A conversation with a high asset divorce attorney.
The short answer is: it’s complicated. The long answer is: it’s more complicated in most states than it is in California because California inherited the community property system of asset division from Mexico when the state was annexed in 1848 following the Mexican–American War. The simplicity of the system is the presumption that any property or debts acquired during a marriage are jointly owned by both spouses. That 50/50 presumption precludes a lot of arguments. But not all assets are equal or liquid.
Caitlin Ashton is a high asset divorce attorney and Partner at Laughlin Legal Divorce & Family Law Group in Silicon Valley. She has a great deal of experience dividing retirement assets in high net worth and ultra high net worth divorces. Listen in as Ms. Ashton answers a handful of common questions on the subject.
What size marital estate qualifies as complex asset division in high net worth divorces and ultra high net worth divorces?
“The complexity varies greatly. High net worth divorce is generally understood to involve couples whose assets are valued in excess of $10 million. Ultra high net worth divorce refers to couples whose assets are valued in excess of $10s of millions. It’s the difference between a couple with a home in town and a summer house on a lake vs a couple with homes and businesses in multiple countries.”
Is there a basic answer to the question: how to divide retirement assets in a high net worth divorce?
“It’s pretty set in stone. It follows the community property presumption that from the day you get married to the day you separate, everything earned, acquired or contributed, is presumptively considered community prop and would be divided. So unless you negotiate that each of you keep your own retirement assets, there’s not much room for argument. The valuation experts will calculate what the community property retirement assets total – including 401ks, pensions, IRAs – and they’ll split it 50/50. That’s the default unless a couple wants a more creative alternative.
But the biggest, most common misconception is that retirement assets equal cash. A liquid asset is one that’s easy to turn into cash. And whether you’re retired or not, your retirement assets are not easy to turn into cash. In California, if you’re not retired or receiving payments, your retirement assets are subject to considerations like penalties for early withdrawal, taxes, community property division laws and qualified domestic relations orders/QDROs. But even if you are receiving payments, they’re still subject to taxes, community property division laws, and QDROs. Though retirement assets are valued, they’re not liquid until they’re liquid. They can be traded however.
Let’s say you want the family home. This is a common situation. And you want to offer your spouse a disproportionate share of other assets in exchange for a buyout of their equity in the house. Though they’re not liquid, you can trade a percentage of the determined value of the retirement assets.”
What’s the process for high asset divorce retirement division?
“The valuation of community property is pretty straightforward. Depending on the type of retirement account, there may or may not be a need to draft a qualified domestic relations order or QDRO. There’s only a handful of firms that do QDRO drafting. They’ll need information from us upfront to make it happen, they draft it, we file the orders with the court, and it’s sent to the plan administrator to divide. The QDRO would direct the financial institution as to the specifics of how to divide a certain type of retirement account, typically a 401k or pension. Dividing IRAs is a simpler process in that you don’t need a QDRO. A letter of instruction suffices.”
Is there a difference between high asset divorce retirement division before you retire vs after?
“After you retire, conceptually you can make withdrawals from certain accounts without penalty, so it can be helpful. Before then no one is going to want to incur the penalties for early withdrawals. And sometimes people take out loans rather than incur penalties.’
Are most of your high asset divorce retirement division already retired? Who is the typical retirement asset protection in divorce client?
“Some people assume that high asset divorce clients are largely already retired, and that is no longer the case. I’m doing the highest net worth premarital agreement I’ve ever drafted for a self-made couple in their early 30s.
There isn’t a typical client though there certainly used to be. There’s been a big demographic shift since the 2010s. Our parents and grandparents accumulated wealth over time, and that’s still how it occurs for most of the population. But in Silicon Valley, the tech industry has made entrepreneurial people richer, faster, younger as venture capital companies pour in huge infusions of cash which many entrepreneurs then invest in the stock market. So they’re speculators both on the job and off. There hasn’t been anything like it since the Gold Rush! And it’s just as risky.”
Do you go deep into divorce and retirement assets taxation when it comes to a settlement agreement?
“It’s a huge factor in dividing retirement assets. It’s a significant material factor and tax consequences pay a huge role in complex asset division. In all the support issues and property division issues, tax generally comes into play. We often find ourselves working with CPAs and forensic accountants to advise our clients about tax consequences, whether it makes sense to file jointly, separately, what kind of exemptions can they expect, what’s their share of community property income, etc. The tax attorneys are on speed dial.
When I draft a prenup, I routinely shield retirement assets from being divided at the time of separation or divorce. You can set aside all community property assumptions and stay separate. And they’re contractually binding and enforceable.
You would hope or even assume that a high percentage of high net worth folks have prenups but a lot of people don’t think they need one. Either they don’t have that much or aren’t earning much when they get married and they end up becoming an AI phenom. They’ll definitely wish they had a prenup. There are certain things you can’t do in a postnuptial that you can do in a prenup. But for many, it’s too uncomfortable to have the conversation when you’re planning your wedding.”
I need an attorney to help with dividing IRAs in high net worth divorce. Do I need a separate attorney for 401(k) division in high net worth divorce or even pension division in high asset divorce?
“Your high asset divorce lawyer will handle the division of all assets. They’ll first hire an asset valuation expert to determine the value of each of your assets. They will then help you negotiate the division of all of your assets including your retirement assets, and draft a community property division settlement.”
What basic human lessons have you learned as a result of being a high asset divorce attorney?
“It may sound cliche but I’ve had it confirmed over and over again that money does not buy happiness. We see this struggle played out no matter how wealthy couples are or aren’t. The people who internalize the most anger and emotional frustration throughout division of assets are the ones who are most upset about dividing their wealth. As family lawyers, part of our work is advising what the law provides, and the other part is counseling clients that they’ll come out better if they can set themselves up for a happier next chapter. What’s the point in continuing to argue for something the state of California decided long ago?”
Looking for a high asset divorce attorney to make sure you get what you’re entitled to in your divorce?
Laughlin Legal Divorce & Family Law Group is a collection of some of the most skilled high net worth and ultra high net worth divorce and property division attorneys and mediators in Silicon Valley. Laughlin Legal is trusted throughout California for their ability to skillfully help divorcing parties achieve a better outcome.
If you or someone you love is headed for a divorce, learn more about how the divorce services we offer can best represent you and your values. Call us now at 650.343.3486 to schedule a consultation with a Laughlin Legal divorce attorney. If you’d prefer, you can email us to set up your appointment. If we miss your call, we will respond promptly and call you back as soon as possible.
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