The more significant and complex a couple’s assets, the more complicated the divorce can be. Additional challenges present themselves that must be overcome. Each challenge represents a potential area of dispute for the couple, often increasing the amount of time that it takes to resolve the divorce and the price of litigating the case. Understanding California’s laws related to high net worth divorce can help individuals better prepare for the process ahead and better protect their assets.
High Net Worth Divorce Assets
The assets involved in high net worth divorce cases in California may be some of the same that are in dispute in cases involving less money or property. In other situations, the assets involved may be much different. Possible disputes may arise over property such as:
- Marital residence
- Rental properties and other real estate
- Closely-held businesses
- Business interests
- Family-owned business
- Retirement accounts
- Pension plans
- Profit sharing plans
- 401(k) plans
- Stock options
- Valuable collections of fine art, coins or other collectables
High net worth divorces may be complicated because spouses share valuable assets together, such as businesses, investment accounts and real estate. These assets are often quite valuable and it is important to ensure that they are properly evaluated during the divorce process to ensure a fair division of property. It is also important to have an experienced lawyer who can help argue the client’s position regarding the source and classification of property.
One of the reasons why high net worth divorces in California are complicated is because California is considered a community property state. This means that all assets acquired during the marriage are held jointly and are generally presumed to be the equal community property of the divorces. The family court often divides the value of property equally between the spouses. While this classification extends to high-priced purchases such as homes and vehicles, it also applies to assets such as retirement benefits, stock options and pension plans that may not even vest until a later point in time.
Not all property is considered community property in California, though. For example, the following types of property may be considered separate property:
- Property that was owned before the marriage
- Proceeds that can be traced back to the separate property
- Property that was received through a gift or inheritance to one spouse and not as a couple
- Property that was purchased as separate property that is evidenced with an express statement regarding separate property, such as a deed
- Property that was acquired pursuant to a prenuptial or valid postnuptial agreement
In high net worth divorces, the source of certain property may be in dispute and an experienced lawyer may be needed to help show why certain property should be considered separate or community property.
Due to the potential value involved in high net worth divorce cases, it is important that assets be properly evaluated. An expert may help evaluate the fair market value of items such as tangible assets as well as investments and intangible property like intellectual property. The parties may agree to use a neutral expert evaluator, or they may have different evaluations presented during a hearing in which the judge is asked to decide which evaluation to support.
Businesses as Community Property
If a business is considered community property, its value may also need to be ascertained through the use of expert business evaluators. These experts may look into the business’ financial records and public reports. They may also pull data regarding recent tax years and customer acquisition to determine the potential value of the businesses.
One important proponent to determining the value of a business is the business’ goodwill. Goodwill is the value of a business based on its reputation and standing in the community. It adds to the value of the business after the physical assets, net proceeds and fair return on the business. It includes such factors as the workforce skill and training, effective advertising, business procedures and repeat customers.
The spouses may agree for one spouse to buy out the other spouse so that the spouse is properly compensated for his or her share of the business. This gives the continuing owner the peace of not having to work with an ex-spouse after the divorce.
In high net worth divorces, a key issue involved in spousal support and child support is the couple’s standard of living. California divorce courts may try to stay away from making orders that provide a wide disparity from one household to the other. Often, courts deviate from the child support guidelines when determining an appropriate amount of child support. Likewise, if one spouse was the primary earner during the marriage, the other spouse may request significant spousal support until a point in time in which he or she becomes self-sufficient.
Another complication of high net worth divorces for support matters is that it can be difficult to accurately estimate the couple’s respective income. For many high net worth individuals, their income is made up of multiple parts. For example, they may have a base income that comprises their salary. However, they may also receive additional funds through dividends, bonuses or profit distributions. Another part of a high net worth earner’s income may be company perks such as an expense allowance or car allowance. In addition these forms of income, the spouse may also receive interest, profits or rents from other assets.
Child Custody Matters
Many high net worth couples also have children. This means that they face some of the same obstacles as other couples, such as determining which parent will have custody and how to implement an effective parenting plan. Child custody matters may go smoothly if the parents can agree to a parenting plan. They may start off a bit rocky but ultimately end in a resolution that the parties agree to, perhaps through mediation. A final possibility is that the case is litigated and a family judge decides the matter. If the case is brought in front of a family law court, the legal test is to determine what is in the child’s best interests.
In addition to experts evaluating assets, there may be additional need for other experts. These experts may include:
A forensic accountant may be needed to determine the value of certain assets. Additionally, he or she may be needed if a spouse suspects that information contained in financial disclosure statements is not accurate or that the spouse is hiding assets.
An estate planning lawyer or other expert may be needed to change a will, beneficiary designations, insurance plans, trusts or other devices.
A business lawyer may be needed if the divorce could have implications for the business. Shareholder agreements, partnership agreements or other business contracts may be affected by a divorce.
A party to a case can make a motion for an expert opinion to be made or for a report to be prepared for the case. Additionally, a court can determine on its own that such evidence is necessary to make a fair ruling.
Costs of Litigation
A very important practical consideration in high net worth divorce cases is the cost to litigate the case. In some divorces, the couple is embroiled in a legal battle that costs more than the asset’s value that is in question. The battle may go on for years and make it through multiple appeals. When dealing with a high net worth divorce, each spouse should carefully weigh whether a particular dispute is worth litigating from a financial standpoint. In some situations, litigation is the most practical answer. Business interests may be at stake that represent millions of dollars. In other situations, the parties may be able to agree on some core aspects of their divorce, such as child custody and child support while reserving certain issues for litigation. The parties may also agree to mediate their dispute in order to maintain confidentiality over the proceedings and to save time and money on the process. A divorce lawyer can carefully assess the particular case to determine what the most prudent course of action is. He or she can also explain a client’s rights and legal options.