In many ways, a high-net-worth divorce is like any other—the significant issues include division of property, custody/visitation, and spousal/child support. But there are also ways the mechanics become more complicated in high-net-worth cases—for example when there is significant income disparity (one partner makes much more money than the other).
California is a community property state, which means that in a divorce, all marital assets (anything acquired during the marriage), with limited exceptions, are split fifty-fifty. Even a business, whether started while you were married or before, falls under community property, though a pre-marital business is not divided equally.
On the surface, this system appears relatively straightforward—and in cases involving modest assets, it often is. But the division can be considerably more complex in a high-net-worth divorce—typically defined in California as involving assets above two million dollars. Some couples take steps to avert these problems with a prenuptial agreement.
In a high-net-worth divorce, there’s much more at stake, financially speaking. There may be multiple homes, land, vacation properties, luxury vehicles, valuable furnishings, antiques and collectibles, jewelry, boats, planes, banking and brokerage accounts, pensions and 401ks, businesses, professional practices, intellectual property, and so forth. Furthermore, at least one partner often has income streams more complicated than what’s reflected on a simple W2 form—profit distributions, bonuses, stock options, passive income, and more.
Significant appraisals and valuations are necessary, and the process may require various financial experts such as corporate lawyers, forensic accountants, tax professionals, and more.
Sorting through it all can cause a lot of frustration and anger, especially if one party has financially contributed more to the marriage or is a much higher earner.
While it’s not unusual for an imbalance in spouses’ earnings, income disparity can be extreme in high-net-worth cases, becoming a very thorny and emotionally loaded issue. The imbalance can happen for all kinds of reasons. Sometimes both spouses work, but one makes an average salary while the other owns and runs a lucrative enterprise. Or, very commonly, one spouse stopped working to raise the family while the other launched a business or climbed the corporate ladder.
What is the effect of that income gap when the marriage ends?
In California, the court is not obligated to award spousal support. However, when there is a significant income disparity, the judge is likely to do so—but the type and amount vary case by case.
There are three main types of spousal support, often called alimony:
Temporary – Assists the lower-earning spouse with expenses while divorce proceedings are pending and before assets have been divided.
Permanent – Paid monthly, indefinitely, or until the death of the payor or the recipient, or remarriage of the recipient. Usually reserved for marriages of ten-plus years, or when there are reasons (age, disability, etc.) that the lower earner cannot support themselves.
Rehabilitative (The most common type)- This is usually awarded because one spouse was the primary breadwinner while the other raised children. The higher-earning spouse pays the lower-earning spouse while the lower earner seeks work, education, training, etc., to allow them to become self-supporting.
The court has broad discretion and considers many factors which may particularly impact high net worth cases.
- How long the couple was married
- The standard of living enjoyed during the marriage
- Whether one spouse left the workforce to raise children
- Age and health
- Financial condition
- Earning ability/employability/skills/education
- Contribution to marriage
It’s also important to realize that the determination of spousal support comes after child support. Income or net worth should not affect custody. However, it can make a direct impact on child support. In setting child support, the court uses a formula in California Family Code 4055 to establish child support. The calculation is based on the following:
- Income of each parent
- Number of children
- How much time the child spends with each parent
California Family Code 4057 states that while the formula is presumed to be correct, the court has the discretion to deviate from that calculation in certain circumstances—and this may specifically affect high-net-worth couples with significant income disparity. For example, although the code does not specify an income threshold, it provides for “extraordinarily high-income earners,” where the standard calculation far exceeds the needs of the children. On the other hand, in high-net-worth families, where the children are often in private school or involved in expensive extracurriculars that the lower-earning spouse cannot pay for, the family court will generally consider the standard of living the children are accustomed to and can issue an order for support that allows reasonable continuity and consistency.
Suppose you are going through a high-net-worth divorce and dealing with severe income disparity. In that case, it’s crucial to work with an experienced attorney who understands the complexity and nuance of this type of case. The veteran family lawyers at SFLG can help you navigate the specific challenges of your situation and achieve the best possible outcome.
By Debra Schoenberg