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Specialty tag(s): High Net Worth Divorce

How to Protect Your Separate Property in a High Net Worth Divorce: Part II

Clint Westhoff | May 5, 2021

In part one, I mentioned that the most common way people lose their separate property is by not keeping track of it. And that is what we’re going to cover today. If you need a refresher, part one discusses what separate property is and offers tips on how to protect your separate property in a high net worth divorce. If you can’t prove something as your separate property, then you aren’t going to have judicial protection for your separate property. In that case, it will be treated as community property even if everybody knows it’s separate property. 

What are my burdens of proof?

Your burden to prove something is your separate property is clear and convincing evidence that is one of three standards of proof that are used in the judicial system. The most common burden of proof is the preponderance of the evidence. If you think of a scale, a preponderance is if you tip the scale ever so slightly to your side, then you win. 

Another burden of proof is beyond a reasonable doubt. That is the burden of proof required before we put people in jail. You don’t have to prove something as your separate property beyond a reasonable doubt. But the closer you can get to that standard, the better.

The standard of proof for proving something as your separate property is clear and convincing evidence, which is somewhere between preponderance and beyond a reasonable doubt. Legally, that’s described as the measure or degree of proof that will produce in the mind of the Trier of fact, a firm belief or conviction as to the truth of the allegations sought to be established. 

How should I move forward?

This above definition may sound more like legal speak and probably doesn’t provide a lot of guidance for most people. So here’s some guidance on what you can do to protect your separate property in a high net worth divorce.

Keep all of your separate property records.

For example, if you have an investment account before marriage, and you were married in 1990, and going through a divorce in 2022, it is best to have every single account statement. If you have all of the account statements except for some reason you’re missing 2009, then there is a real chance the entire account will be treated as community property. Keep in mind that financial institutions generally keep records at most for seven years. 

Keep your property dividends and interest separate.

Do is not commingle your separate property and community property dividends and interest. The new stock is community if you use the dividends from your separate property stock to buy more stock. Keeping it all in one account makes proving something as your separate property much harder. Because it’s all mixed together, you can sweep your dividends and interest out of your separate property account into another account every month. 

Keep your records clear. 

Don’t title an account jointly if you tend for everything in it to be separate. Don’t deed real estate to your spouse if it’s your separate property. Sometimes when refinancing secured debt on real estate, when you’re at a closing, you and your spouse are handed a stack of documents, and included is a deed. Even if you were told, it’s just standard. Don’t change the title unless that is what you intend to do. Finally, document things as you go throughout your marriage and have open and healthy conversations with your spouse about your entire financial situation, including what is your separate property and what is community property. Those are just some fundamental tips about what you can do to keep track of your separate property. 

Most people fail because they don’t keep paper or electronic records, especially over a long marriage. As a result, their separate property is simply lost because they can’t meet their burden of proof to have clear and convincing evidence. In addition to keeping good and complete records, keep your separate property segregated and not commingled, and keep the title to your separate property only in your name. Also, you can get a marital property agreement to put in writing exactly what you and your spouse expect to be separate property and what you expect to be community property.

For more information on protecting separate property during a high net worth divorce, please contact Clint Westhoff at 214-473-9696.

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