Getting divorced is rarely simple. However, some splits are significantly more complicated than others. For example, high-asset divorces in California pose some unique difficulties.
A high-asset divorce is usually defined as one that involves at least $1 million in assets. These splits are more likely to include complex assets, higher taxes, and many other concerns that simply aren’t present in divorces with less at stake.
If you meet this criterion, your divorce may be more complicated than expected. As you prepare for your split, consider how you want to address the following five common issues in high-asset divorces.
1. Complex Assets
California’s community property laws require all marital assets to be divided equally between partners. While this doesn’t mean every item has to be split down the middle, it does mean everything needs to have a firm monetary value. That value is necessary to determine if the property has truly been divided equally.
Suppose a couple owns a $500,000 home and $500,000 in investments before their divorce. They don’t have to sell the property or share joint ownership to have an equal split. Instead, one person can take full ownership of the house while the other can take the investments, and both will receive $500,000 in value.
The problem is that some assets are particularly tricky to appraise. These types of investments are more common in high-net-worth divorces.
For example, high-value real estate, businesses, intellectual property, and RSUs have significant worth but no set price tag. Working with trained professionals is usually necessary to determine their fair market value. As a result, it often takes longer to finalize divorces that involve them.
2. Tax Concerns
Your taxes might not be the first thing you consider when you file for divorce, but they should be on your mind. Divorces can have serious tax implications, for better or for worse. Some of the most serious concerns include:
- Changing tax brackets: If there is an income gap between you and your spouse, your divorce will likely alter your respective tax brackets starting the year in which it is finalized.
- Capital gains taxes on homes: There is a $500,000 capital gains tax exemption for couples and a $250,000 exemption for individuals. If you want to sell your home, consider doing so before your divorce is finalized to minimize taxes.
- Taxability of support payments: Spousal and child support are no longer considered taxable income for recipients or deductible for paying parties, which can heavily impact your respective tax burdens.
It is crucial to discuss the tax implications of your split with an experienced high-asset divorce attorney to ensure you mitigate changes to your bill in April.
3. Hidden Assets
High-asset divorces are more likely to involve hidden assets because missing funds are harder to spot. Hidden assets are funds or property that should be declared in a financial disclosure but are not. Your spouse may try to hide things to keep them from being considered during asset division.
There are many ways to hide assets. Your spouse may do things like:
- Failing to declare personal accounts, investments, or high-value property
- Transferring money out of joint accounts for “cash spending” and depositing the funds in their personal accounts instead
- Giving money or property to friends and family with the intent that they will return it after the divorce
- Overpaying taxes or bills to get refunds later
Your spouse may also genuinely forget about some property, preventing it from being considered. Whether you suspect malice or forgetfulness, the best high-asset divorce attorneys will recommend working with a forensic accountant in your high-asset divorce to track down any property missing in your spouse’s financial disclosure.
4. Spousal Support
While alimony is not restricted to high-net-worth splits, it becomes a much larger issue as income rises. Unlike child support, no strict calculation is used to determine spousal support. Instead, judges may use their discretion to determine a fair amount based on factors like each person’s income, age, ability, contributions to their marriage, marital standard of living, and the assets they will receive in the split. As a result, alimony payments can skyrocket in high-net-worth splits.
Furthermore, alimony is not guaranteed. Many high-net-worth couples may agree to forgo alimony in exchange for granting the potential recipient a larger share of the marital property. As a result, spousal support can quickly become intertwined with other elements of the divorce, making the process take longer.
5. Estate Planning
Many high-asset couples have made the excellent choice to develop estate plans to protect and pass on their property. However, these plans can make finalizing divorces more complex.
For instance, many couples use trusts to shelter parts of their estate. While a trust can be a useful financial tool, it can also make it difficult or impossible to divide assets. It may be necessary to dissolve trusts and other estate planning vehicles to proceed with asset division.
Furthermore, the remaining documents must be revised during and after the divorce is finalized. A will remains in effect until it is revoked, even if it names your now-ex-spouse as your sole beneficiary or discusses assets you no longer own. You will need to revise your entire plan to ensure it reflects your preferences post-divorce.
Talk to High-Asset Divorce Attorneys at Kaspar & Lugay, LLP
Having more assets is generally a good thing, but it can make ending your marriage more complicated. If you’re preparing for a high-asset divorce, don’t hesitate to talk to the skilled attorneys at Kaspar & Lugay, LLP.We have decades of experience representing California clients, from entrepreneurs to artists to performers. We understand the unique issues involved in high-net-worth divorces, so we can provide personalized legal counsel on managing your split. Learn more about how we can assist you by scheduling your consultation today.