An Attorney’s Perspective on Divorce – an Interview with Katie L. Lewis
Katie L. Lewis, a family and divorce law attorney and entrepreneur based in Dallas, Texas, started her own firm, Katie L. Lewis, P.C. Family Law, eight and a half years ago after practicing law for 17 years. The Texas Board of Legal Specialization has certified Katie in family law, a distinction claimed by fewer than 5% of Texas attorneys. Katie and her team of five attorneys exclusively focus on family law, assisting people from all walks of life with issues ranging from custody to premarital agreements to divorce involving complex estates.
Katie was kind enough to sit down with us to lend her expertise in the financial aspects of divorce. She offers insights on things to remember, things to be wary of, and some special instructions for going through a divorce in Texas.
How can people set up their finances for the smoothest divorce possible?
To ensure divorce proceedings don’t encounter preventable issues, individuals can take a few important steps:
- Gather financial documents and information, ensuring access to all associated accounts. It’s crucial to obtain login information for shared accounts, especially if one person managed the finances in the marriage. Documents to gather include account statements, loan ledgers, recent check stubs, tax returns, and a list of jointly acquired assets and those acquired before the marriage.
- Run a credit report on yourself to be aware of any outstanding debts linked to you. However, it is important to note that running a credit report on your spouse is illegal.
What’s the best way to protect your assets through a divorce?
When you say “protect assets,” the first thing that comes to mind is, “What do I do to make sure my spouse doesn’t over-spend?” In most divorces, they have what’s called a “standing order” in place. It’s the rules and regulations on what each party can and can’t do during a divorce proceeding. Things like: don’t cancel health or car insurance, don’t liquidate accounts, and don’t remove people’s names from accounts. It also states that you can only spend money for “reasonable and necessary living expenses and legal fees.” That protects your assets while the divorce is underway.
Some counties don’t have standing orders. If that applies to you, you can get a restraining order or an agreement on temporary injunctions that will be in place during the pendency of the case. That ensures everybody’s playing by the same rules.
What’s the biggest financial mistake you see with clients going through divorce?
The biggest mistake people make is not hiring an attorney. I have helped lots of people who have attempted to DIY their divorce, and unfortunately it often takes thousands upon thousands of dollars to fix what they did wrong.
I highly suggest you get a lawyer to not only represent your interests, but also to make sure it’s done correctly.
Especially when it comes to dividing certain financial accounts. For example, when you’re separating things like a 401k, you need to have a qualified domestic relations order (QDRO) signed at the same time as the divorce decree.
The QDRO is required for the plan administrator to take that 401k and divide it. It also specifies how to address gains and losses. So, if for example, it’s a 50/50 split, your financial advisor can set up a new 401k in the other spouse’s name, and transfer 50% over on the agreed upon date.
If you fail to sign this order at the correct time, it creates ambiguity, which sends you back to court and in the long run, can cost more than hiring an attorney would have.
If you’re doing it yourself, you might not know about those types of things. And people end up spending thousands to fix what they did wrong.
Even if it’s amicable, you need an attorney to make sure it’s done correctly.
Speaking of dividing accounts, how does division of an investment or retirement account work?
In the example above, I’m specifically referring to a 401k account. In that situation, you would need that separate order to divide the asset.
But let’s say we’re dealing with a brokerage account. The brokerage account might have $50k on May 1, and then drop down to $45k on May 15. So, which amount are we dividing?
You need a lawyer that’s going to specifically address these types of issues. We see them happen all the time with these different types of financial accounts.
In the case of a brokerage account, you don’t need that separate order like you would with a retirement account. But you do need to know how you’re going to cover those bases and logistics when dividing them. An experienced attorney can help guide you in that.
When helping a client with divorce, do you partner with financial experts?
Absolutely. We partner with both financial experts and forensic accountants.
Forensic accountants can be especially helpful when working with business owners. They help accurately value the business, and they also have the skills and tools needed for tracing financial transactions and identifying unusual activity. Forensic accountants also know how to go through financial documents to search for signs of hidden assets. They may also help with properly valuing assets.
Regarding business owners – are there any special considerations they should make during a divorce?
In addition to getting the help of an expert to ensure your business is properly valued, the best thing business owners can do is to hire an attorney that gets it.
In addition to practicing family law, I myself am an entrepreneur and small business owner, so I do get it.
You’re going to be looking at business tax returns and K-1s. And there are a lot of things you can run through a business that are still considered income. In general a Board Certified attorney should know this type of stuff, but it doesn’t hurt to hire one with first hand experience running a business.
What about things that Texans specifically should be cognizant of?
There are quite a few things that are specific to Texas.
Texas has a mandatory 60-day waiting period to get a divorce. That means the 60-day waiting period begins on the date the divorce petition is filed, so the earliest a divorce can be finalized is 61 days after filing. Though it rarely happens that quickly because it takes time to finalize agreements in the divorce decree.
Another thing about Texas is that here there is no “legal separation.” Which means that unless a divorce is pending, the court can’t enforce any rules or regulations because it doesn’t have jurisdiction. So, anything goes.
But, let’s say a married couple is on the same page and agree on everything, but they’re not ready to get a divorce — they can do a post-marital agreement. It’s like a prenup for after you’re married.
Then, after the divorce petition is filed, the restraining order lays out what people can and can’t do with their financial accounts during the pendency of the divorce.
The last thing I’ll say about Texas is that here there is no alimony. We do, however, have spousal maintenance which is thought of as more of a rehabilitation statute and temporarily provides for “reasonable and necessary living expenses.” There are 16 different factors, like college education and the size of the community estate, that go into this decision to determine the duration and the amount. And there are caps on what those can be in Texas.
What’s “fair” when it comes to dividing assets?
When it comes to dividing assets, “fair” isn’t necessarily “equal.” Texas is a community property state — things like real estate, wages, investments, and even debt that were acquired during the marriage are owned by both spouses.
When it’s time to divide those assets, the court considers certain circumstances to ensure it’s done equitably. Factors like children and their needs, each spouse’s ability to earn income, separate property owned, and taxes you might have to pay on the assets.
They also consider “economic misconduct.” So, if one spouse has been spending excessively, the court may award a larger portion of the shared assets to the other spouse.
What’s one thing you wish people knew going into divorce?
The divorce will be over and done with as soon as each party is willing to come to an agreement. There are only two ways to get a divorce in Texas — agreement or a judge’s decision. And one of them is a lot more time consuming, and therefore expensive, than the other. If you and your spouse have ten issues, but you can only agree on eight, a judge will decide the remaining two.
When you can come to an agreement, you’re still in control. If it goes to a judge, the outcome might not satisfy either party.
If you have questions about divorce or other aspects of family law, give Katie’s firm a call at 972-805-8340 or check out their website. Their blog is a treasure trove of helpful information.
If your questions are more finance-specific, please reach out to Gloria at [email protected].
We’d like to add that the information in this interview is NOT LEGAL ADVICE. The info here consists of things to consider if you or someone you know is going through a divorce. Take these considerations to your attorney and financial advisor, and they can offer your counsel that is suited to your personal situation.