Handling Complex Divorce Cases with High-Value Assets

Property division is often contentious in divorces, particularly when high asset values are involved. The stakes become higher, leading to heightened emotions and desperation as parties strive to secure a fair share of valuable assets. Disputes over the characterization, valuation, and division of property can intensify, making it crucial for individuals to have skilled legal representation to navigate these complex issues and achieve a fair outcome.

Community Property in California

In California, community property refers to assets and debts acquired during the marriage, generally divided equally between spouses upon divorce. This is defined under California Family Code § 2550, which mandates an equal division of community property to ensure fairness. Community property includes income earned and assets purchased during the marriage, while separate property consists of assets acquired before marriage or through inheritance or gifts designated as separate property.

The process of characterizing property involves determining whether assets and debts are community or separate. The process involves thoroughly examining when and how the property was acquired. Valuation follows characterization, determining the current market value of community assets and debts. Accurate valuation is essential for equitable division and often involves professional appraisals for complex assets. Properly identifying and valuing property ensures that both parties receive a fair share of the community estate, adhering to California’s principle of equal distribution.

Characterizing Certain Assets as Community or Separate Property

Real Property

In California, property apportionment in divorce involves determining each spouse’s community and separate real estate interests. Community property is generally acquired during marriage, while separate property is owned individually by one spouse, often acquired before the marriage.

When apportioning interests, courts will first characterize the property as either community or separate. If the property is deemed a mix, apportionment methods calculate each party’s share based on their contributions. For instance, if community funds are used to pay down a mortgage on a separate property, the community gains a proportional interest.

Additionally, if a property was converted from separate to joint title during marriage, it is presumed community property unless this presumption is rebutted. Contributions to the property, including improvements or mortgage payments, are also considered in determining each party’s financial interest. Reimbursement for separate property contributions is calculated under Family Code § 2640, factoring in the property’s value at conversion and any appreciation during marriage.

Ultimately, the court decides how to divide the property through a direct split, “cash out” option, or other methods while ensuring a fair valuation of all interests involved.

Employment Benefits

ERISA Pension and Retirement Benefits

Characterizing retirement and health benefits governed by the Employee Retirement Income Security Act (ERISA) of 1974 can present a challenge. ERISA ensures that these plans meet minimum standards for participation, funding, and vesting and provides protections for participants’ benefits.

ERISA benefits are characterized as either separate interest or shared payment under a Qualified Domestic Relations Order (QDRO). In a separate interest QDRO, benefits are divided into two distinct pensions—one for the plan participant and one for the alternate payee. This allows the alternate payee to receive benefits independently. 

In a shared payment QDRO, the alternate payee gets a portion of each payment made to the participant, with benefits paid if the participant is receiving payments. ERISA benefits must be specified clearly in the QDRO without altering the benefit amount or form.

Disability Benefits

Disability benefits can be classified as either community or separate property depending on their purpose and timing.

Disability pensions may have both community and separate property components. Before retirement age, disability benefits primarily compensate for lost earnings and are typically considered separate property. However, after reaching retirement age, if disability benefits replace retirement benefits earned during marriage, they may be classified as community property. The community property interest is determined by subtracting any benefits related to pre-marriage or post-separation service and any portion exceeding the retirement pension that would have been received.

When classifying private disability insurance benefits in the context of divorce or asset division, several factors are considered:

• Source of Premiums: This involves determining whether the premiums for the disability insurance were paid with community (shared marital) funds or separate (individual) funds. If community funds were used, the benefits may be considered community property. The benefits might be classified as separate property if separate funds were used.
• Timing of Benefits Relative to Marriage and Separation: Benefits received or accrued during the marriage are generally considered community property, while those received or accrued before or after the marriage might be classified as separate property. The timing of when the policy was purchased and when benefits are received impacts this classification.
• Intent Behind the Insurance: Courts may examine the purpose of the insurance. If the policy was intended to provide financial security for the family during the marriage, the benefits might be viewed as community property. Conversely, if the insurance were for individual protection, it could be classified as separate property.
• Use of Community Funds: If community funds were used to pay for the premiums, the benefits might be partly or wholly considered community property. The proportion of community versus separate funds used to pay the premiums affects how the benefits are divided.

Benefits received during marriage for a disability occurring in that period are community property. 

Valuation Issues

In a divorce, parties can agree on or present evidence for property valuation. If they don’t agree, expert testimony is needed, though owners can testify about their own property’s value without special qualifications. If there’s disagreement on an expert’s valuation, parties may hire their own experts. The court may require additional evidence or appoint an expert if needed. For tangible personal property valued with real property, special rules of evidence apply. A single expert can save time and money, but if disputes arise, each party may present their own expert to present data for the court to consider.

Life insurance

When valuing whole life insurance, the cash surrender value is commonly used, often detailed in policy documents or annual statements. Life insurance proceeds are generally considered community property if premiums are paid with community funds. However, there is debate on how to divide and value term life insurance when the proceeds are not yet due. The relevance of life insurance varies with the age and health of the insured. Life insurance might be less replaceable or more costly for older or less healthy individuals. Policies with guaranteed renewal provisions can also impact community property considerations.

Stocks and bonds

For publicly traded stocks and bonds, their value is typically determined by the closing market price on the valuation date. Unlisted stocks and bonds might need appraisal due to their lack of a public trading history. Closely held stock, often in family businesses, requires a detailed valuation approach considering methods like recent sales or earnings ratios. Tax implications must be considered when dividing stock, with courts addressing immediate tax consequences but generally not speculating on future taxes. U.S. Savings Bonds’ value is based on their redemption amount, and tax consequences may arise upon transfer.

Business interests

When dividing a community business in divorce proceedings, the business must first be valued unless an in-kind division is ordered. This valuation ensures an equitable division of the community interest. The court is responsible for this valuation and cannot delegate it. Valuation methods vary and can be challenging, especially for unique or personal service businesses.

Professional practices are treated differently; they are typically awarded to the licensed spouse, with the community entitled to reimbursement for contributions to the professional’s training. Goodwill, an intangible asset representing continued patronage, must also be valued and included in the division.

Valuing goodwill in a business during a divorce is complex and varies by case. Goodwill value is determined based on specific facts, with evidence supporting its worth. While expert opinions are allowed, they aren’t definitive. Factors include business location, client base, the business’s history, and customer loyalty, but post-separation efforts can’t influence this value. Accounts receivable must be assessed using an accrual basis and are usually valued near trial time unless a different date is justified.

Consult an Experienced Attorney Today

High-value asset issues in divorces can be complex, involving intricate valuations and legal nuances. Accurate division requires expertise to ensure fair outcomes. Professional legal counsel can make a tremendous difference in the outcome, so consult Khosroabadi & Hill for expert legal guidance and representation. Contact us today at 858-240-2093 for a free consultation.