High net worth couples tend to face several unique and specific issues during a divorce. Last month, I wrote about the divorce team you need for your high net worth divorce; this month, we’re talking about how to best protect your assets and preserve your wealth.
Before we dive in, the first thing you need to know about property division in a California divorce is that California is a community property state. This is important to know since property division is a large part of a high net worth divorce. In our state, all marital property is owned equally by both spouses.
That means by law, both spouses have a 50% share in the marital property; marital property is all assets acquired during the marriage, regardless of whose name the property is in. Marital property includes (but is not limited to):
- Real estate
- Businesses owned
- Bank accounts
- Investments, including stocks and bonds
- Retirement accounts
- All vehicles, including cars, motorcycles, boats, etc.
- Wine and art collections
All marital property is subject to division in a California divorce. Separate property, however, is not. Separate property is classified as:
- Any property owned by a spouse before the marriage
- Gifts received by a spouse before or during the marriage
- Trust funds/inheritances acquired by a spouse before or during the marriage
Basically, anything that one spouse owned before the marriage is considered separate property, in addition to gifts and a few other categories of assets acquired during the marriage.
Identify and value community and separate property
Though defining separate and community property seems straightforward, in practice it is far more complicated and identifying your separate assets is a critical early step in the divorce process that determines how much of your wealth is on the table for negotiation.
Identifying what is community property is equally important. Community property will be your shared property, real estate, investments, and any other assets acquired during your marriage. Note: community property does not mean that it has to be in both spouses’ names. Even if your spouse’s contributions to your estate pale in comparison to yours (or maybe they didn’t contribute at all), they are still relevant to the divorce process. Identifying all the community property and assets upfront in the process will help ensure that you do not give up any more than is absolutely necessary.
Don’t go to court
I’m going to be blunt; there’s no quicker way to burn through your bank account than by going to court. In fact, you should do everything you can to avoid it. Also, California law states that if spouses cannot work out a property division agreement on their own, a California judge will divide their property for them, according to the laws. If you genuinely want to protect your high net worth, you do not want to have a judge divide your estate during the divorce process. Remember, the goal is to preserve your marital estate and get as much of the assets as possible.
Get a good business valuation
If you are a business owner, one of the most critical pieces of your divorce will be the valuation. If the business is small and not overly complicated, sometimes an attorney may value the business. However, most of the time, an expert is needed to analyze the history, finances, assets, and debts, among other things.
In complex, high-value business cases, both spouses usually hire independent experts, and then the experts will both research and value the business. As you can see, hiring a credible, experienced, and accomplished expert to complete your business valuation can significantly impact the outcome of your divorce settlement.
Don’t forget about tax consequences
Tax consequences can have a tremendous impact on your divorce settlement, and if not handled correctly, can have a devastating effect on your financial health. You must understand not only the current tax effects of asset distribution at the time of settlement but also the long-term aspect of taxes and how it affects future financial planning.
Tax laws surrounding divorce have changed as of this year, so make sure you retain a professional to help you sort it all out. Again, the goal is to preserve your marital estate and get as much of the assets as possible and minimizing your tax liability will play a big part in that.
Protecting your wealth during a divorce starts with a strategic plan. Working with a Certified Family Law Attorney and a Certified Divorce Financial Analyst can help you develop and execute a plan to retain as much of your wealth as possible during and after your divorce. Click here to contact me with any questions or to find out how I can help you further.