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3 Crucial Mistakes to Avoid in a High Net Worth Divorce

How to Prepare for a High Net Worth Divorce in California

From complex property division to spousal support, there can be a lot for couples to worry about in a California divorce. Even amicable dissolutions can inflict a staggering amount of stress on families—one of many reasons why it’s important to hire experienced representation before appearing in court.

In the event that you’re involved in a high net worth divorce, the stakes can be significantly higher, as high-asset divorces can result in life-altering repercussions and substantially affect an individual’s financial security and overall well-being for decades to come.

Keep reading to learn more about navigating a high net worth divorce in California.

How Is Property Divided in a California Divorce?

Divorce can be a complex area of our legal system. Divorce laws vary from state to state, making even more crucial to understand how divorce proceedings work in California. When it comes to dividing property and assets, U.S. states can facilitate this process in one of two ways: equitable distribution or community property.

As a community property state, California considers all property and assets acquired during the marriage to be jointly owned (“community property”), meaning that both partners are entitled to their fair share. This can include items like both spouses’ income, outstanding debts, and anything else purchased through joint funds during the marriage.

Common items that qualify as community property in a California divorce include:

  • The family home
  • Investment accounts
  • Life insurance policies
  • Real estate properties
  • Furniture and home appliances
  • Businesses established by either spouse
  • Bank accounts, stocks, bonds, and retirement accounts
  • Cars, motorcycles, boats, ATVs, and other recreational vehicles

While it isn’t uncommon for property division to result in a roughly 50/50 split in community property states, keep in mind that this is never a guarantee. There are certain exceptions to the community property rule, including:

  • Inheritance and gifts – Any property that was gifted to one spouse in particular may be considered separate property; in which case the partner will be permitted to retain individual ownership.
  • Property owned before the marriage – Generally, any property owned prior to the marital union is considered separate property. However, there may be some exceptions, such as separate property that became comingled at with jointly owned funds at some point during the marriage.
  • Any monetary damages collected from lawsuits – In the event that one spouse recovered compensation in a personal injury case or other lawsuit, they may be entitled to keep those earnings as separately owned property.
  • Retirement benefits – While accounts and funds like 401(k)s, pension plans, and IRAs are subject to division in a divorce, any earnings accrued before or after the marriage is typically considered separate property. While one spouse may be entitled to half of their partner’s retirement funds, this generally only applies to funds accrued during the actual union.

3 Fatal Mistakes to Avoid in a High Net Worth Divorce

Given that finances are a leading cause of divorce, it’s safe to assume that strong representation from a high-asset divorce attorney is nonnegotiable in a high net worth dissolution. It’s important to work with a lawyer with experience and proficiency in this area of divorce to avoid fatal mistakes that may jeopardize your long-term financial health. With your life’s assets on the line, it’s imperative to consider each step wisely during high-asset divorce proceedings.

Keep reading to learn 3 fatal mistakes to avoid in a high net worth divorce.

1. Failing to keep your emotions in check.

Emotions tend to run high during divorce—and understandably so! It can be all too easy to lose sight of your goals when coping with overwhelming feelings of anger, fear, grief, or resentment. Divorce is never easy on families, and it's okay to take time to prioritize your mental health and emotional well-being during this difficult time.

While healing is an essential component of any family case, it’s crucial for divorcees to do what they can to avoid being overrun by emotions during the actual legal proceedings. Unexpected emotions can be powerful and all-consuming, leading to irrational decision-making and impulsivity. As you can imagine, acting purely out of emotion can be very detrimental in a high net worth divorce, as one altercation can result in serious losses.

To avoid negative repercussions, it’s best to hire competent legal counsel to help them remain objective and focused throughout the divorce process. Couples can also benefit from professional counseling services, learning grounding techniques, and other coping skills for emotional regulation, such as:

  • Acknowledging emotion – Our instinct is to suppress things we don't wish to feel. Acknowledging the emotion instead of blocking it allows us to retain a sense of control and plan our next steps without getting overwhelmed.
  • Practicing mindfulness – Mindfulness techniques like meditation can be highly effective for emotional regulation. These practices involve being present in the moment and observing one's thoughts and emotions without judgment. This can help individuals manage strong emotions more effectively.
  • Deep breathing exercises – Restoring oxygen throughout your body can help regulate strong emotions and calm your nervous system’s response to them, putting you back in the driver’s seat and telling your body that everything is under control.

2. Overlooking tax implications.

Tax implications can significantly impact property division in a high-asset divorce, making it all the more vital for couples to take tax consequences into consideration in a high net-worth dissolution. Failure to do so can have significant financial consequences for both parties long after the divorce is finalized. It’s best to consult with a trusted divorce attorney who can help you evaluate:

  • Property Division – The division of assets, including real estate, investments, businesses, and personal property, can have significant tax implications that vary depending on the type of asset. For example, transferring real estate between ex-spouses may trigger capital gains tax, which can significantly impact the value of the asset and the final property division settlement. Similarly, dividing stocks or other investment accounts may generate a tax liability unless done appropriately.
  • Retirement Accounts – Retirement accounts are often-overlooked assets in high net worth divorces, which can lead to significant tax consequences in California. The transfer of retirement accounts between ex-spouses can trigger tax liabilities, which can be substantial depending on the value of the account, the tax bracket of the recipient or owner spouse, and other factors.
  • Spousal Support – Spousal support or alimony is another area where tax implications should not be overlooked. Depending on the type and structure of spousal support payments, they can trigger tax liabilities for the payor or recipient. For example, if spousal support payments are structured as lump sums in California, they may be taxable to the recipient; if structured as monthly payments, they may be tax-deductible to the payor and taxable to the recipient.

3. Not conducting a comprehensive and proper inventory of assets.

Identifying all assets is essential to ensure a fair and equitable property division. In a high net worth divorce, conducting a precise inventory of all assets is even more critical, as a comprehensive valuation is the necessary foundation of property division in California family courts.

Undervaluing or overvaluing assets or overlooking assets altogether can prolong the divorce and lead to future legal complications. It’s important for couples in high net worth divorces to take all assets into account, such as:

  • Real Estate – Real estate comprises some of the most substantial assets in high net worth divorces. It is essential to account for all properties owned by the couple, including primary residences, vacation homes, rental properties, and undeveloped land.
  • Investments – Investments include stocks, bonds, mutual funds, commodities, and any other assets that generate income or appreciate in value over time. It is essential to take all investment accounts into consideration, including those held overseas or in the name of family trusts or other legal entities.
  • Business Holdings – As one of the most complex and valuable asset types in high-asset divorces, business holdings include any closely-held businesses, partnerships, proprietorships, or investments in other businesses.
  • Intellectual Property – Intellectual property includes trademarks, copyrights, patents, licenses, and other intangible assets. These assets can be challenging to value, but their worth can be significant in high net worth divorce cases.
  • Bank Accounts – Bank accounts are critical assets that must be identified and valuated in high net worth divorces. Bank accounts can be held individually or jointly, and accounts held overseas or in offshore accounts should also be identified.

Missing or undervalued assets can significantly impact the outcome of a divorce settlement. For example, if one party hides assets or undervalues them, the other party may not receive a fair share of the marital assets. Similarly, if assets are unaccounted for, a judge may not have all the necessary information to provide a fair ruling on property division, leading to an inequitable outcome.

To avoid potential legal hardships, it is essential to work with an experienced high net worth divorce lawyer who can help you conduct a fair and thorough assessment of all assets in the marriage. A skilled legal advocate can not only help you avoid fatal mistakes during the divorce proceedings, but they can also save you unnecessary time and money in court by resolving disputes efficiently and effectively.

Contact a Board-Certified Family Lawyer in San Diego

Since 1990, our board-certified family law specialists have devoted themselves to bettering the lives of couples and families throughout San Diego County. At Family Law San Diego, we understand how difficult and emotional it can be to resolve family disputes in court. That is why our compassionate advocates are here to guide you and your loved ones through each step of the process with care and wisdom.

Whether you’re preparing for a divorce, seeking grandparents’ visitation rights, or filing for a child custody modification, our dedicated family lawyers have the in-depth knowledge and experience to represent your best interests in court. From mediation to high-asset divorces, we can help determine the best legal solution tailored to your family’s unique needs.

Family disputes can take a toll on adults and children alike. Turn to a board-certified family law specialist you can trust to prioritize your needs. Call (619) 577-4900 to schedule a consultation.