Ensure You Have Accurate Documented Proof of Potential Separate Property During Divorces

 

The divorce process may include obtaining multiple sources of documentation, including paper and digital documentation, in order to prove a separate property claim assertion.

 

In a previous article, we addressed four basic considerations to identify the characterization of assets during a divorce. The third and fourth considerations specifically addressed the documentation needed to prove potential separate property. Identifying separate property throughout the marriage can be a complex consideration that may require tracing multiple accounts.

 

 

Documentation Needed to Prove Potential Separate Property

 

Once a potential separate property asset has been identified, the next step is to prove and substantiate the separate property claim with supporting documentation. A spouse may own separate property funds prior to marriage or receive funds during the marriage that would be characterized as separate property of the spouse receiving the funds. The supporting documentation needed to prove a separate property claim depends on the source and nature of the potential separate property funds.

 

 

Complexity: Was the separate property in existence at the date of marriage?

If the separate property was in existence at the date of marriage, then pursuant to the Texas Family Code §3, the property is the separate property of the spouse owning the property prior to marriage.

 

Tracing Complexity Resolution 

The documentation needed to prove separate property would depend on the type of separate property. Some examples include:

 

  • Bank/Brokerage/Retirement Accounts 

    The statement immediately preceding the marriage would be sufficient to establish separate property. It is equally important for this to be a complete statement which reflects: the account holder, the date period covered (i.e., for the month of April 20xx), a detail of all activities for that statement period, and all assets held in the account (in the instance of a brokerage or retirement account).

 

  • Real Property 

    The best form of documentation with regard to establishing separate property interest in real property is the HUD Settlement statement. Other forms of documentation that may assist in proving separate property include Gift Tax Form 709, Warranty Deed, County Tax Records, and any other documentation that may prove a separate property interest if any of the aforementioned documents are not available.

 

  • Business Entities 

    The type of separate property proof of a business entity will depend, in part, on the type of business entity, such as a closely held business entity or a publicly traded business entity.

    • Closely Held Business Entities 

      Some types of documentation to support a separate property claim of a closely held business entity include formation documents, state registration documents, changes of ownership interest documents, annual tax returns, K1s, Gift Tax Form 709, and any other documentation that may prove a separate property interest if any of the aforementioned documents are not available.

 

  • Publicly Traded Business Entities 

    These ownership interests usually are held through a brokerage firm. Therefore, separate property documentation proof may include a brokerage statement that identifies this asset. Other types of documentation to support a separate property claim may include K1s, Gift Tax Form 709, and any other documentation that may prove a separate property interest if any of the aforementioned documents are not available.

 

Complexity: Was the separate property acquired during the marriage?

 

If the separate property is acquired during the marriage, then pursuant to the Texas Family Code §3, the spouse asserting the separate property claim bears the burden of separate property proof. 

 

Tracing Complexity Resolution 

The documentation needed to prove separate property would depend on the type of separate property. Some examples include:

 

  • Bank/Brokerage/Retirement Accounts 

    This is the statement for which the separate property funds were deposited into the account. It is equally important for this to be a complete statement which reflects: the account holder, the date period covered (i.e., for the month of April 20xx), a detail of all activities for that statement period, and all assets held in the account (in the instance of a brokerage or retirement account).

 

  • Real Property 

    The same documentation as outlined previously.

 

  • Business Entities 

    The same documentation as outlined previously.

 

Complexity: Separate property tracing throughout the marriage

 

A separate property claim assertion usually will need to be traced throughout the marriage if it is in the form of liquid assets such as cash, securities, or other tradeable investments.

 

Tracing Complexity Resolution:

The documentation needed to prove separate property throughout the marriage would include:

 

  • Bank/Brokerage/Retirement Accounts 

    This is the statement for which the separate property funds existed in the account through the current period. It is equally important for this to be a complete statement that reflects: the account holder, the date period covered (i.e., for the month of April 20xx), a detail of all activities for that statement period, and all assets held in the account (in the instance of a brokerage or retirement account).

 

  • Real Property 

    Additional documents that reflect changes of ownership (i.e., Warranty Deed assignments, Quit Claims, Sale, etc.).

 

  • Business Entities 

    Additional documents that reflect changes of ownership (i.e., Gift Assignments, Change of Ownership documents, etc.).

  

The Most Important Thing to Remember

The more formal the documentation (i.e., bank/brokerage statements, tax returns, HUD settlement statements, business formation documents, etc.), the better the separate property claim. However, any proof is better than no proof (i.e., pictures, emails acknowledging separate property claim, etc.). The more formal the separate property documentation, the stronger the separate property claim.

Contact us to see how we can assist you with your separate property characterization needs, including the review of another experts’ separate property characterization claim.

 

*Please note this article provides information that is accurate to the best of the authors’ knowledge as of the date of publication. It should not be read as advice or opinion. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations. Briggs & Veselka reserves the right to conduct asset tracing work on a case-by-case basis. 

 

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