Understanding High Net Worth Divorce in California

Every divorce case is unique, and many divorces in California qualify as high net worth divorce cases. But what is a high net worth divorce? Traditionally, the definition of a “high net worth” divorce case was any divorce that includes more than one million dollars’ worth of assets. Today, most of the high net worth divorce cases that unfold throughout California’s family court system involve tens of millions of dollars. California is one of the most prominent economic sectors of the American economy, and high net worth individuals across many industries face unique difficulties when they decide to end their marriages.

If you are a high net worth individual living in California and you believe your marriage is coming to an end, it is essential to understand how the divorce process is going to change for your unique situation. You should also understand the value of proper legal representation as you navigate the divorce process.

Property Division in California

California upholds a strict community property law for divorce, meaning that all marital property is subject to completely equal division in divorce. Put simply, if a married couple controls $10 million in marital assets, each spouse should expect to receive $5 million in marital property from their divorce settlement under California’s community property law. This is a very general example, and most high net worth divorce cases will not break down so easily. Most high net worth individuals own complex investments and some assets that are not easy to liquidate without sustaining significant penalties.

If you are concerned about how California’s community property statute will affect your high net worth divorce, it is essential to consult an experienced attorney as soon as possible. An experienced high net worth divorce attorney will thoroughly review your finances and help you determine which of your assets are subject to division under California’s community property laws.

Separate Vs. Community Property

California state law provides clear definitions for community property and separate property. Community property also referred to as marital property, is anything gained by either spouse during their marriage. This can include income earned by both of the spouses, assets purchased by either spouse using marital funds, and property purchased jointly. Separate property is anything one of the spouses owned before getting married. For example, if you bought your home before you married and your mortgage is only in your name, your home would qualify as your own separate property.

California’s definition of separate property also includes gifts given to a spouse, inheritance from blood relatives, and anything one spouse provided to another in a donatory capacity. In some cases, separate property will transmute to community property under certain conditions. Typically, if one spouse contributed to improving the value of the other spouse’s separate property, a family court judge may determine that the property has transmuted to community property and is therefore subject to division as marital property. For example, if you owned a home worth $300,000 before you married and your spouse paid for renovations that increased the property value to $500,000, this would likely qualify as a substantial enough appreciation in value for the home to count as community property, even if you purchased the home before you married.

Financial Disclosure in High Net Worth Divorce

Every divorcing couple will need to prepare accordingly for the financial disclosure process. Financial disclosure involves providing complete financial records. This includes a list of every asset and piece of property you own, the value of each of these assets and properties, and records of when and how you obtained them. High net worth divorce cases often include complex assets, including investment properties, stock portfolios, retirement accounts, and other investments that may be very difficult to divide. Your financial disclosure must be as complete and accurate as possible to ensure a fair result in your property division determination.

Unfortunately, high net worth divorce cases can encourage some divorcing spouses to try and hide some assets to avoid splitting them with their spouses. This is illegal and can result in severe legal consequences for a divorcing spouse who attempts such obfuscation. If you suspect that your spouse is attempting to shield assets from property division in your divorce, it’s vital to notify your attorney immediately so they can suggest appropriate remedial action. In most such cases, the attorney will contact a financial expert to review both spouse’s records, such as a forensic accountant.

Can I Mediate My High Net Worth Divorce Case?

Mediation has become a preferred option for approaching the dissolution process in California and throughout the US. Any divorcing couple can take advantage of the benefits of mediation, which include:

  • Privacy. Everything discussed in mediation sessions remains confidential. The conversations you have in mediation will remain entirely private, whereas everything discussed in litigation becomes public record.
  • Expediency. Mediation is generally a much faster option for resolving a divorce than litigation.
  • Savings. Both spouses can save significant amounts of time and money when they pursue mediation. Since mediation is faster, the spouses will ultimately pay much less in legal fees than they would for a protracted litigation battle.
  • Control. When you litigate divorce, the judge overseeing your case has the final say. Mediation allows you and your spouse to have a much greater level of control over the outcome of your divorce, typically leading to a more personalized result.

The only real prerequisite for mediation is that both spouses must be willing to negotiate. However, high net worth divorce cases often involve difficult financial issues the couple may not be able to navigate through mediation. In these situations, it is possible to mediate some aspects of the divorce before moving to litigation to have a formal legal review of the remaining issues.

The divorcing spouses will have many of the same obligations in mediation as they would face in litigation, particularly when it comes to financial disclosure. The main benefit to pursuing mediation in a high net worth divorce is that it is often possible to effectively “trade” assets and property so that both spouses have equal shares of their marital property without liquidating assets. Some assets will incur penalties if they are liquidated early, and many complex assets pose significant tax-related issues. Mediation offers the opportunity for the couple to sign over control of assets to one another until both are satisfied with the terms of their divorce. When they litigate, a judge may compel them to sell off certain assets and properties and divide the proceeds.

Expert Witnesses in High Net Worth Divorce Cases

While you may require the assistance of an expert witness if you suspect your spouse is trying to hide assets, it is very likely that you may require expert witness input even when both you and your spouse are entirely transparent in your financial disclosures. This is because high net worth divorce cases often include assets that are difficult to divide, and it may be necessary to conduct in-depth reviews of ownership records of certain assets to determine whether they qualify as separate or community property.

Some of the expert witnesses that may participate in a high net worth divorce case include:

  • Accountants, tax professionals, and economic experts. Your high net worth divorce case could have severe tax implications for both you and your soon-to-be ex-spouse. These financial experts can provide valuable tax-related guidance, help you establish your separate property ownership rights, value your business interests, and help you understand the tax implications of your alimony agreement, if applicable.
  • Business and corporate attorneys. These legal experts understand business law in great detail. Many high net worth individuals own, operate, or control majority stakes in companies across many industries. If you own intellectual properties, collect royalties, or have any ownership or investment in a business partnership or corporation, these legal experts could be invaluable during your high net worth divorce proceedings.
  • Estate attorneys. Your divorce can significantly influence any estate plans you have made, and these legal experts can help to ensure that your estate plan is adjusted accordingly after you obtain your divorce settlement. For example, an estate attorney can help you designate new beneficiaries to ensure your ex-spouse does not receive your property after your death.
  • Real estate professionals. High net worth individuals often own multiple real estate properties, some of which can have very high market values. These professionals can assist with appraisals, refinancing, and provide valuable guidance for difficult transactional issues.
  • Private investigators. In some divorces, particularly those in which the divorcing couple has a preexisting prenuptial agreement, these professionals can help to ensure both spouses are transparent and truthful in their testimony during divorce proceedings. You may require the assistance of a private investigator to prove that your spouse violated the terms of your prenuptial agreement, and this can have a significant impact on your divorce proceedings.

Of all the experts who may participate in your high net worth divorce case, the most important will be the attorney you choose to represent your interests.

Important Tips to Remember for High Net Worth Divorce

If you believe it is time to end your marriage and have concerns about the financial issues your divorce is likely to entail, it is important to keep a few important tips in mind as you initiate divorce proceedings:

  • Be honest with your financial disclosure. While you may have trouble accepting the fact that you will need to part with a significant portion of your assets in divorce, never attempt to hide your assets to shield them from division. You could face severe legal consequences up to and including criminal charges for fraud or perjury if you attempt this.
  • Take advantage of alternative dispute resolution. Mediation or arbitration can save you and your spouse a significant amount of time and money in handling your divorce. Even if you cannot fully settle your divorce through alternative dispute resolution, you should strive to take advantage of this option as much as possible.
  • Hire an experienced attorney. The right divorce lawyer can make a tremendous difference in the outcome of your divorce proceedings. An experienced attorney will help you with your financial disclosure, coordinate expert witness testimony if necessary, and ultimately provide you with legal guidance and peace of mind as you navigate the divorce process.

Hopefully, these tips can help you approach your high net worth divorce case with confidence. If you are ready to talk to an experienced high net worth divorce attorney about your situation, contact the Khalaf Law Group today to schedule a consultation with our team and find out how we can assist you.

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