Divorce can make a huge difference to a couple’s future, and with the divorce laws that California has in place, most of the assets that you acquire while you’re married have to be divided equally with your spouse in a divorce. If you want to protect some of your assets, you have to engage in some careful planning. A divorce attorney in San Mateo can help you do everything possible to protect your assets in these situations.
What Are the Legal Options for Protecting Assets During Divorce?
Prenuptial and Postnuptial Agreements
One effective way to protect assets is through a prenuptial or postnuptial agreement. A prenuptial agreement is signed before marriage, and a postnuptial is signed after the marriage. Both of these must be done before you file for divorce, however.
These agreements can outline how your assets and debts will be divided if you do get divorced, and they can designate that certain property must remain separate. In order for these agreements to be valid, you must be able to show that they were voluntary, they must be made in writing, and there must’ve been no coercion involved in the making of the agreements. If there’s any possibility that the agreement could be challenged, then your assets may be at risk. A divorce attorney can help you to ensure these agreements are ironclad.
Identifying and Protecting Separate Property
If you are able to prove that some property is yours alone, it may be possible to protect it from division. The law distinguishes between community property, which are shared marital assets, and separate property, which can be any property that you owned before you got married, gifts that were made to you alone, or something you inherited.
To protect separate property, you must be able to clearly trace its origins. Commingling your separate property with community funds can mean your separate property gets reclassified as marital property, however, and it’s easy for this to happen. If you were, for example, to deposit an inheritance into a jointly owned bank account, that would make it community property. If you find yourself in a divorce and need to prove that property belongs to you, you’ll need lots of documentation, like deeds, bank statements, or gift letters, to prove this.
Trusts
Another tool for protecting your assets is to create a trust. If you create an irrevocable trust before you initiate divorce proceedings, you can shield certain assets, like investments or real estate. You transfer the ownership of these assets to the trust, and that removes them from your marital estate.
However, California courts are aware that spouses sometimes set up trusts solely to steal and hide assets that should belong to both partners, so you must be cautious to do this legally and in compliance with all rules to avoid any claims of fraudulent transfer for the purpose of evading division of property. A divorce attorney can guide you in establishing a trust properly so that it can withstand the scrutiny of the courts.
Strategic Financial Planning
If you find yourself in a divorce, and you have not taken any of the steps above already, don’t give up hope. Talk with your lawyer and, early in the divorce process, take an inventory of all your assets and gather documentation related to them. There are several steps you can take here to protect some of your assets.
For one thing, you can get the court to approve a freeze on any joint accounts that you own with your spouse so that they cannot simply drain and use your shared funds before the divorce goes through. If you’re able to pay down any community debts in a strategic manner, you may be able to reduce the marital estate that will be subject to division.
Timing is very important here. Any action that you take after divorce proceedings have already begun may be closely scrutinized to determine whether they are an attempt to hide an asset. Unauthorized asset transfers are prohibited under the California family code, and these things must be done carefully to avoid violating any court orders.
Mediation and Negotiation
You can also protect your assets by entering into mediation with your spouse. Mediation is a chance for you and your spouse to come to an agreement without the court imposing an agreement upon you, and this gives you the freedom to propose some creative solutions. For example, you might want to trade one asset, such as a retirement account, for something else, like a vacation home. It all depends on what each of you most values. A neutral mediator will meet with you to facilitate the discussion.
One of the great benefits of mediation is that it gives you and your spouse more control over the outcome. If you can’t come to an agreement, the court will divide things, and there’s little you can do at that point. A mediation agreement is likely to be accepted so long as the court views it as fair and so long as both of you have made a full financial disclosure. Your divorce attorney can represent you in mediation, verify that you have disclosed everything, and help you to craft an agreement that protects your financial priorities and will also be acceptable to the courts.
Retirement Accounts and Pensions
Retirement accounts and pensions are often significant assets, and they require some special handling to protect your share. Community property rules apply to portions of 401(k)s, IRAs, or pensions that have been earned during marriage, and this means they will typically be divided equally.
You’ll need a Qualified Domestic Relations Order (QDRO) under federal law if you hope to split certain retirement plans without incurring ruinous tax penalties, and protecting your interests also requires that you properly value these accounts and account for their future growth. Mistakes, like failing to secure a QDRO before the divorce is finalized or failing to properly fill it out and file it, can mean a big financial hit. It is especially complex divide retirement accounts, and that’s another reason to contact a divorce attorney to be sure that everything has been done correctly so you don’t lose anything through mismanagement.
Avoiding Mistakes
There are certain mistakes that are fairly common and which you need to be careful to avoid. Any attempt to hide assets, such as by transferring money to a secret account, violates the fiduciary duty laws of California and will not only undermine your standing with the court but could cost you quite a bit. You may have to pay penalties that include forfeiting the entire hidden asset, and you may have to pay your spouse’s legal fees as well.
Another mistake is failing to disclose all your assets. Even if you do this unintentionally, you could end up being hit with sanctions for doing so. Another major mistake is failing to take taxes into consideration. The capital gains on the sale of property, for example, can enormously erode your share. Don’t try to protect your assets without help from a professional who understands the law and the California courts.
For helping in protecting your assets, talk to us at the Seeley Family Law Practice APC in San Mateo to get help from the Bay Area’s trusted family law firm.