Every family law client heading into a divorce asks, “How much will this cost?” This is a cautionary tale outlining how two very similar divorces, in terms of accumulated assets, valuation, division of property and issues involving methods of resolution, can result in wildly divergent costs. In both of the cases described below, the couples divorcing were middle-aged and separating after a marriage of more than a decade with a substantial estate to divide. These stories are based on real cases but details have been changed.
In Case No. 1 the marital estate was about $18 million in real estate, financial accounts and employment benefits, which were not all taxed or fully vested. This couple participated in the collaborative divorce process, pursuant to Texas Family Code §15.001-15.116. Identifying, valuing and dividing the financial assets was a thorny and challenging slog.
Each party had an attorney, but the attorneys and their clients agreed to hire a single expert to examine and value the real estate properties and a single financial expert to identify and quantify investment accounts, tax-deferred assets, capital gains, stock options and restricted stock units.
The financial expert helped analyze the probable tax impact of the asset division. Some of the financial assets in the investment accounts showed gains; others were underwater. If these assets were divided equally, each party would share equally in the profits, losses and taxes. The effects of stock options not yet fully vested and the tax consequences could also be estimated based on the history of the stock. The real estate expert determined the value of those properties and estimated the cost of, say, selling the family home and dividing the proceeds equally both before and after the divorce, versus one party keeping the house and continuing to meet the costs of caring for it, as the value of the property appreciated.
Through the collaborative process, both parties were fully informed about every issue involved in dividing the property they owned together. They were offered a variety of options and were able to make intelligent decisions. They set the pace of the case to meet their needs. It’s fair to say that neither party felt an ideal arrangement had been achieved, but each felt the final settlement was acceptable. The overall cost of the divorce, completed through the collaborative process, was in the $80-90,000 range.
Couple No. 2 had a sizable marital estate configured somewhat differently than the estate of No. 1. They had a second vacation residence in addition to the primary family home, and a closely held family business in addition to the usual investment accounts. In Texas judges generally will not hear a divorce case until a couple has made an effort to resolve their differences first through mediation. This couple had a hard time agreeing on the time of day and could not arrive at an agreement on the division of property, even after two mediations.
In this case each party hired his/her own financial expert, which doubled the cost of obtaining expert advice. The two experts did not agree. The valuation of closely held businesses is notoriously difficult in the best of times: now add the difficulties posed by a pandemic. A crystal ball to predict the post-pandemic performance of the business was not available! Would it be a treasure trove of income, a hellhole sucking away every investment, or something in-between? Typically, the personal goodwill generated by the owner of an established business is not included in any analysis of its value; all that counts are black and white financial documents and expert analysis.
The couple fought ferociously over the valuations produced by their dueling experts and ended up having to resort to litigation. The cost of the divorce so far is over $300,000 with the court resolving the issues in a manner the judge deemed to be “just and right”—the standard established by Texas law. Both parties are dissatisfied, and there are still post-divorce details and costs to be addressed.
All too often, in high-net-worth, high-conflict divorces like this one, parties get so caught up in the fight that they struggle to be reasonable or even to act in their own best interests. One party can become so determined to keep the house, no matter what, that he ends up without enough liquid assets to buy groceries. Or one party is so determined to hang on to her stock options, no matter what, that she ignores the possibility that her company may go broke, leaving her options worthless.
It is far better, if at all possible, to put aside one’s own grievances and seek a fair and honest settlement everyone can live with, rather than be bent on achieving some kind of ultimate takedown—which can turn out to be a Pyrrhic victory in which the gains are meager compared to the costs. Divorcing spouses should always bear in mind that the cost of the divorce is money that is taken out of their estate forever. They have hired lawyers versed in the practical resolution of conflicts. Listening to the advice of these trained and experienced professionals is key: balancing cost with the value gained is essential. When clients ask, “How much will it cost?” the answer will always be, “It depends on the clients.”
Susan Myres is a board-certified family law attorney at Myres & Associates. She has been practicing in Houston for over 35 years and has served in leadership positions locally, statewide and nationally. She is also the immediate past president of the American Academy of Matrimonial Lawyers.
Reprinted with permission from the May 12, 2021 edition of the Texas Lawyer © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 - firstname.lastname@example.org.