In a divorce, identifying, calculating and dividing property and assets can get very complex. Clients often ask me if they can be reimbursed in the divorce settlement for specific unusual, community spending during the marriage, or “waste,” by their soon-to-be-ex-spouse.
In Texas, a law was passed in 2011 to help innocent spouses “reconstitute the community estate” if the other spouse has transferred community assets out of the marriage, or otherwise financially misbehaved during the marriage.
- A recent client contacted me and asked if her husband’s spending on big game hunting, taxidermy and related travel during their marriage was reimbursable to her as we were calculating an equitable division of the couple’s marital assets. This amounted to more than $100,000 in spending.
In this case, I told her “likely no,” there is no reimbursement for the amount he spent on his hobby. However, if he would have spent this amount on a “girlfriend,” we could ask for reimbursement. Then, we could “reconstitute” this amount into the community assets to be divided or offset in the settlement.
I told her if she wished to get an appraisal on the “big game” taxidermy, then the current value of the stuffed animals would be listed as an asset on his side of the financial statement (since he wanted the items) and could be offset by giving her more assets. This would at least give her a partial repayment for community assets spent on his expensive hobby. I told her it may be difficult to find an expert appraiser for such items, but a local taxidermist may give her an appraisal, or provide a source to do so.
Another way individuals place market value on such items is by checking similar item values on the internet. Ebay or other websites that may market such items would be a good place to start. If you find the item value online, save and print the document which can be used during mediation or in court.
Another factor in this case was that the husband had set aside significant funds in qualified savings accounts at the maximum level, and also had invested in real estate. So, there were plenty of assets to divide between the two spouses.
2. What about credit card debt that a spouse brings into a marriage? Is there any way to recoup that? Yes, if the other spouse can document the amount repaid during the marriage, he or she can claim a reimbursement for the repayment from “community” earnings (meaning from either spouse) during the marriage.
3. What about the funds a spouse loses in Vegas or online gambling? Is that reimbursable? Yes, once again, this is considered an improper depletion of the community estate (owned by both parties). Documenting such losses will be the challenge and will likely require some digging through past credit card or bank statements to prove the case. This can be done by a Certified Divorce Financial Analyst using a process called “tracing.”
4. What if one spouse spent $100,000 remodeling a home that he or she owned prior to the marriage? Yes, because the home is considered “separate property,” yet the funds used on the improvements came from “community” earnings, so is reimbursable in a divorce.
5. How about 15 years of child support paid to an ex-spouse? No, this is not reimbursable.
So, depleting the community estate for purposes given in 2, 3 and 4 above would be cause for the reconstituted estate.
Using #4 as an example, to reconstitute the estate, we would insert $100,000 as a “reconstituted” asset in the wife’s column of assets received from the divorce settlement. The husband would receive an offsetting amount equal to that from assets within the estate.
So, if you can document unusual, exorbitant spending by a spouse that you believe should be reimbursed to the community estate, the Texas Family Code may provide a way for you to be reimbursed in a divorce.
Your Certified Divorce Financial Analyst is trained to help you create spreadsheets that will illustrate how a spouse can be compensated for such “wasting.”
Contact Patricia Barrett, CDFA, CFP; Mediator at 832-858-0099. For more information, visit www.lifetimeplanning.cc