High-asset divorces bring unique challenges when it comes to dividing marital property. The challenges of a high-asset divorce add to the stresses of the separation and can, unfortunately, lengthen the divorce process. However, going into the process with your eyes open can help you minimize the length, cost, and stress of your divorce while enabling you to protect the assets that matter most to you.

Typically, protecting your property also requires the assistance of an experienced high-net-worth divorce lawyer. Caring Erin of The Stratte Firm is an experienced professional with over a decade of experience in family law, and she is here to guide you through the divorce process. When you hire our firm, we negotiate and advocate on your behalf, relying on our legal knowledge and practical experience to help you get through this without sacrificing your financial future.

Dividing Assets in Divorce in California

In California, dividing assets in divorce typically means evenly dividing all community assets and debts—the marital estate—between the two future former spouses. By law, courts must divide assets in a way that results in a substantially equal division of community property.

Community vs. Separate Property

California law states that couples should divide community property evenly when they divorce. Community property includes assets that either spouse earned or acquired during the marriage—and these assets belong to both spouses. However, the law considers some assets to be separate property, which is not subject to division. Separate property is that which either spouse obtained:

  • Before the marriage,
  • After the date of separation,
  • Through inheritance, and
  • Through gifts directed at only one spouse.

Spouses can also sign a prenuptial agreement to establish which property is separate and which is community.

However, if the couple mixes separate and community assets together, it can be very difficult to tell what property belongs to which spouse. Therefore, the court can consider all commingled assets to be shared property—regardless of a prenup.

Exceptions to Equal Division

California courts must divide assets evenly. In limited circumstances, courts can depart from this requirement, particularly when:

  • One spouse deliberately misuses or wastes community property, decreasing the value of the marital estate;
  • The spouses participated in a lawsuit related to domestic violence, and one spouse owes the other damages;
  • One spouse contributed to the community estate using separate property; or
  • One spouse contributed to the other’s education or training, and those contributions substantially enhanced the other spouse’s earning capacity.

A simpler way to avoid having the judge decide how to divide assets is to avoid asking the court to decide this issue for you. You won’t have to go to the judge if you can agree with your spouse on the division of assets. If you come to court with an agreement, the judge typically enforces it unless it appears significantly unfair to one spouse.

Essential Considerations in Complex Asset Division

With that legal background, let’s turn to what you need to know when considering how to accomplish complex asset division. The goal is to protect essential property and avoid financial inefficiency. Many of the following considerations factor into property division in a typical high-asset divorce.

Disclosure Requirements

When you file for divorce, you have to disclose every piece of property you own—both separate and community. Hiding assets—on purpose or by accident—can lead to legal issues later. For example, the spouse who did not hide assets could seek to collect the percentage of the hidden property that should have been theirs under the law.

Some assets are easier to overlook than others. Ensure you disclose everything, including:

  • Current assets—cash, bank accounts, investment accounts, products, supplies, and equipment;
  • Fixed asset—buildings, land, machinery, equipment, and vehicles;
  • Tangible assets—machinery, buildings, equipment, supplies, inventory, land;
  • Intangible assets—intellectual property, business interests, and goodwill;
  • Operating assets—business-related accounts, buildings, and equipment; and
  • Non-operating assets—business-related revenue-generating assets like vacant land, securities, and short-term investments.

On the other side, if you are concerned about your spouse attempting to hide assets, you have options to track down anything they have hidden. A high-asset divorce attorney can help you to search for concealed assets. A forensic accountant is a professional who specializes in tracking property down, so they can also work with you and your lawyer to find assets.

Asset Valuation

In an ideal world, determining how much a given asset is worth would be simple. However, many assets are more difficult to value than you might think.

In a high-asset divorce, you can expect to hire one or more appraisers to estimate a fair value for each significant asset you and your spouse own. Depending on the level of conflict involved, you could hire different, competing appraisers and use their appraisals to negotiate. Or you may agree to hire joint appraisers and share the costs for their services.

Tax Planning

If you are seeking a high-asset divorce, you are probably no stranger to careful tax planning. Divorces bring special tax planning considerations related to property exchange. Within one year of the divorce, asset exchanges between you and your spouse do not count against the lifetime gift tax limit. Beyond that point, giving or receiving property may implicate the gift tax, limiting your ability to give gifts to others tax-free.

Tax planning is particularly crucial when dividing retirement accounts, which typically do not begin distributing income until some time after the divorce. To avoid tax issues later on, getting a qualified domestic relations order (QDRO) from the court is essential. This order enables you to divide retirement accounts later as if you had split them within the one-year gift tax timeline.

Planning for Special Assets

Typically, high-net-worth individuals own more unique forms of property than the average person. Assets that bring special considerations may include:

  • Retirement accounts,
  • Business interests,
  • Investments,
  • Intellectual property, and
  • Digital assets.

Some of these assets can be difficult to divide, requiring careful planning to maintain them so you can still take advantage of their benefits in the future.

Property in Other States or Countries

Many high-net-worth individuals own property in multiple states or even countries. California courts attempt to

divide property in other locations to avoid having to change the nature of the interests and to maintain terms of ownership as they exist in the other location.

When changed interests are impossible to avoid, the courts may compel the spouses to sell the property. This court-mandated sale can even happen in cases where the law in the other location works differently from California law. After the sale, the court generally awards each spouse an equal share of the proceeds.

The Importance of Negotiation and Mediation

Since California courts must divide property evenly, you often need to avoid asking the judge to make a decision if you want to protect your assets. Frequently, that means taking advantage of your ability to negotiate. You can also participate in divorce mediation if you do not reach an agreement after negotiating on your own. After mediation, you can always return to negotiation, but the goal remains the same.

Negotiation

Before you come to the negotiating table, consider the following questions:

  • What can I not do without?
  • What do I want to keep?
  • What can I part with?
  • What might my spouse not want to part with?
  • What assets are the most important for my long-term financial future?

Your attorney can help you identify and consider additional questions tailored to your unique situation.

For example, depending on what matters most to you, negotiation may mean:

  • Offering up one asset, like a house, to keep another intact, like retirement benefits;
  • Consulting with business partners to determine how to buy out a spouse’s share; or
  • Establishing a buyout to exchange funds for a nonliquid asset, like real estate.

The exact details of any negotiation will vary based on your case specifics.

Mediation

Like arbitration, mediation is an increasingly popular form of alternative dispute resolution. Unlike arbitration, mediation is not binding. Instead, it is a chance for a neutral third party to assist you in resolving issues and reaching an agreement. A mediator is a third party not associated with the case whose job is to lead a conversation between the spouses. The goal of mediation is collaboration—to find new ways to look at issues and identify solutions you would not have thought of outside of the cooperative environment of mediation. The mediator cannot give you legal advice and does not make decisions; they merely facilitate the discussion. You and your spouse make the decisions. Mediation is a powerful tool that still offers flexibility.

Your lawyer usually attends mediation with you, helping to protect your rights and providing advice and insights about the implications of a given idea. If you and your spouse come to terms at the end of mediation, you can sign an agreement detailing how you will divide property. Then, you can supply that agreement to the court to avoid having a judge decide what happens to your property.

Hiring a High-Asset Divorce Attorney

As you can see, there are many moving pieces in a high-asset divorce. This means consulting an experienced high-asset divorce attorney is often necessary to protect your assets. The lawyers of The Stratte Firm will work to understand your unique needs and goals at the beginning of the process. Then, we work together to create a plan to accomplish your goals, keep the property you need to protect your financial future, and enable you to move through your high-asset divorce without sacrificing your priorities.

Resources:

California Family Code § 2550, link.

California Family Code § 2601, link.

California Family Code § 2602, link.

California Family Code § 2603.5, link.

California Family Code § 2610, link.

California Family Code § 2640, link.

California Family Code § 2641, link.

California Family Code § 2660, link.

IRS, Gift Tax, link.