What Not to Do in a High Net Worth Divorce in Los Angeles

Divorce can be an emotionally difficult and financially overwhelming process. This is especially true for a high-net-worth family. The divorce process is considerably more complicated when there are significant assets to divide and/or protect. To avoid making a costly mistake, it is important to retain an experienced high-net-worth divorce attorney to advise you on the dos and don’ts in your case. 

Until then, here is some information on what qualifies as a high-net-worth divorce and some general tips on what not to do in a divorce involving significant assets.

What Qualifies As a High-Net-Worth Divorce in Los Angeles?

Although not legally defined, a high-net-worth divorce traditionally involves at least one high-earning spouse and/or significant property (valued over a million dollars) subject to negotiation and division during the divorce. In practice, a high-net-worth divorce typically involves multiple millions of dollars, various asset types, and other complex investments.

Although a high-net-worth divorce can be contentious, particularly in cases in which one spouse holds the majority of the wealth, these cases can proceed amicably with the assistance of qualified counsel. Interests in stock or restricted stock units, pensions, real estate holdings, antiques and/or artwork, investment portfolios, and/or business interests, for example, make the divorce process more complicated, which makes involving high-asset divorce attorneys highly recommended.

An attorney experienced with divorces involving significant assets understands the nuanced complexities that need to be navigated and addressed in your case.

Avoid These Mistakes to Embrace a Healthy Divorce

Here are some common mistakes to avoid in a high net-worth divorce that will save you money and stress: 

Don’t try to hide your assets. Attempts to conceal assets can result in you being sanctioned with either fees and/or with the asset itself being awarded to the other party. Hiding assets will also likely result in increased involvement of forensic accountants during your case, which will drive up the attorney and expert fees and costs and increase the likelihood of litigation.

Don’t liquidate your bank accounts. Similarly, don’t move all your jointly owned money into accounts held in your name alone. Married persons and all parties to a divorce have fiduciary obligations to one another. Trying to limit the other party’s access to community assets, or cutting off their ability to support themselves, can result in you paying for your spouse’s attorney fees incurred when they seek access to funds and/or support.

Don’t badmouth your ex to your children. Involving your children in your marital matters is not only detrimental to their mental well-being, it can also unnecessarily increase the cost and duration of the litigation needed to resolve all issues in a divorce. When there are significant assets available to pay for attorney and expert fees, and significant hostility between the parties, a custody litigation can last for years. 

Don’t assume your high-net-worth divorce has to be contentious. Approach your divorce with a mindset toward resolution and try not to take unreasonable positions on issues that will result in litigation. One option is to try to mediate your divorce or engage in negotiations through counsel first to see if you can resolve all the issues in your divorce before resorting to litigation.

Don’t make assumptions about the outcome of your divorce. Don’t think you are entitled to “keep” all your money if you are the primary income-earning spouse, and don’t think you are entitled to “get” high spousal support and child support awards if you have been a stay-at-home parent. Each case has its own unique set of circumstances, and most cases will be resolved with a goal of reaching an equitable solution. Both parties’ lifestyles may have to change post-divorce, despite the existence of significant assets, as it costs more to run two households than it does to run one.

Don’t ignore taxation issues in your divorce. Factoring in tax issues, such as capital gains tax exemptions for the sale of a home or capital gains taxes on brokerage accounts, should be considered before a full settlement is reached in a divorce.

Don’t compare your divorce to anyone else’s. It is important to be aware that the divorce experience of a friend or family member may not be your experience. Engaging an attorney experienced with high-net-worth divorce will set your case on the path to be resolved as quickly and reasonably as possible. 

Don’t Make Emotionally Charged or Rash Decisions

Although experiencing a variety of complex emotions is common in a divorce, it is important not to react rashly to new or upsetting information. 

Some divorce mistakes to avoid: 

• Just because you discover your spouse has cheated on you, does not mean you should cause damage to his or her personal possessions. 

• You may have discovered your spouse's personal trainer is more than just a trainer, but this does not give you the green light to blast salacious pictures of him or her over social media. 

• Being angry that your spouse has cut off your access to a credit card does not mean you should sell his or her priceless antique artwork.

Dealing with financial ramifications of ruined property, the expense of a civil defamation suit, or the significant effects of a restraining order against you is not worth the “revenge” obtained during a momentary lack of judgment. Make your divorce easier and less expensive by refraining from impulsive behavior.

Don’t Misidentify Assets

While you may think that your business is entirely your separate property, you will want to check with an experienced divorce attorney specializing in high-value financial assets before labeling that business as such in a divorce. 

A preliminary step in any divorce is listing and exchanging full disclosures of assets and debts and income and expenses, to your spouse, as required under the Family Code. One purpose for this exchange of financial information is intended to provide the other party with a detailed list of all of the community and separate property assets and debts you have an interest in. It is important that these items are identified properly to avoid unnecessary litigation. 

Property characterization issues (whether something is separate property or community property) are often the most complicated aspects of a high-net-worth divorce. It is imperative that experts familiar with separate property tracings and other separate/community property calculations are retained to provide expert reports so that a case can settle through mediation or negotiation, or, if necessary, the case is ready to go to trial. Often, the ultimate disposition of property in a marriage requires documents and “proof” that property is one or the other spouse’s separate property.

In a high-asset divorce, there may be numerous business interests, homes, vacation properties, and expensive cars to be characterized. Being able to identify when you purchased those various items (with bills of sale and copies of the titles), along with being able to provide proof of the source of funds used to purchase the property will be necessary for a forensic accountant to prepare an expert tracing and analysis.

Divorce lawyers specializing in high-net-worth cases will be able to quickly identify which assets may not be clearly community or separate property. If a prenuptial agreement was entered into prior to marriage, for example, an experienced lawyer can advise as to the likelihood of that agreement being enforceable.

Sometimes in a marriage a transmutation of property can occur, even unknowingly, which changes the characterization of that property. It is important that you take the time to gather paperwork regarding assets for which you claim a separate property interest.

These include but are not limited to those prepared for estate planning purposes, for a business transaction, and for purchasing of property so you can provide them to your attorney and forensic accountants to properly characterize the assets to be divided. 

Don’t Under or Overvalue Your Assets

The disclosures you make in your divorce require that you list the value of your property. While it may be tempting to rely on online resources to provide an estimate of the value of your property, guessing at your property’s value in a high-net-worth divorce can have a detrimental effect on your case. 

These are some common divorce mistakes regarding valuation to avoid: 

• Not understanding how stock is valued in a divorce. Just because your shares of stock are worth $200,000 on the day you check the market price, does not mean that is the value of the shares in a divorce settlement. 

• Estimating the value of your business without considering its “intangible” value. Even if you are convinced your business is worth nothing, a business can have an added “intangible” value based on goodwill that needs to be factored in when determining the business’ value to be divided in a divorce.

• Using an online appraisal site to estimate the value of your home. Although online appraisal sites can be helpful to provide a ballpark value of real property, you could lose out on a significant portion of its value if you forgo a formal real estate appraisal.

To protect your interests, an attorney specializing in a high-net-worth divorce will recommend engaging the services of third-party appraisers to provide a more accurate valuation of your assets for purposes of the divorce.

Don’t Try to Hide Assets from Discovery

In a divorce, both parties are required to provide information under penalty of perjury about their income, expenses, assets, and debts through preliminary disclosures. If you do not believe that the other party has given you enough information, an experienced divorce attorney can assist you in propounding formal discovery to obtain more information, to which the other party must fully respond. 

When completing these disclosures, it can be tempting to hide assets that you believe the other spouse is not aware of. Failing to identify all your assets can be a very costly mistake, as hiding an asset, even an asset that is indisputably your separate property, is a breach of one’s fiduciary duty to their spouse.

There are significant penalties if you are found to have hidden an asset from your spouse. If it is found that you have breached your fiduciary duty, that asset could be awarded in part, or even in whole, to the other spouse.

You can be sanctioned by a judge for the fees and costs the other party incurred in having to force you to disclose information about an asset and/or to request the Court to divide that asset. If your case does go to trial, your hiding of assets (and lying about them) can damage your credibility, resulting in the judge making orders more favorable to your spouse beyond just the undisclosed asset.

If an asset is unintentionally left off a disclosure, counsel can assist you in amending or updating your disclosures to correct this mistake. Even better though is working with an experienced attorney who will assist you in drafting your disclosures to help ensure that you do not forget to list anything the first time, including but not limited to valuable art or coin collections, jewelry, cryptocurrency or NFTs, stocks and/or options, bonuses, capital loss carryovers, and other forms of assets or income which may be overlooked when the disclosures are being completed. 

If your goal is to accomplish a peaceful end to your marriage, be sure to make full and complete disclosures as required under the law.

Don’t Settle to Speed Up the Process

Divorce cases can be messy, emotional, and stressful. It can be tempting to settle a case quickly, even if the terms are not exactly what you want. Although most divorce cases will eventually resolve through settlement, it is important to be patient during the process and keep your end goals in sight.

If you rush a settlement, you could end up paying too much, or accepting too little, in spousal support and/or child support, and you could end up giving up more than your fair share of assets. Taking the time to understand the process, what is being divided and how, what the income numbers are, and the support numbers should be, and being advised by counsel, can prepare you to make decisions and proceed towards settlement of your case.

When a case does end in settlement, you want to ensure that all your assets are addressed in your marital settlement agreement, which is the written agreement entered into by two parties in a divorce that divides your property and possessions, as well as deals with issues such as support and child custody, and is the blueprint for the Judgment that is submitted to the Court for entry.

If assets are omitted from the marital settlement agreement/Judgment, or if the provisions are vague as to timing and procedure for exchanging personal property, titles to cars, or paying an equalizing payment, more litigation may result if a subsequent agreement cannot be reached.  

Simplify Your High-Net-Worth Divorce in Los Angeles with Cage & Miles

When you are going through a divorce involving substantial assets and/or income, it is important to retain a high-net-worth divorce attorney to help guide you through the process. Let our team of highly qualified Los Angeles divorce attorneys at Cage & Miles, LLP work with you to achieve a peaceful resolution to your high-net-worth divorce case, while also protecting your rights.