Getting divorced is difficult for anyone, no matter what. But if you are going through a divorce where there is substantial wealth involved, then your case will likely be more complicated to resolve. High-net-worth individuals may need a skilled forensic accountant to conduct analyses and valuations of assets. They also need an experienced divorce attorney to determine what is and is not marital property and how to divide it fairly.

In California, where community property laws demand that the marital assets be divided evenly, it is essential to properly characterize property as marital or non-marital. 

Community Property and Complex Marital Assets

California follows community property law. In other words, all property and income received by the spouses during the marriage is considered community property and should be distributed evenly among the two parties in the event of a divorce. Separate property, on the other hand, is generally owned separately, being acquired either prior to the marriage or through gift and inheritance from third parties.

Though it may appear easy at first glance, distinguishing between community and separate property becomes increasingly difficult when it comes to highly valued, complex assets. Businesses can generate income, and stock prices can change; thus, identifying which part of the business portfolio belongs to community property and which part is separate property requires thorough analysis and financial tracing.

Some of the assets that can complicate your divorce include the following:

• Closely held businesses or professional practice;

• Stock portfolio or brokerage accounts;

• Crypto-assets;

• Properties bought for real estate investment;

• Retirement savings or pensions;

• Venture capital investments or partnerships.

All of these assets should be examined and valued to determine their proper designation.

Dividing a Business in a Divorce

Some of the problems associated with divorcing couples include the family business. In many cases, one or both spouses may own a business whose value must be determined by the court.

In valuing the business, several factors may come into play, including profit margins, income, assets, liabilities, and the business's earning capacity. When it comes to professional practices such as hospitals, law firms, or consulting firms, another important aspect is “goodwill,” which reflects the firm's image or reputation.

There are many ways for a court to divide a business. The first one involves buying out the other spouse's share. Alternatively, both spouses could continue running the business post-divorce. Another option for the court is to sell the company and distribute the proceeds. 

As such, the entire valuation process can become contentious, with each side arguing that the business is misvalued. This is because the stakes are high: even a slight misvaluation can have a significant impact on the division of marital property.

Investment Accounts and Financial Portfolios

Investment portfolios create further complications. Spouses who have accumulated substantial property can hold stocks, bonds, mutual funds, private equity, or other types of investment accounts. These portfolios might have been opened either before or during the marriage.

Tracing the sources of deposits made into those accounts and determining their growth rate might be a major challenge. The question of identifying the share of funds accumulated either prior to or during the marriage arises. 

Moreover, it should be taken into consideration that investment accounts tend to change in value rapidly, and thus, a specific valuation date should be determined. Depending on the circumstances, the divorce date, the trial date, or another date might apply.

Finally, it should be noted that dividing pensions and employer-sponsored plans is complicated by the necessity of QDROs.

Hidden Assets and Financial Misconduct

Regrettably, complicated divorces can sometimes include accusations that a partner is trying to hide their assets or income. Hidden assets include secret bank accounts, unreported business income, secret investments, or any property transferred to relatives or friends.

Under California law, couples who divorce are required to disclose all their assets, debts, income, and expenses. A failure to disclose assets can result in harsh penalties.

When dealing with hidden assets, lawyers often hire forensic accountants or financial investigators. Their job includes examining financial documents, such as bank statements, income tax returns, business records, and other financial information.

There are certain red flags that can help you spot the subterfuge. These include unaccounted-for funds or transactions, sudden changes in financial behavior, low income generated by a business, incomplete or unclear financial documents, and significant spending from an untraceable account. 

When a judge finds evidence that the defendant was hiding financial resources, the consequences can be extremely severe. The court may grant the plaintiff a greater share of the hidden assets.

The Role of Forensic Accountants and Financial Experts

Complicated divorce cases often require the involvement of financial experts. It is important for forensic accountants to trace the flow of money and evaluate businesses to identify any hidden sources of income. Such experts help ensure that all marital assets are accounted for during the divorce process.

The assistance of financial experts can also be useful for evaluating the investment portfolio and calculating the tax ramifications of selling certain properties. Since some assets are highly taxable when sold, planning for the sale becomes crucial to avoid unnecessary losses.

Such professionals work in tandem with family lawyers to prepare evidence for submission to the court.

Negotiation, Mediation, and Litigation

While some complex divorces end up being tried in court, others settle through negotiation or mediation. Settlements give spouses the opportunity to distribute their assets in ways they would like, and that cannot be arranged for by going to court. This means that one spouse keeps the business, while the other takes a larger share in the investments and properties. 

If differences on value and hidden property cannot be sorted out through negotiation, the case can be taken to court and decided by a judge. The court will order full financial disclosure, appoint neutral appraisers, and determine how to distribute the properties in accordance with California law.

Talk to a Sacramento, CA, High-Net-Worth Divorce Attorney Today

Wagner Family Law represents the interests of Sacramento residents in divorce proceedings. Call our office today to schedule an appointment, and we can begin taking the next step toward ending your marriage and fairly characterizing and dividing your marital estate.