While each divorce case contains its own unique issues, high net worth divorces pose additional concerns – especially if you have substantial property and assets. As such, a high net worth divorce necessitates even more careful review and legal representation, which can get complicated. With a high net worth, the stakes are higher and the process itself could quickly turn contentious. Today, we address some of the issues that affect high net worth divorce cases that should not be overlooked.
Issues That May Impact a High Net Worth Divorce
It is common for a high net worth couple to have accumulated their wealth through their family in the form of an inheritance, property, and/or other assets. What happens when you inherit a substantial amount of wealth before getting married and then find yourself needing to file for divorce? Here are the concerns that impact a high net worth divorce:
California is a community property state, meaning in the event of a divorce, all property, assets, and debts acquired by the couple during their marriage will be divided equally. While this sounds straightforward, when you consider substantial property or high net worth, it could get complicated. Untangling separate property from community property is not always easy, especially if you are trying to protect inheritances.
One challenge that high net worth individuals face in a divorce is identifying which of their assets qualify as separate property. If you acquire new assets during your marriage by using funds from your trust, technically those assets should be yours to keep. Another challenge that is unique to high net worth divorces is the process of commingling separate and community assets. This occurs when a couple uses separate assets to make improvements to their existing community assets. If separate property becomes community property during this process, it will be subject to division during your divorce proceedings.
While divorcing spouses are required to divide their shared estate under the state’s community property law, this law has two major exceptions:
- Assets owned by either spouse prior to marriage are not subject to division as community property
- Assets that a spouse acquired through an inheritance during the marriage are not subject to division as community property
Certain situations may come into play that could alter these exceptions, which is why it is important to hire an attorney experienced with navigating high net worth divorces.
High net worth divorces often happen among business professionals and entrepreneurs. So, what happens in a high net worth divorce when you must divide your business in half? California will first characterize and then evaluate a business to determine its value. Characterization determines if the business is considered separate or community property – or in some cases both. A business valuation determines how much the business itself is worth.
If you are concerned about dividing your business, it would be beneficial to speak with a seasoned lawyer for additional support and counsel. It would be best to avoid actions such as attempting to make your business less profitable or hiding income.
Real Estate Holdings
High net worth couples have multiple real estate holdings, including but not limited to:
- Commercial properties
- Investment properties
- Vacation homes
Determining a fair and equitable division of real estate holdings can be a difficult matter for a couple to resolve. This gets more complicated due to the amount of properties owned as each will need to be evaluated to determine its precise value. Due to the fluctuating nature of the real estate market, this number can vary, making this step of the process difficult.
Another potential issue is whether the properties will be sold, given to one spouse in exchange for another asset, or divided down the middle. The couple will need to take economic factors into consideration, the value of the properties, any debt owed on the property, and whether any properties were part of a gift or inheritance. Gifts and inheritances are typically not considered community property in the state of California.
If you need assistance navigating your high net worth divorce, contact our office online or call us at (916) 512-8944 to schedule an initial consultation.