Enforcement of High Net Worth Texas Divorce

iStock-1139699594-300x200When a couple has complex and high-value assets, the actions required to achieve the property division may drag out long after their Texas divorce.  The parties may need to refinance or liquidate certain assets.  These ongoing transactions can result in additional disputes and possibly enforcement actions by one or sometimes both parties.

A husband recently challenged a court’s order in favor of the wife in dualling enforcement motions.  The trial court entered an Agreed Final Decree of Divorce in March 2019.  The decree awarded the wife a business, but required her to pay the husband a $770,000 equalization judgment secured by her primary residence and rental properties.  She was also ordered to make monthly payments with 3% interest starting in February 2019.  She defaulted in 2020, triggering an acceleration clause.

The decree also addressed the parties’ 2017 tax return and liability. The wife would pay $60,000 of the approximate $199,000 liability and any penalties and interest “arising solely out of the failure to previously make the $60,000 payment to the Internal Revenue Service.” The parties would split the remaining tax liability, penalties, and interest equally.  The wife consented to filing the tax return in June of 2019, but the husband asked to review certain documents before he consented.  There was evidence he received the documents in the summer of 2020 and notified the wife and accountant he had identified additional medical expenses within a week of receipt.  He ultimately gave his consent to file the day before the enforcement hearing.

The wife testified she defaulted because she needed the 2017 tax return to refinance her.

Both Parties File Enforcement Actions

The proceeds from the sale of the wife’s residence were placed in a trust account.  Each party then moved for enforcement.

The wife asked the court to offset the equalization judgment by half the remaining tax liability and other fees.  She also asked the court to order that the joint return be filed, to require the husband to pay late penalties and interest, and to require the husband to pay half of the fees for the accountant and half of her attorney’s fees.

The husband asked for the full amount in the trust account as a partial payment.  He also requested attorney’s fees for the enforcement motions. He further asked the court to give him the discretion to negotiate or enter into a payment plan with the IRS.

The court ordered the outstanding amount on the equalization judgment was $200,285.28.  The court offset half of the 2017 tax liability, all of the penalties and interest that had accrued since June 10, 2019, attorney’s fees, the tax advisers’ attorney’s fees, and half the fees for the accountant’s preparation of the tax returns.  The court therefore ordered the amount currently due on the equalization judgment by its calculation, $47,847.47 be paid to the husband from the trust account.  The court further ordered that $86,237.56 for the tax liability and $30,572.00 for the penalties and interest be paid directly to the IRS from the trust account. The remainder was to be paid to the wife.  The wife was ordered to pay her half of the tax liability and the remaining penalties and interest directly to the IRS.

Husband Appeals

The husband ultimately appealed. He argued the trial court abused its discretion in ordering him to pay all of the tax penalties and interest. He argued the court improperly modified the property division in the agreed final decree.

An enforcement order may clarify or assist in implementing a prior order, but it may not amend, modify, alter or change the substantive property division in the decree.  Tex. Fam. Code Ann. § 9.007. An order may specify the manner of achieving the division as long as it does not alter or change the substantive property division.  Tex. Fam. Code Ann. § 9.006.

The appeals court noted the decree provided each party would be 50% responsible for paying “any penalty and interest remaining” after the wife made the $60,000 payment. The agreement in the MSA was clear and unambiguous.  The trial court altered or amended the agreement and the decree by ordering otherwise.  The appeals court further found the trial court abused its discretion.

The husband also argued the trial court abused its discretion in offsetting half of the tax liability against the balance of the equalization judgment. The appeals court, however, found the order did not impose any additional financial or monetary obligation.  The parties were each responsible for half of the 2017 tax liability pursuant to the decree, but the decree did not specify how the parties were to make that payment.  The appeals court therefore found the trial court had clarified and enforced the decree rather than altering, amending, or modifying it.

The husband also argued the trial court abused its discretion by not including the 3% interest in the determination of the balance of the equalization judgment. The wife told the trial court at the hearing that she owed $200,285.28, but the husband included the interest and said she owed him $223,325.11. The appeals court found that the trial court erred in failing to include the interest that was required by the plain language of the decree.

The appeals court also agreed with the husband that the evidence was insufficient to support the attorney’s fees award.  The trial court had the parties submit written requests instead of holding a hearing.  In calculating attorney’s fees, a court multiplies the reasonable hours worked by a reasonable rate.  In Texas, there must at least be evidence of the services, who performed them, when they were performed, the reasonable amount of time needed, and the reasonable hourly rate for each person. The record included invoices that showed the rate, time spent, and the tasks performed.  There was no testimony regarding the reasonableness and necessity of the fees. The appeals court found the evidence was insufficient to support the attorney’s fee award.

The appeals court acknowledged that the decree provided for the wife to pay the husband’s attorney’s fees if she defaulted on the payments, but found that there was insufficient evidence to support an award in his favor as well.

The appeals court reversed the trial court’s order and remanded to the trial court for additional proceedings.

The trial court appears to have been attempting to achieve a fair result, but failed to comply with the decree.

The Stakes Can be Higher in High-Net-Worth Divorces; Call McClure Law Group Today.

If you are facing a high-net-worth divorce, the skilled Texas divorce attorneys at McClure Law Group can help you protect your rights and assets.  Schedule your consultation by calling our office at 214.692.8200.

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