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The 2 biggest concerns in a divorce involving oil or gas rights

On Behalf of | Jan 28, 2022 | Divorce

Any Texas divorce can turn messy quickly, but divorces with big assets are more likely to have significant conflicts. The more valuable an asset is or the bigger its role in someone’s future financial plans, the more likely they are to dig in their heels about that asset during a divorce.

Oil and gas rights can be a source of income if your household signs a lease or if you eventually intend to extract those resources yourself. If you expect your oil and gas rights to become an issue in your divorce, there are two concerns that will influence the outcome of the property division process.

When did you acquire the property or the rights?

Under the community property statutes used in Texas divorces, marital property is subject to division. If you bought the property with the oil and gas rights attached during the marriage, you and your spouse may share the ownership rights to the property. That rule applies even if only one of you is on the title.

However, if you owned the property outright prior to marriage or inherited it, it may be separate property. In a scenario where the land with potential oil and gas reserves is separate property, those mineral rights are not subject to community property division rules.

What are your oil and gas rights worth?

Trying to put a price on untapped theoretical resources isn’t easy. Within the oil and gas industry, the standard practice is to apply a multiplier to the current cash flow for the property. Usually, the value estimate will be three times the current annual cash flow, although some people claim that such an approach often undervalues the mineral rights attached to a property.

If you have a lease with a company, you can likely estimate the future revenue associated with that lease, but even that will be difficult. The production status of the property, the success of other operations nearby and many other factors can influence the likely value of your property.

Creating a reasonable value for mineral rights is a crucial part of reporting them and negotiating their division in a contested Texas divorce. Understanding the law and your property rights can help you handle the big decisions in your upcoming divorce.