High net worth divorce and community property laws

Whether less than five years have passed since your wedding day or several decades, if you’ve determined that your relationship isn’t going to last, you’ll no doubt be making numerous decisions in the weeks and months ahead that will affect your future. If you have children, whether they are minors or adults, it’s understandable that you’ll have their best interests in mind when making plans to move forward in life without your spouse. Texas operates under community property guidelines, which may have several significant implications in a high net worth divorce. 

If you and your spouse are age 55 or older, you might already have an estate plan in place with your adult children designated as beneficiaries. Negotiating a divorce settlement could prompt a need to update your plan. There are several issues regarding assets and liabilities that you’ll want to keep in mind as you navigate property division proceedings.  

If you plan to trade assets, be aware of possible tax implications 

Under community property rules, the court typically splits marital property 50/50 in a divorce. However, since you can’t physically split a house, vehicle or other object in two, 50/50 refers to the value of assets as opposed to the assets themselves. This means that you and your ex might agree to trade off on certain assets, such as one of your keeping the marital home and the other retaining ownership of an asset of similar value.  

It’s important to remember, in such cases, that there may be tax implications, which could ultimately affect the overall value of a particular asset. For instance, there may be capital gains taxes involved if a stock sells, which might mean that the spouse who agrees to accept the stock portfolio in exchange for another asset could wind up receiving less than the value of the stock at the time of the agreement.  

The court treats retirement benefits like all other marital property  

In a community property state like Texas, you and your ex will split retirement benefits just as you will all other marital property in your divorce. This includes but is not limited to 401k plans, individual retirement accounts and pensions. It’s wise to make sure you clearly understand how much you might gain (or lose) before heading to court for property division proceedings.  

Do you or your ex have a professional license? 

Another issue that might affect your divorce settlement in a high net worth portfolio is a professional license, such as a license to practice medicine or teach. A professional license may receive a value as an asset in a divorce, especially if it’s connected to business ownership, such as a private practice. In community property proceedings, the non-licensed spouse may have the right to half of the business’ worth.  

Be well-prepared for court proceedings 

Issues regarding assets and liabilities in a high net worth divorce can be complex, especially in California, where community property rules apply. To ensure that you achieve a fair settlement, it’s a good idea to seek clarification of state laws ahead of time and to make certain you understand all possible tax and financial implications that are relevant to your particular case.