, needs to prepare a response to the other spouse contending that the income from the corporation is theirs.

Qualifying expenses

  1. Incurred for the production or collection of income;
  2. For the management, conservation, or maintenance of property held for the production of income;
  3. In connection with the determination, collection, or refund of any tax;
  4. In connection with getting and collecting spousal support (alimony)
  5. You and your former spouse do not file a joint return with each other
  6. You pay in cash (including checks or money orders)
  7. The payment is received by (or on behalf of) your former spouse
  8. The divorce decree does not say that the payment is “not alimony”
  9. You and your former spouse are not members of the same household when you make the payment
  10. You have no liability to make the payment (in cash or property) after the death of your former spouse
  11. Your payment is not treated as child support or a property settlement

On QDROs

Attorney fees incurred to obtain an interest in a retirement plan can be deductible to extent retirement income is includable in gross income.

Actuary’s expenses to value the interest in the plan can be deductible

Costs of preparing the QDRO can be deductible

Capitalization

Fees incurred in establishing or defending title to property may be capitalized and added to the basis of property. Even though the fees incurred for this purpose are not currently deductible, they will result in a tax benefit when the asset is sold sometime in the future. Such fees could include the cost of a business valuation, real property valuation issues, cost of preparing and filing a deed to put the house in your name, and the tracing of separate property.

Basic considerations and talk to your CPA

Attorney fees incurred in connection with marital dissolution are deductible as miscellaneous itemized deductions on a 1040 if they exceed 2% floor of AGI. Subject to phase out. Subject to AMT. The deduction can be lost if it is significant in comparison to other amounts on the return. Usually best if all deductible legal fees are paid in one year. But talk to your CPA first, and keep your divorce lawyer in the loop about timing.

Spousal Support payment deductability for Payor

Amounts paid under divorce decrees are considered alimony for federal tax purposes if:

Alimony does not include:

  • Child support
  • Noncash property settlements (whether in lump sum or installments)
  • Payments that are your spouse’s part of community property income
  • Payments to keep up the payor’s property
  • Use of the payor’s property
  • Voluntary payments (as in, not required by the decree)
  • Fees incurred in obtaining support;
  • Fees incurred in collecting delinquent support;
  • Accountants, appraisers, actuaries, and vocational counselor fees are all deductible to the extent their work involves obtaining support;
  • Modification proceedings are potentially deductible;
  • Costs to obtain an interest in royalties, residuals, and other income taxable to the client are potentially deductible.
  • Structuring a property division to produce the desired tax effects;
  • Determining the adjusted basis of assets in that property settlement;
  • Planning an alimony trust or annuity agreement to avoid some of the restrictions on deductible spousal support;
  • Assuring proper estate & gift tax consequences for the payment or receipt of support or property division;
  • Maximizing the deductible portion of spousal support or minimizing the taxable portion of spousal support;
  • Preparing a settlement agreement to assure deductible support payments;
  • Allocating dependency exemptions;
  • Obtaining advice regarding the tax consequences of divorce; gathering information for and preparing tax returns.
  • If spousal support is structured correctly and can be substantiated then the payor spouse can deduct the payments. If not done precisely and correctly then chaos! Recapture and huge tax consequences.
  • Even worse is trying to disguise nondeductible child support payments as spousal support.
  • Transfers of property prior to marriage, during marriage, incident to divorce, post-divorce.
  • Redemption of stock in a closely-held business.
  • Transfers of property into trust.
  • S-corp stock’s suspended losses.
  • Transfer of interest in a passive activity.
  • Disposition of the marital residence.
  • Dependency exemption.
  • Medical expense benefits and deductions.
  • Filing status issues.
  • The cost of mediation is charged on a single, understandable flat-fee basis based on the length of time booked.  
  • The cost is split evenly between the parties and must be paid in full three business days in advance of mediation, or the mediation will be canceled.
  • There are no hidden charges.
  • We have a private parking lot of our own out front so you do not need to worry about unexpected parking lot or garage fees.
  • We provide coffee free of charge for any mediation.
  • For full day mediations we also include a full lunch in the price of the mediation.

If the decree provides for both child support & alimony, but Payor pays less than the full amount, the payments are applied first to child support. If any amount in partial payment remains after wiping out that child support obligation then it is applied to the alimony payment.

Potentially deductible expenses

Since spousal support is included in gross income you might be able to deduct:

Tax planning advice or services that you might be able to deduct:

Other big ticket items

Real estate

As a general rule, transfers of property between divorcing spouses are nontaxable. One of the main exceptions to the rule: selling the marital home can bring on capital gains tax.

State law considerations that produce undesirable and unplanned federal tax consequences

Problem: Small business owner’s wrong choice of entity.

Solution we offer: We can help you incorporate or convert.

Problem: Improper marital property characterization.

Solution: We can negotiate a marital property agreement.

Problem: Final Decree outcomes improperly reported to IRS.

Solution: We can prepare opinion letters and documentation to substantiate your position.

Problem: You hired a divorce lawyer from another law firm that did not allocate their fees properly.

Solution: We can represent you in tax controversy from IRS Examination all the way to the United States Supreme Court.

Overview of tax issues for married folks: innocent spouse relief, equitable relief, injured spouse

Not all marriages are perfect, as many family law attorneys would tell you. But sometimes the discord and personality conflicts are not the only problem when the IRS makes an appearance.

This is a brief overview of the three types of relief available if you are married filing jointly. Every situation is different. Therefore this is not legal advice. You should retain a tax professional (tax attorney with a Tax LL.M, CPA, Enrolled Agent etc.) to represent you before the IRS.

When you are married filing jointly this means that you are jointly and severally liable. Under that legalese that means that both spouses are on the hook for the entire liability. The IRS can seek to collect the entire amount from one spouse even if the other spouse was "responsible" for the entire liability. This liability trumps a state court divorce decree with specific language that one party will be responsible for any amounts due on previously filed joint returns. That is why there is relief available, if you qualify, to get out from under what seems to be crushingly unfair circumstances.

There are three types of relief from joint and several liability for spouses who filed joint returns:

  1. Innocent Spouse Relief
  2. Separation of Liability Relief
  3. Equitable Relief

And an additional issue is injured spouse relief. Relief from joint and several liability should not be confused with an injured spouse claim. You are an "injured spouse" if you file a joint return and all or part of your share of the refund was, or will be, applied against the separate past-due Federal tax, state tax, child support, or Federal non-tax debt (such as a student loan) of your spouse with whom you filed the joint return. If you are an injured spouse, you may be entitled to recoup your share of the refund. Just to get that out of the way.

Innocent Spouse Relief ("ISR")

ISR provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly, or claimed improper deductions or credits.

Separation of Liability Relief ("SLR")

SLR provides for the allocation of additional tax owed between you and your former spouse or your current spouse from whom you are separated because an item was not reported properly on a joint return. The tax allocated to you is the amount for which you are responsible.

Equitable Relief

Equitable relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax remains unpaid.

There is a strict statute of limitation that you must request innocent spouse relief or separation of liability relief within 2 years of the date the IRS first attempts to collect the tax from you. Not all IRS attempts to collect the tax from you will trigger the two year period for filing a request for innocent spouse relief or separation of liability relief to the Service. Collection activities that start the two year period are:

  • The IRS issues a section 6330 Collection Due Process notice to you. A section 6330 Collection Due Process notice is a notice that tells you that the IRS intends to collect the tax from you by levy and that you have a right to a Collection Due Process hearing;
  • The IRS applies your income tax refund from another year against an amount you owed on a joint return for the year for which you seek innocent spouse relief and the IRS informed you about your right to file a Form 8857;
  • The filing of a suit by the United States against you for the collection of the joint tax liability; or
  • The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim that involves your property.

You must meet all of the following conditions to qualify for "innocent spouse relief":

  1. You filed a joint return, which has an understatement of tax (deficiency), which is solely attributable to your spouse's erroneous item. An “erroneous item" includes income received by your spouse, but which was omitted from the joint return. Deductions, credits, and property bases are also erroneous items if they are incorrectly reported on the joint return
  2. You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax, and
  3. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax

To qualify for "separation of liability relief" you must have filed a joint return and must meet one of the following requirements at the time you request relief:

  1. You are divorced or legally separated from the spouse with whom you filed the joint return
  2. You are widowed, or
  3. You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857 (PDF), Request for Innocent Spouse Relief

If, at the time you signed the joint return, you had actual knowledge of the item that gave rise to the understatement of tax, you may not qualify for separation of liability relief.

To qualify for equitable relief you must establish that, under all the facts and circumstances, it would be unfair to hold you liable for the understatement or underpayment of tax. In addition, you must meet other requirements listed in Publication 971, Innocent Spouse Relief.

To seek innocent spouse relief, separation of liability relief, or equitable relief, you should submit a completed Form 8857, Request for Innocent Spouse Relief, or a written statement containing the same information required on Form 8857, which is signed under penalties of perjury, to the IRS. If you request relief from joint liability, the IRS is required to notify the spouse with whom you filed the joint return of your request and allow him or her to provide information for consideration regarding your claim.

Because it is a facts and circumstances test it is helpful to have capable counsel to learn the facts of your case and be able to best present it and negotiate with the IRS on your behalf.

§053: Mediation for GLBTI family law

Mediation in family law is a power alternative dispute resolution (“ADR”) tool that allows parties to creatively resolve the differences that have brought forth the litigation conflict. Unlike the harsh outcomes sometimes received by a judge or jury, you get the opportunity to make your case passionately, figure out what is really upsetting you, and try to reach a better outcome now than spending years (and lots of money) preparing for trial and then appeals.

The third party neutral mediator helps the parties narrow in on the problems and try to find a solution. Many times with complex families the issue is not strictly about money, it is about being upset over something that happened twenty years ago. Unlike in commercial litigation where being upset is not going to provide a lot of leverage in settling a breach of contract case, in family matters like divorce and child custody sometimes an apology tilts the balance of negotiations and leads to a solution.

The mediation services that Frye, Oaks, Benavidez & O'Neil, PLLC offer in the family law arena focus on one thing: respect for the family unit.

We focus our efforts, especially in families with GLBTI related issues, on helping families reach a lasting, peaceful settlement and compromise that saves them the expense of protracted litigation and the years of anguish it takes to wind through trial and appeals.

Complex family situations (especially with GLBTI related family issues) require sensitive and respectful mediation services from lawyers that have a familiarity with GLBTI legal issues, such as Frye, Oaks, Benavidez & O'Neil, PLLC.

Separate Quarters

The parties are separated by a full hallway in different conference rooms that do not share a common wall. The other party is not allowed to wander around and place a stethoscope against the door of your conference room to eavesdrop on your private conversations.

Anything you say to the mediator is strictly confidential. You can blow off all of the steam you want and the mediator will sit there, listen, and forget what you just said. If you want the mediator to bring an exact settlement offer, or raise certain issues with the other party, you need to explicitly authorize the mediator to make that offer, thereby allowing them to disclose the content you want to disclose.

Informal Atmosphere

Mediation is informal. There are no formalities like in the courtroom with “your honor” and “may I approach” and having to silence your cell phone. If you need to take a smoke break, you can go outside and pace down the street without needing to worry about being held in contempt like you would if you did that in court as the judge is trying to talk at you.

The goal is to reach a lasting resolution and one way that happens is to focus on your comfort and your freedom. Mediation is voluntary – you are not required to be here, chained to the chair. But you want to be here – to save yourself time, money, and frustration of letting a stranger (the judge) or strangers (the jury) solve your complex family problem and learn all about the details of your family that you might want to keep somewhat private.

Confidential Nature

Matters discussed during mediation are held in the strictest of confidence. Things said, or mean pictures of opposing counsel drawn on napkins during mediation, will never be disclosed outside of the mediation. We strictly uphold the confidentiality of our mediation process because it is our reputation on the line, and we protect your reputation as though it were ours.

Fees and other details

Half-day mediations will typically run from 9am to 2pm, or 1pm to 6pm.

Full day mediations will typically run from 9am to 6pm.

We only schedule one mediation per day so if a half-day mediation is making good progress, we can continue.

Because we personally know how difficult it is to find time during the week for working people we offer night, holiday, and weekend appointments as well for a nominal extra charge.

§054: False allegations of abuse

To get a leg up in family law, oftentimes one spouse accuses the other of molesting or otherwise abusing the children. These are horrendous allegations of course and can take years to resolve. Sometimes these allegations are completely false and can essentially ruin a person’s life. Blindsided is the good parent that has never inappropriately touched a child but is now being dragged through the court system for the first time. Special care must be taken from the minute the false allegation is raised.

The Amicus is the attorney that represents the child or children and is an advisor to the court. Your lawyer and opposing counsel sometime agree to the appointment of an Amicus. You want one with a backbone, among other desirable traits, since the ad litem has a lot of power to guide what happens next after the Temporary Restraining Order. Since the court is going to rely heavily on the recommendations of the Amicus you don’t want to start out behind the eight ball. You want someone who hasn’t already convicted you in their own mind. If they are one of the Amici that is a dyed in the wool child advocate organization supporters then they are going to believe a child never tells a lie and that there is nothing else going on in your case (such as motivation for a modification) besides abuse. Not spending the appropriate amount of time and attention to selecting an Amicus is extremely hazardous.

In addition to the Amicus another new player is going to be a neutral third party forensic mental health practitioner. If both sides cannot agree to one, as in the case of the Amicus, then the court appoints one for you and you are stuck with them. Just like selecting the Amicus is important it is just as essential to have the forensic psychologist or psychiatrist be a professional familiar with the concept of false allegations. The forensic mental health practitioner provides the deliverable to the court which reports conclusions about the alleged abuse.

In most circumstances you want to hire your own mental health professional to evaluate you, the child, and the ex-spouse. It is expensive, but not bolstering your side could be more expensive in the long run. In extreme circumstances a forensic expert might be hired to conduct a lie detector test.

These issues can be complicated and more stressful than a divorce or other family law situation is already going to be. These require special attention.

§055: But a special note on Family Violence

In Estate Planning and family law we see everything, and all types of people in all sorts of relationships. So we feel free to put this out there as a resource for people that might be in this sort of situation. This is called a “lifesaving statute” by many lawyers in the community.

Texas Property Code §92.016 is titled “right to vacate and avoid liability following family violence” which is an important thing to look up and know about if you think you might need to use it in your current situation. You still owe rent for the past months, but you can get out of the lease now and the meter will stop running on rent owed in future months.

 

This concludes ARTICLE II.

Thank you for reading ARTICLE II in Frye, Oaks, Benavidez & O'Neil, PLLC’s Information Headquarters.

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