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San Mateo California Family Law Blog

Hidden expenses in a high asset divorce

Ending a marriage is a complicated matter and can be time-consuming and involve significant emotional and financial commitments. Since divorce is often the culmination of marital distress over a period of time, the loss of time and emotional struggles may not seem like too much to deal with. However, during a high asset divorce, the financial side of things can quickly feel overwhelming.

A recent Bankrate survey concluded that divorce costs the average person approximately $15,000. Since this is an average, some people in California pay much less while others have to shell out much more. Factors such as location, complex assets and whether a couple has children can all influence how much a person might end up spending. Most people should expect to pay for things like court costs, filing fees or even mediation fees.

High asset divorce: How women can secure financial security

Popular media likes to portray divorcing women in a single light. Women are often shown viciously going after ex-spouses for money, desperate to squeeze out every last nickel and dime for their own advantages. In reality, this is very rarely the case. When facing a high asset divorce, the average California woman just wants to be certain of her financial security.

Despite the desire to be financially secure, many women do not take the necessary steps to protect their futures. This includes having a firm understanding of current finances. For example, a woman might want to familiarize herself with the household finances, including household income, outgoing bills, debts, investments and more. If a person only understands one or two facets of the household finances, he or she will not be fully equipped to make informed decisions during property discussions.

The hidden costs of a high asset divorce

For some California couples, money may feel like a significant barrier to divorce. This does not always mean that a couple cannot afford to divorce, and indeed may even mean the exact opposite. In a high asset divorce, dividing complex assets and determining alimony payments can be daunting. Here are a few ways to approach the associated financial concerns of going through a divorce.

No matter how well a person has thought about the future, divorce can disrupt even the most carefully laid plans. Couples who end up in court generally have to pay litigation fees that, over time, can quickly add up. Mediation is a more cost-effective approach that gives both parties more of a say in the final settlement. Still, there are mediation fees to consider.

Protecting wealth during property division is essential

Staying in an unhappy marriage is a burden that no one in California should have to bear. However, couples over the age of 50 may not feel as if they have any other choice. Even for a person who is relatively well-off may worry about what finances will look like after a divorce. Much of this worry centers around how money and other valuable assets will be split during property division.

Most people will experience some type of financial setback after divorce, but younger adults have more time and resources to catch back up. In gray divorces -- divorce involving adults 50 or over -- individuals do not have the same opportunities to recuperate any losses, particularly in regard to retirement. Even if a person has upwards of 10 years before hitting retirement age, the chances that he or she has bounced back financially are slim.

Handling property division according to California state law

Married couples spend years and even decades accumulating joint assets. From family homes to shared vehicles to living room furniture, the number of assets that are considered community property can be quite high. This can be overwhelming when going through the divorce process. However, having a better understanding of California state law in regard to property division ease some people's concerns.

Most states in America base property division in divorce proceedings on equitable distribution, which means that property must be divided fairly though not necessarily equally. California is a community property state, so barring a few exceptions, all assets obtained during a marriage -- including income and debt -- are joint property and must be divided equally during divorce. Understanding that property obtained during a marriage are joint assets that must be divided equally is important for those who wish to be proactive and assertive during property division. Still, there is more to the equation, such as determining what property even is.

Property division can minimize taxes in a high asset divorce

Property division can be extremely complicated, especially when a California has complex assets to split. A divorcing couple might pay particular attention to the tax implications of any property settlement, but they may overlook another potential financial problem in a high asset divorce. Whereas a person paying alimony could once deduct the amount on his or her taxes, those payments are no longer deductible. Instead, individuals will need to explore other options for minimizing taxes after a divorce.

In order to replicate the past cost-saving measures of the old alimony tax deduction, couples should carefully focus on property division. Retirement accounts are an excellent place to start, especially if one spouse earns less than the other. When dividing retirement savings, the lower-earning spouse could receive more of the couple's retirement assets and agree to lower alimony payments. In this way, a person might make up the amount of alimony that was reduced while also minimizing tax consequences. However, this approach is usually best reserved for payers who can effectively rebuild their retirement savings.

Protecting your inheritance during property division

Inheritances are often deeply personal, and most have significant amounts of both financial and emotional wealth. For these reasons, protecting an inheritance during marriage and divorce is essential. It is not uncommon for a California resident to file for divorce and then discover that his or her inheritance is considered community property, and as such subject to property division.

Unlike other types of assets, if a person receives an inheritance during his or her marriage, it is not automatically considered community property. In most cases, it will be the heir's separate property. However, it is possible for an asset that is considered separate property to actually make the switch to community property. It is relatively easy for a person to treat his or her inheritance in a manner that causes it to become community property.

Will your credit survive a high asset divorce?

Credit scores have the ability to govern many aspects of a person's life. From securing an auto loan with a favorable interest rate to getting a mortgage, living with a low credit score can cut off access to a wide range of financial opportunities. In a high asset divorce, there are many factors that can affect a person's credit score. While filing for divorce does not show up on credit reports, actions taken during and after can certainly have a negative impact. 

For many people in California, joint debt divided during divorce proceedings is a serious problem. This is because creditors do not care about who a divorce decree says is responsible for repayment. If an ex-spouse is responsible for paying a certain debt per the divorce decree but fails to do so, creditors can come after the other person if his or her name is also on the debt. Nonpayment also negatively affects both people's credit scores. Making sure that both parties understand their responsibilities and refinancing loans into just one person's name are both effective strategies for protecting credit scores.

Addressing financial concerns in a high asset divorce

In certain situations, more money really does equal more problems. In the case of a high asset divorce, a California couple might have to divide money from multiple income streams, complicated investments, businesses and other complex financial assets. However, couples do not have to go into marriage blindly trusting that they will figure out money matters if they end up divorcing. Here are a few ways in which a person can protect his or her finances and interests during divorce.

Signing a prenup before marrying is a fairly obvious first step, but an important one that should not be overlooked. A couple can agree to what a division of marital assets would look like in the event of a divorce, and can also clearly define which property is marital and which is separate. These agreements can also address potential spousal support, particularly if one spouse plans to sacrifice his or her career, associated benefits and peak earning years in order to raise the couple's children.

Tax implications of child custody

California parents typically understand how important it is to respect their children's best interests during divorce. However, these same parents often end up overlooking their own financial interests in the process. Things like child custody can significantly impact future taxes. While taxes should not be a driving force for any given custody arrangement, parents should still understand how their taxes might look.

The Tax Cuts and Jobs Act of 2017 eliminated the dependency exemption, which might lead some parents to mistakenly believe that it does not matter who ends up claiming their children. However, when claiming a dependent, a parent can also access other important benefits, such as a child tax credit as well as earned income credit. Knowing this, parents may be more eager to claim their child, but divorced parents cannot both claim their child in the same year.

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