Understanding the Division of Assets in High-Asset Divorce Cases

What Factors Affect High-Asset Divorce Cases in California?

There are several, some of which can have a significant impact on what the court will allow as part of finalizing a divorce. Among the largest factors are the following.

Community Property

California is a community property state. That means that any property acquired during the marriage (financial, real estate, jewelry, art, vehicles, boats, etc.) is considered jointly owned and should be subject to as equal a division as possible. 

It’s vital to understand what community property is and what may be considered separate property (property that legally belongs only to one spouse). 

• Community property. California defines this as anything earned or purchased during the marriage. It also involves debt incurred while married. 
• Separate property. This is property (or debt) acquired before the marriage took place or after the couple separated. It includes anything earned or purchased with separate property, such as a piece of real estate purchased with money from a bank account that is separately owned by one spouse. It also can include gifts and inheritances, even if those arrive during the marriage.

However, while that may seem pretty straightforward, there’s a term that can complicate the situation, and that’s commingling. When separate property becomes commingled in the marriage, it becomes community property. For example, if one spouse had a sizable investment account in their name before marriage and either added the new spouse’s name to the account or used the funds to purchase something (such as a home) that both spouses live in, those funds (and that home) are now considered community property.

As you can imagine, community and separate property can become complicated to identify and divide in a high-asset divorce case. That’s why working with an experienced divorce attorney who thoroughly understands California law is crucial.

Prenuptial or Postnuptial Agreements

There are legal mechanisms for avoiding assets being identified as community property. Two of those mechanisms are prenuptial (prenups) and postnuptial (postnups) agreements. When these agreements are drafted in adherence to California law, they can prove instrumental in high-asset divorce cases. Prenups and postnups can override California’s community property laws when deemed legally enforceable.

However, it’s vital that couples ensure laws are followed when drafting these, or the courts could declare them invalid. Then, community property laws will come into effect.

Among the factors in creating valid prenups or postnups is the requirement that each spouse have an attorney representing them to ensure neither side is being coerced. Prenups have an additional agreement that there must be a seven-calendar-day waiting period between the time one spouse presents the final agreement to the other and the time the prenup is signed and becomes legally binding.

Are There Any Other Situations that Can Override the Community Property Laws in California?

There is another circumstance that may persuade the court to override community property laws and award a much more significant portion of the community property to one spouse over the other. It’s a situation known as wasteful misconduct. That means that one spouse has wasted community assets deliberately out of spite or malice. 

Wasteful misconduct includes situations such as:

• Loss or damage. This could involve one spouse damaging a vehicle the other spouse uses or–in an extreme example–setting a home on fire so the other spouse can’t use it. 
• Extramarital affairs spending. If one spouse spends a considerable amount of money on someone else while having an affair (traveling, expensive meals and gifts, paying for an apartment or home for the extramarital partner), that can cause the court to reconsider equal division. 
• Gambling. One spouse may lose large amounts of money or incur significant debts while gambling that, cause them to receive less property during divorce.
• Concealing assets. If one spouse is found to have concealed assets when preparing to divorce to try and keep them separate when they should have been community property, those assets may be awarded in part or entirely to the other spouse.
• Extravagant spending. This could involve one spouse spending large amounts of money on unnecessary items or experiences that don’t involve the other spouse, who doesn’t benefit from them.

Keep in mind that proving wasteful misconduct can be difficult. It may involve bringing in a forensic accountant to dive deeply into both spouses’ financial records and histories. In a high-asset divorce case, it may also be challenging to determine the wasteful spending threshold; when considerable assets are involved, spending that would be considered exorbitant in lower-asset households may not be considered out of the ordinary in higher-income marriages. 

Because this is a gray area, if you’re part of a high-asset marriage and think your spouse may have engaged in wasteful misconduct, it’s vital to reach out to an experienced high-asset divorce attorney as soon as possible to begin the research and investigation needed to prove the assertions to the court. This may take time, so the sooner it’s begun, the better. 

What Should I Do if My Spouse and I Want to Divorce and We Have High-Worth Assets?

Call Hepner & Pagan as soon as possible at 408-688-9153 to request an intake appointment. Divorce has been identified as one of life’s most stressful events, and when it involves significant assets, it can be even more so. We understand how important it is for you to protect yourself and your assets. We can help you identify all relevant assets and determine the approach needed for the best possible outcomes.