Interested in how a divorce court will value your home? Read this blog post to find out how

Interested in how a divorce court will value your home? Read this blog post to find out how

Originally published by The Law Office of Bryan Fagan, PLLC Blog.

Once you have hired a licensed real estate appraiser, real estate agent or done a comparable home search on the county appraisal website to determine a likely value for your home, you have done most of the work that is related to value your house for the purpose of selling it. The next thing you to do is consider whether or not you need to remove “incidental” costs associated with the sale of the home from that appraised value.

Incidental costs are things like closing costs and realtor fees. From my experience, these costs are way too speculative to include in the value of the house. Closing costs vary across properties and title companies. There are no specific cases that I am aware of in Texas that say one way or the other how this subject is to be treated. However, I would be willing to argue based on the previous couple points I made that they should not be deducted from the appraised value of the home.

Fair market value is what you are going after when looking for the value of your family home

Anyone of us who took high school economics is likely familiar with the term “fair market value.” This term can be defined as the amount that would be paid in cash by a willing buyer who desires to buy but is not required to buy, to a willing seller who desires to sell but is no under no necessity of selling. That definition is one that is pulled from something called the Texas Pattern Jury Charge. There is no mention of realtor charges or closing costs in that definition. Closing costs vary from transaction to transaction. Realtor costs may not even come into being if a realtor is not used or if the house is never actually sold.

Reimbursement claims and the family home

This is a subject that is near and dear to the heart of almost every person who goes through a divorce. Reimbursement claims can be a difficult subject to explain to clients because it is a concept that tugs at concepts of “fairness” and “equity.” If you contributed income to the separate property of your spouse, in a divorce you have a right to be reimbursed for those monies. However, it can be very difficult to calculate those kinds of claims.

There is nothing in the Texas Family Code that instructs a family court judge on how to calculate to proceed on a reimbursement claim made in conjunction with a divorce case. The judge has full discretion on determining how much reimbursement to award to a petitioning spouse or even whether or not to acknowledge the claim.

For instance, if your spouse has a separate property home with a mortgage on it that has been paid during the course of your marriage then you are in a position where you will need to prove how much of the principal of that mortgage has been reduced during the course of your marriage in order to proceed with a reimbursement claim. Mortgage statements pulled from the internet or requested directly from your lender are a means to do so. Many websites have amortization schedules that show how much of each mortgage payment goes towards principal, interest and escrow funds. Tax returns that show mortgage payments as well.

Finally, another relatively common reimbursement claim that we see in divorce cases is when community money is used to make improvements on a separate property home. An example could be if your spouse and you used your combined incomes to make an improvement on a home that you owned before you two got married. The value of your reimbursement claim would be how much the value of the home increased due to the improvements that were made.

As you could probably guess based on the time we devoted in yesterday and today’s blog posts to determining how to value your family home, this can be quite a difficult job. It is not readily apparent how much a new kitchen, pool, updated bathroom or solar panels on the roof actually added value to the home. A real estate agent can serve as an expert witness in this capacity if it were an issue brought up at trial.

How can your family home be divided in your divorce?

There are many options available to a judge when it comes to dividing up your family home in a divorce. Keep in mind that these options are only available to a judge if you and your spouse cannot come to an agreement on your own when it comes to valuing the home and then either dividing it in a sale or allowing one of you to remain in the home while the other has their community property interest bought out.

Option number one is the clearest cut and simple for a judge: he or she would simply determine that the home is the separate property of either you or your spouse. No muss, no fuss. Next, the house could be awarded to either you or your spouse. Along with this option, the judge could award you the house but allow your spouse to reside in the home for a specific period of time after the divorce. This option could be chosen in the event that your spouse showed that it would be difficult to locate suitable housing quickly after the divorce.

For those of you who reside in rural areas, your real estate could be partitioned by the judge. For instance, consider that if you were awarded the home, your spouse could be awarded the majority of the land surrounding the home to compensate him for the loss he would take in his community property interest in that residence.

Finally, your house could be ordered to be sold and the equity (after closing costs and realtor fees) would be split between you and your spouse based on a percentage.

What happens with the mortgage on your home after a divorce?

This is a very relevant subject to discuss in conjunction with a divorce case. Most of us reading this blog post live in a suburban/urban environment in a single family home. Whether or not you would consider your immediate surroundings to be a neighborhood or not, it is likely that you and your spouse own a home in a neighborhood-type environment where the mortgage on that home bears both your name and that of your spouse. What many attorneys fail to do in connection with a divorce is properly explain what can happen with the mortgage once your divorce is over with. I will seek to provide you with some clarification on this subject so you enter your own divorce with a bit more knowledge.

Let’s say, for example, that your spouse is awarded the family home in your divorce case. He is also ordered to pay the mortgage going forward- a mortgage that has both of your names on it. Here is what I would tell you if you were represented by our office. First, the divorce decree is a legal document that is binding upon you and your spouse but it does not affect your personal obligation under the mortgage contract. If you’re soon to be ex-spouse fails to make payments on time for the mortgage then your credit score gets dinged.

Next, if you do well in the financial portions of your divorce and have a down payment ready to go for your next house you may have trouble qualifying for a mortgage. The reason for this is that your name is already on a mortgage to your former home. Your debt to income ratio will be skewed as a result of your technically owing money on another home. It is theoretically possible to not be able to qualify for a mortgage on your new house if your spouse is not current on payments on the “old” mortgage.

How can you get your name off the joint mortgage to your old house?

That discussion should lead you to ask the question of how, then, can you go about removing your name from the old mortgage to your former home?

One option that I have seen implemented in a final decree of divorce (the final orders for a divorce case in Texas) would be to order your spouse to refinance the home within X number of days from the date the divorce becomes final. No refinance is possible until the divorce is finalized since ownership of the home before that time is still in both your name and his. It is possible that your spouse, while able to be awarded the home in your divorce, does not qualify financially to be able to refinance the mortgage into their own name. A low income, low credit score, bad debt to income ratio or a combination of all of those factors could play into the reason why this is the case.

Another option to pursue could be that your spouse can sign documents that cause him to assume complete responsibility for the mortgage moving forward. The availability of this option depends on your lender. Your spouse should contact the mortgage lender as soon as he becomes aware that he is going to get the house in your divorce to see if this is an option that he can pursue. Again, however, your spouse needs to show that he can qualify for the process of assuming sole responsibility on the mortgage.

If neither of these two options is available then the home will likely be ordered to be sold by the judge. Most judges will not put you or your spouse in a position to fall behind in the mortgage payment and put both of you in a bad financial position. As a result, if no suitable arrangement can be made it is very likely that a sale of your home will commence.

Pulling equity out of your family home in a Texas divorce

Selling the home is by far the easiest method of pulling equity out of your home during a divorce. The equity can then be split between you and your spouse without much fuss, according to the terms of the judge’s orders or your mediated settlement agreement. Usually, if your spouse is awarded the home in your divorce then the equity can be pulled out in the following manners.

If your spouse gets the house, then you will be awarded a community property asset that equals the share of equity that would ordinarily be yours had the house been sold. Or, if there is insufficient community property to divide you may be able to get some portion of your spouse’s community property share as well as a separate property bank account of your spouse’s.

We will discuss the additional ways to cash out the equity stake in a family home in tomorrow’s blog post. We hope that you have enjoyed today’s blog and we will return tomorrow to finish up where we left off by talking more about cashing out equity in the family home.

Questions about divorce and dividing up the family home? Contact the Law Office of Bryan Fagan 

The attorneys with the Law Office of Bryan Fagan stand ready to assist you with any questions or concerns you have regarding your Texas family law case. Our attorneys have represented clients in every family court in southeast Texas and we do so with a great deal of pride.

To learn more about your case, our office or family law, in general, please do not hesitate to contact us today. We offer free of charge consultations six days a week. These consultations are a great opportunity for you to ask questions and receive feedback about your specific circumstances. Thank you for spending time with us today in reading our blog post.

And remember- the Law Office of Bryan Fagan is On Your Side!

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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Why I Used a Paralegal Instead Of an Attorney During a Custody Dispute

custody dispute

 

When I moved to a new state and my ex showed up after 3 years of not seeing our children with a lawyer and a petition for custody of our younger son, I was lost. I was also broke, with no money to hire an attorney.

Being unfamiliar with the laws and procedures of my new state, I started doing my homework. I also began to worry because a custody case was far more legally treacherous than anything I’d done on my own before. I knew I needed help making sure I was filing the appropriate paperwork with the appropriate court.

Why I Used a Paralegal Instead Of an Attorney During a Custody Dispute

I found out, via my own personal experience, that a paralegal can be a valuable asset if you are not using an attorney. If you’re going through a divorce, but don’t want to break the bank, you might be asking yourself, can I use a paralegal instead of a divorce attorney? In most states, it is legal to use the services of a certified paralegal to help with the paperwork generated by the divorce process.

In some states independent paralegals have been given legal right to serve as “legal document preparers,” so if you have a motion to file or a petition to draw up, you are within your legal right to hire a paralegal.

Things Paralegals can do

Paralegals can legally prepare divorce forms for you, and they can tell you where those forms need to be filed. Paralegals can also tell you how to serve divorce forms to your spouse, and help you fill out state-specific forms for modifying child support or alimony.

Things Paralegals can’t do

Paralegals can’t give you legal advice. They also can’t go to court and advocate for you the same way a divorce attorney will. If you are experiencing a fairly simple, uncontested divorce, you can save money by using a paralegal instead of a divorce attorney.

If your divorce is highly conflicted, with issues such as a custody battle or large assets to split, a paralegal is not something you want to consider. Their knowledge of court procedure and state divorce laws are limited, which makes them less valuable in a high conflict situation.

How to Find a Paralegal

As with a divorce attorney, you should not contract with a paralegal without first doing research into their background. Check with your Better Business Bureau for any complaints, and ask prospective paralegals about their experience and education. Making sure your paralegal is qualified is imperative when using one in place of a divorce attorney.

Sometimes Paralegals Know More

If your divorce is highly conflicted with issues such as a custody battle or large assets to split a paralegal is not something you want to consider. Their knowledge of court procedure and state divorce laws are limited which makes them less valuable in a high conflict situation.

As with a divorce attorney, you should not contract with a paralegal without first doing research into his/her background. Check with your Better Business Bureau for any complaints. Ask about their experience and education. Experience and qualifications are imperative when choosing a paralegal!

In my case, the paralegal I found looked over the case paperwork, and help me get everything done appropriately for a small fee. Here is the kicker: My paperwork was in good order, and my ex’s attorney had filed the petition for custody with the wrong court.

Thanks to the paralegal, we slowed down the process a bit, and when I did show up in court, all of my documents were properly filed and in order. Help can come from unexpected places. If you aren’t able to hire an attorney but need to use the court to protect your legal rights, a paralegal can guide you through the process and alleviate a lot of stress and anxiety.

The post Why I Used a Paralegal Instead Of an Attorney During a Custody Dispute appeared first on Divorced Moms.

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things to do before you file for divorce

8 Things You Need To Do Before You File for Divorce

things to do before you file for divorce

 

Filing for divorce is a big decision, to say the least. There are several issues that may need to be resolved before you can officially end your marriage, including the division of your marital assets, spousal support, child custody, and whether you will pay or receive your child support.

With so much on the line, it’s extremely important that you fully evaluate your options and goals before you file for divorce.

Here Are 8 Things You Need To Do Before You File for Divorce

1. Have Certainty

It’s critical that you are sure that you want to get a divorce before you file for one. Filing for divorce can irrevocably change your relationship and may start a cascade of events from which there is no coming back. You should never file for divorce as a bluff or in response to a particularly bad fight.

While there are certainly cases in which it’s justifiable to file for divorce without letting your spouse know, in most cases, it’s a good idea to discuss the matter before you file any paperwork with the court.

2. Gather Important Documentation

As soon as divorce is even a consideration for the future, you should take the time to gather important documentation and information. This way, you will have everything organized when the time comes to file for divorce, and you will not have to worry about your spouse attempting to conceal critical information – such as financial accounts – from you. Some documentation you should organize in a file includes:

  • Social security numbers for you, your spouse, and your children
  • Insurance policies
  • Account numbers for all bank, investment, and retirement accounts
  • Deeds to real property
  • Titles to vehicles
  • Appraisals of valuables, including art, musical instruments, or jewelry
  • An inventory of your personal property
  • Usernames and passwords for all online accounts

With all of this information upfront, your lawyer will have the full picture of your situation, and you will not need to delay your divorce while you search for documentation. Keep in mind that if you plan to move out, you should be sure to get these documents before you actually leave – many divorcing spouses who leave the marital home find it very difficult to get back in once they are out.

3. Have A Plan for Custody

If you and your spouse have children, and one of you is planning on moving out, it’s a good idea to discuss how you want to handle child custody while your divorce is pending. You can always hammer out a final custody order at a later date or have the court decide the issue for you, and it’s a good idea for your children’s sake to figure out how you will handle parenting time and decisions until your divorce is finalized.

If you’re having trouble coming to an agreement with your spouse, keep in mind that a judge can impose a temporary custody order during this period.

4. Have A Support Network

Divorce can take a toll on your finances, but it is also a highly emotional time. No matter who is seeking the divorce, ending a marriage and breaking up your family can be a draining task. You should avoid taking out your emotions on your children, but it is important to have a separate emotional support network.

Dedicated friends or family members can lend an ear when needed, and they can also help with your kids or other tasks that can be difficult to complete on your own.

5. Have A Clear Understanding of How Your Actions Could Affect the Outcome of Your Divorce

The period between filing for divorce and the date your divorce is final can be a complicated one. Many people are anxious to get on with the next chapter in their lives and do things that may be out of character or start dating immediately. It’s important to understand that the things you do while your divorce is pending may have an effect on the outcome of issues like child custody, the division of marital assets, or spousal support (maintenance).

For this reason, you should refrain from engaging in any activities that could call into question your judgment or emotional stability. In addition, since you are still married in the eyes of the law, it’s a good idea to refrain from dating or starting a new relationship while your divorce is pending.

6. Have A Financial Plan

There is no doubt that divorce can affect your financial situation. For many people, losing the financial support of a spouse can be difficult, and there are ways to plan ahead to ensure you are in the best financial position possible post-marriage. Some aspects of a strong financial divorce plan include:

  • Do not accrue any unnecessary debt before or during a divorce
  • Watch any joint accounts for over-spending on your spouse’s part
  • Stick to a strict budget and minimize your spending
  • Determine how much income you will need to cover your bills and expenses on your own

7. Have A Place to Live

Many people wonder whether they should move out prior to filing for divorce. Sometimes, moving out can make it more difficult to retain any ownership in the family home after the divorce, so you might consider staying until the divorce is final. However, if the situation at home is untenable or unsafe, you should secure a place to live that is affordable and appropriate for your children to visit.

8. Hire An Experienced Divorce Attorney

Finally, if you are considering filing for divorce, it’s in your best interest to at least consult with a family lawyer in your jurisdiction. Divorce is a complicated legal matter that can affect the most important aspects of your life, including your finances, your ability to spend time with your children and make important decisions about their lives, and whether you can stay in your current home.

Consequently, it’s highly advisable that you consult with an attorney before you decide to take any steps that can affect your legal rights.

The post 8 Things You Need To Do Before You File for Divorce appeared first on Divorced Moms.

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divorce is like buying a house

How Divorce is like Buying a House

divorce is like buying a house

 

Many people going through a divorce think they just need an attorney to split up their assets and debts, figure out support and draw up the paperwork.

The problem with this line of thinking is a divorce is most likely the biggest financial transaction of someone’s life and an attorney is not a financial professional.

A divorce has a bigger impact than buying a home does in the long run.

When you buy a house, you have a team of professionals to make sure the deal is done right. If you need to get rid of the house after the purchase, it’s fairly easy to sell it and move on.

When going through a divorce, you need just as many people surrounding you to make sure the deal is done right because when it’s all said and done, you can’t go back and change the deal.

Let’s go through what your home buying team looks like and how that compares to what your divorce team should look like.

How Divorce is like Buying a House

Your Home Buying Team

Realtor

You will want a realtor to help you find the perfect home to fit your needs and to give you the inside scoop on the community. Your realtor is the backbone of your team. You trust that they are picking out the very best homes based on your needs for you. They are with you from start to finish and possibly many years later when buying a larger or smaller home.

Mortgage Lender / Banker

Most of us aren’t in a position to be buying a house without a little financial help from the bank in the form of a mortgage. Maybe your realtor refers you to a few lenders. That lender is going to figure out and let you know based on your assets, debts and income how much you can afford and the best type of mortgage for you.

Home Inspector

An inspector should look at the house before the sale is confirmed to ensure the foundation is sound and living conditions are safe. You certainly wouldn’t want any surprises after you have bought the home. Not knowing whether the house is up to code can result in large unplanned costs.

Attorney

Finally, you will need an attorney to draw up all the paperwork to ensure money goes to all the right places and the deal is legal.

This is your core home buying team. You will most likely need more professionals depending on your situation, but this just about covers your basis.

Your Divorce Team

Attorney

An attorney is the most well-known professional for divorce, but they can’t do everything. They are excellent for drawing up documents and advocating for what you are legally entitled to. However, they aren’t licensed or certified to advise you on the long-lasting effects of splitting up property, retirement assets and businesses. Most attorneys will help you put together your Statement of Net Worth, tell you how to divide assets and debts and figure out calculations for spousal and child support.

They can certainly split up your finances, but they cannot educate you on investments, taxes and insurance along the way or what the effect of splitting everything up is going to have in 2, 5, and 10 years. Hourly rates range from $300 – $800/hour.

Certified Divorce Financial Analyst (CDFA)

Most people want to understand what is happening in the divorce process; especially with their money. There are many ways to split up assets and debts in a divorce, knowing what way is going to benefit you the most in the future will save tens of thousands of dollars, if not hundreds of thousands of dollars. This is what a certified divorce financial analyst does day in and day out. Most CDFA’s will complete your statement of net worth for you or with you and educate you along the way.

They will also propose how your assets and debts can be distributed so that nothing is overlooked, taxes are saved, penalties are avoided and what you are left with is in line with what your future needs are. As for child support and spousal support, they do those calculations as well; ensuring items aren’t forgotten like cash from a business that’s not reported. Hourly Rates range from $150-$400/hour.

Mediator

Some couples use a mediator instead of attorneys to divorce. They are a neutral third-party who helps you come to an agreement on how to split up custody, support, etc. Many states do not have any requirements for someone to be a mediator so be sure to do your homework. Find one that is experienced and concentrates on divorce. Mediators are wonderful when it’s an amicable divorce. Be sure to still get some legal advice from an attorney and have them draw up the final documents for you.

Mental Health Therapist

Divorce is one of the most stressful, uneasy times of your life. It’s a good idea to talk with a professional so you can be the best possible mom, aunt, daughter, co-worker, and friend. Taking steps to be the best you during a divorce means the world when entering the next chapter of your life.

You may have more professionals, but this should be your core divorce team.

If you have a team for your house, have a team for your divorce. 

Between splitting properties, bank accounts, retirement funds, debt and finding new living arrangements all while transitioning to just one income, a divorce is going to be the biggest financial change of your life. Make sure to have a team of professionals around you to help you. You deserve to have a financial advocate, an experienced mediator and/or legal counsel and a mental health counselor. Invest in yourself and your new future now so that you don’t have regrets or “surprises” once your divorce is complete.

By building a core divorce team just like you would when buying a house you will have peace of mind when you sign on that dotted line.

The post How Divorce is like Buying a House appeared first on Divorced Moms.

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Just in Time For Summer: The Freeze-Out Merger, A Legal Option Available to SOME Majority Owners of Privately-Held Texas Companies

Originally published by Winstead.

By Zack Callarman and Mark Johnson

Our previous posts have stressed the critical importance of buy-sell agreements for both majority owners and minority investors in private companies (Read here). For majority owners, securing a buy-sell agreement avoids the potential of becoming “stuck” in business with a difficult co-owner without the ability to force a buyout of this minority investor’s ownership stake. For at least some majority owners of private Texas companies, however, another option exists. This option is commonly known as a “freeze-out,” “cash out” or “squeeze-out” merger.

What is a Freeze-Out/Squeeze-Out Merger?

A freeze-out/squeeze-out merger is a merger of two or more business entities that results in one or more of the equity holders of one of the pre-merger entities being cashed out as a result of the merger (i.e., not allowed to own equity in the post-merger surviving company).

Mergers are governed by state corporate law, and most states have several similar, but separate, merger statutes for corporations, LLC’s and other forms of business entities recognized under state law that govern mergers of those entities under various different circumstances. In that regard, it is worth noting that a “freeze-out/squeeze-out” merger is not a distinct type of merger governed by its own separate statute, but rather is a “characterization” given to a merger reflective of the purpose behind the merger, irrespective of the specific merger statute under which the merger is effectuated.

The Requisite Authorization and Approval for a Freeze-Out/Squeeze-Out Merger

Under state corporate law, mergers typically must be authorized and approved by both the equity holders and the directors of each of the entities participating in the merger. In the case of corporations, that means that typically both the directors and the shareholders must authorize and approve the merger, whereas in the case of LLC’s that means that typically the members and the managers must authorize and approve the merger. The actual level of that approval (i.e., unanimous consent vs. 2/3rds consent vs. majority consent) is governed by the applicable state merger statute together with the operative provisions of the entity’s organizational documents. By way of example, under Texas law, unless the entity’s governing documents provide otherwise, (i) the affirmative vote of at least two-thirds of the outstanding voting shares is required to authorize and approve a merger of a corporation, and (ii) the affirmative vote of the holders of at least a majority of the outstanding voting membership interests is required to authorize and approve a merger of an LLC.

So, the gating question for any individual or group wanting to possibly effectuate a freeze-out/squeeze-out merger is: Do you have the requisite vote under applicable law and under the entity’s governing documents to authorize and approve the merger?

The Fair Market Value Presumption
It is important to remember that while a freeze-out/squeeze-out merger may well enable the “majority” to force one or more minority holders out of the company, a freeze-out/squeeze-out merger does not entitle the majority to steal, or cheat the minority holders out of, their equity interests. The minority members who are being frozen or squeezed out should receive fair value for their interests. Otherwise, the majority proponents of the freeze-out/squeeze-out merger will likely be vulnerable to claims by the minority interest holders for oppression, breach of fiduciary duties, etc.

In the case of corporations, the “fair market value” presumption is governed by statute. In many (but not all) mergers involving corporations, under state corporate law, the effected shareholders, including any minority shareholders who will be frozen or squeezed out as a result of the merger, have statutory “dissenter’s rights” or “appraisal rights”. In short, a shareholder with “dissenter’s rights” or “appraisal rights” who objects to the amount that he is going to receive in exchange for his equity interests as a result of the merger is entitled to go to court and appeal the valuation. The court then has the power to revise the amount that the shareholder will receive based on its determination of fair market value.

Curiously, LLC statutes do not typically include dissenter’s rights provisions. However, given (i) the well–established fair market value presumption that exists in the context of corporate mergers, together with (ii) the strong “fiduciary duties” overlay that exists under statutory and common law with respect to the duties and obligations of members of LLC’s with respect to their fellow members, prudence dictates that the majority proponents of a freeze-out/squeeze-out merger make every effort to honor the fair market value presumption in any freeze-out/squeeze-out merger they effectuate.

Logistics of a Freeze-Out/Squeeze-Out Merger
So, assuming that the majority proponents of a freeze-out/squeeze-out merger have the requisite vote under applicable law and under the entity’s governing documents to authorize and approve the merger, how do they do it? The answer to that question will again depend in part on the form of the entities involved, the governing corporate statutes, and the organizational documents of the entities involved, but with those qualifications, the answer is pretty simple: The majority proponents form a new entity with whatever ownership and capital structure they desire, and then they merge the existing entity (i.e., the entity in which the soon-to-be frozen or squeezed out equity holders hold an interest) into the new entity. Under the terms of the merger agreement, among other things, the new entity will be the surviving entity, and the equity interests of the frozen or squeezed out minority interest holders will be redeemed for cash in an amount equal to the fair market value of the redeemed equity interests.

Conclusion

The freeze-out merger is a legal avenue that may not be widely known by majority owners of private companies, but it is used with some regularity in Texas and is rarely disallowed by the governance documents of most companies. There should be a note of caution for majority owners in deploying this technique, however, because if dissenter’s rights apply and are exercised by the minority investors in response, the freeze-out merger may result in a time-consuming and a costly appraisal process.

Zack Callarman (Associate) and Mark Johnson (Shareholder) are members of Winstead’s Corporate, Securities/Mergers & Acquisitions Practice Group.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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