High-asset divorces are potentially more complex and often require a more sophisticated legal and financial strategy than do divorces among lower-net-worth couples. In addition, mistakes made during the divorce process can be costly and have long-term consequences.
Here are some of the common mistakes made by couples going through a high-asset divorce.
High-Asset Divorce Mistake #1: Rushing through the process.
Divorce is a difficult and emotional process. It often takes longer than the parties expect and there is a natural tendency to avoid prolonging the pain. Many couples just want to get it over with, settle their case, and be done.
In high-asset divorces, the cost of moving too quickly can be severe. One party may end up paying too much or receiving too little; assets may be overlooked. While it may seem painstaking, a careful and thoughtful division – including the creation of long-term financial plans – will serve both parties much better as they move toward a new future.
High-Asset Divorce Mistake #2: Choosing the wrong attorney. Or no attorney at all.
Many affluent couples gained their wealth by saving and making wise financial decisions. However, a divorce is usually not the time to pinch pennies (or hundred-dollar bills). No- or low-cost options such as self-representation (also known as pro-per) are rarely a good idea in high-asset divorces.
In addition, it is important to retain a family law attorney experienced in handling high-net-worth divorces and complicated estates. When choosing an attorney, make sure they have worked with high-net-worth clients and have expertise in the financial implications. The right lawyer will help you avoid many of the pitfalls common to complex divorces.
High-Asset Divorce Mistake #3: Thinking litigation is the only option and not considering a mediated or collaborative process.
While choosing an attorney who is skilled in high-asset divorces is critical, you also should also be cautious to avoid an overly litigious lawyer. Costs for divorce can be high, especially when there is a lot at stake and the parties are set on battling it out through the court system.
An enhanced Mediation (which can include financial and mental health professionals) or a Collaborative Divorce process can save money and time, in addition to allowing the couple to create a mutually beneficial settlement. In a mediated or collaborative divorce, the privacy of the couple is also protected as both are confidential, out-of-court processes.
High-Asset Divorce Mistake #4: Attempting to depreciate or (even worse) hide assets
Under California law, the hiding (or attempted hiding) of assets during a divorce could result in a judge imposing sanctions in the form of legal fees and/or higher support payments, among other penalties. Forensic accountants, often used in high-asset divorces, are adept at finding hidden assets so such actions usually lead to heavy consequences.
More common than the outright hiding of assets is the attempt to dissipate marital assets before and during a divorce. One spouse may attempt to move money out of joint accounts, spend lavishly, or divert income to a business associate, friend, or relative. Perhaps one of the spouses alleges that a property or business is worth less than it really is (undervalue it). Again, forensic accountants and other financial professionals such as business valuators and real estate appraisers are skilled at uncovering these discrepancies. Attempting to move or deplete assets often wastes both time and money and the spouse who spent or diverted the funds will potentially have to reimburse the community estate.
High-Asset Divorce Mistake #5: Forgetting or ignoring tax consequences.
Tax implications need to be taken into consideration in all divorces and in high-asset divorces the tax consequences can be even more impactful. Taxes need to be addressed in all the financial issues involved in your case, except for child support. Real property (including the marital home and other investment properties), investment accounts, and business ownerships and partnerships may have taxable implications. Taxes – and the future tax ramifications of how the marital assets are divided – must be properly factored to reach a thoughtful settlement.
In addition, the date you file for divorce will affect how you file your taxes in the following year. For example, if you file for divorce on December 31st, you and your spouse will need to file separately on April 15th (or thereabouts) in the year afterward. This is especially critical if you or your spouse is expected to receive a bonus or other large piece of compensation at the beginning of the new year.
Guidance on Your High-Asset Divorce from a Southern California Family Law Firm
As in all aspects of high-asset divorce, finding a family law attorney who has strong knowledge of the financial and tax implications of dissolutions is critical. If you would like to learn how our office can provide guidance on any California family law issues you are facing in Los Angeles, Ventura, and Santa Barbara counties, contact the Zonder Family Law Group office today at 805-777-7740. Don’t wait to start the next chapter of your life.