A divorce involving significant assets requires careful financial review, even if it is relatively amicable. And with so much money at stake, things are rarely amicable for long. In both Texas and California, laws about marital property give divorcing partners extra incentives to hide and disguise assets. Even honest ex-spouses can be confused, misled, or just plain wrong about their income and asset portfolio.
Whenever financial dealings are unclear or suspicious, forensic accountants can analyze the evidence to learn what has happened. These specialists untangle complex paper trails to determine who owns what and how they dealt with it. The word “forensic” describes anything relating to legal issues, not just crime scene examination. But forensic accountants can certainly detect the evidence of crimes like fraud, embezzlement, and concealment.
How Forensic Accountants Work
Both Texas and California require complete financial disclosures to the court in a divorce, and forensic accountants can provide expert testimony. Forensic accountants review all available financial records, such as tax returns, bank records, and dividend statements. They can also:
- Analyze disorganized and difficult documents—receipts, invoices, handwritten notes, personal spreadsheets, and other scattered evidence
- Search for assets concealed from the divorce process
- Assess each partner’s income and expenses for the purposes of spousal or child support payments
- Provide accurate valuation of assets and businesses at issue
Even when no wrongdoing is suspected, forensic accountants are vital in reviewing financial disclosures in a divorce between high earners. It is rare for both partners in any marriage to handle all the finances equally and understand when and how all the business was done. To create a fair and equitable settlement, it is crucial to understand not only which transactions took place but when and where they occurred.
Community Property Laws: When and How
Texas and California laws differ sharply in many ways, but they do share a policy about marital property—they are both community property states. Both states regard income, assets, and debts acquired during a marriage as belonging to both partners. The laws recognize exceptions, such as:
- Gifts given to one partner
- Earnings from a partner’s separate property
- Personal injury settlement funds for one partner
- Inheritances left to one partner (before or during a marriage)
If a couple cannot agree on a divorce settlement that divides the community property, the court must divide it. California law requires a roughly equal split, but in Texas, a court will divide community property by “equitable distribution.” That does not necessarily mean a 50/50 split—it will depend on what the judge considers fair and just, according to the law and the circumstances.
When a couple has considerable assets and income, this issue can become complex. For example, suppose A is an owner of valuable unimproved land. She marries B, who funds the construction of a house on A’s land. How would a court divide the equity in that real estate in a divorce? The answer would depend on several factors, particularly the timing of the payments and the relative contributions—and this is only a simple example.
Transactions between high-income partners can be extremely complex. High earners usually invest in strategies to protect their assets from litigation even when they are not anticipating divorce.
Hidden Assets
Partners who do anticipate divorce may attempt to keep income or assets out of community property by:
- Undervaluing assets or businesses
- Registering assets in other states or countries
- Creating trusts or shell companies to hold ownership of assets
- Registering them in the names of “straw partners”—relatives or associates
- Deferring income-generating activities (e.g., avoiding signing new contracts) until the income would no longer be community property
Some of these can be outright fraudulent and illegal, especially if the straw partner is a minor child. Forensic accountants know how to detect missing assets and cast a wide net in their searches.
Support Payments: Law vs. Law
An accurate financial analysis for each partner is essential for establishing fair spousal or child support, especially considering the differences in state laws.
Texas and California have different policies on alimony (or spousal maintenance). California courts could potentially order indefinite spousal support after a marriage of longer than ten years, depending on the partner’s earning potential and standard of living while married. Texas law, however, limits the time and amount of spousal support payments. See Tex. Fam. Code §§ 8.052–054.
Similarly, California law does not cap child support payments. California law states that “children should share in the standard of living of both parents,” and “child support may therefore appropriately improve the standard of living of the custodial household” for their sake. See Cal. Fam. Code § 4053. However, Texas law follows guidelines that set percentage limits on child support, based on the number of children that the payor also supports, as well as their net income. See Tex. Fam. Code §§ 154.125–126.
One partner may seek a financial advantage in Texas or California law by filing in one state or seeking to move legal proceedings to the other. Establishing jurisdiction for the divorce may be complex. Forensic accountants can not only provide a fair analysis of their financial position but find evidence of where and how the partners lived. This information is key to resolving disputes over state jurisdiction.
A Divorce Attorney for Your Family’s Needs
Attorney Carla Hartley’s multi-state legal team handles complicated divorce issues with strength and compassion. If you or your family are facing a Texas or California divorce, we want to talk to you. Contact us in Ventura, CA (805-855-1483 or Arlington, TX (469-949-1630) today.
