Attorneys Discuss Dividing Investments in a San Diego Divorce

Quality Legal Representation for High-Asset Divorces in San Diego

Southern California has long been associated with economic prosperity, driven by industries such as entertainment, technology, and tourism. The region attracts individuals seeking professional growth and financial success.

Given the diverse opportunities and economic activities in Southern California, individuals may have complex asset portfolios. Family law attorneys specializing in property division can navigate the intricacies of valuing and dividing these assets, ensuring a fair and accurate distribution.

When facing a high-asset divorce in San Diego, individuals should consult an experienced family law attorney at Mattis Law, A.P.C. We are a top-tier family law firm, with Amelia Mattis being named one of the 10 Best Female Family Law Attorneys in 2020. Amelia Mattis has also been selected as a 2023 San Diego Rising Star by Super Lawyers and recognized as a 2022 Lawyer of the Year by the American Institute of Legal Professionals.

Call a San Diego divorce lawyer at (858) 328-4400 to schedule a free consultation to explore your legal options.

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Splitting Your Investments with Your Spouse

When a couple divorces in California, the marital property will be divided between the spouses. The first step is to classify all property owned as either separate or marital property. Only marital assets are divided in a divorce. This property may include the family home, the furniture, the vehicles, and the bank accounts. It may also include investments, such as stock options, pension plans, IRAs, and other types of less tangible assets.

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California Law on Division of Property in a Divorce

Under California law, marital property (assets and debts acquired during the marriage) belongs equally to both spouses. They must be divided equally in a divorce. You and your spouse can decide how to divide your property between you, or the court will decide for you. The three main steps of the property division process are:

• Classifying assets and debts as separate or community property
• Reaching agreements on the value of community property
• Deciding how to divide the property

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What Types of Investments May Be Divided in a San Diego Divorce?

Certain investments may be classified as separate property if acquired before the marriage and passively held in separate accounts during the marriage. Investments acquired during the marriage will be subject to division in a divorce. These may include:

• Stocks: Couples may purchase stock in a company to earn a return on their investment.
• Bonds: With corporate or governmental borrowers, bonds are fixed-income securities and one of the main asset classes.
• Pensions: A pension plan is an employee benefit by which an employer makes regular contributions to a fund during the employment years from which periodic payments are drawn for support during the employee’s retirement.
• 401(k)s: Many employees have the option to contribute to a 401(k) retirement plan. In many cases, employers make matching contributions.
• IRAs: An individual retirement account (IRA) allows an individual to save tax-deferred money for retirement.
• Stock options: Employees may receive stock options as part of their compensation package. These options convey the right, but not the obligation, to buy or sell a stock at an agreed-upon date and price.
• Cryptocurrencies: A cryptocurrency is a type of digital asset based on a large, often decentralized network using blockchain technology – organizational methods for ensuring integrity of transactional data. As they are not generally issued by any central authority, cryptocurrencies exist outside of governmental control.
• NFTs: Non-fungible tokens (NFTs) are digital assets representing real-life objects, such as art, music, and videos. NFTs are bought and sold online, often with cryptocurrency.

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Valuation of Investments and Its Importance

Accurate valuation is crucial when dividing investments. Accurate valuation contributes to financial fairness by providing an objective and precise assessment of the value of investment assets. This is especially important for complex portfolios that may include stocks, bonds, retirement accounts, and other financial instruments.

Methods for valuing different types of investments may include:

• Market capitalization (Market Cap): This method is commonly used for publicly traded companies and is calculated by multiplying the current market price per share by the total number of outstanding shares. Market cap reflects the total market value of a company’s equity and is a widely used indicator for stocks.
• Book value: The book value of an investment is calculated by subtracting a company’s total liabilities from its total assets and then dividing that figure by the number of outstanding shares. This method provides a sense of the company’s net asset value.
• Asset-based valuation: This method assesses the value of a company based on the market value of its assets. It involves adding up the fair market value of a company’s assets and subtracting its liabilities. This is commonly used for companies with significant tangible assets, like real estate or manufacturing equipment.
• Dividend discount model (DDM): DDM is used to value stocks by estimating the present value of future dividends. It assumes that the value of a stock is the sum of its future dividend payments, discounted back to its current value.
• Replacement cost: This method values an investment by estimating the cost of replacing or replicating the assets. It is often used for tangible assets, such as real estate or machinery, and assumes that an investor would not pay more for an asset than the cost of acquiring or replicating it.

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Tax Implications of Dividing Investments

Divorces involving the division of investments as community property in California can have various tax consequences. It’s crucial for divorcing couples to consider these implications and, if needed, consult with tax professionals for guidance. Examples of tax implications for investments include:

• Capital gains taxes: The capital gains tax is calculated based on the difference between the selling price and the original purchase price of an investment, including stocks, real estate, and cryptocurrencies. However, certain tax provisions may allow for a step-up in the basis for assets received due to divorce, which could minimize the tax impact.
• Early withdrawal penalties: Dividing retirement accounts may trigger tax consequences, particularly if funds are withdrawn before the account owner reaches the eligible age. Early withdrawals from retirement accounts may result in penalties.
• Taxable income: Distributions from retirement accounts, if not rolled over properly, could be subject to income taxes. It’s essential to understand the tax treatment of distributions from different types of retirement accounts.
• Mortgage interest deductions: If real estate includes a mortgage, the division of this asset may impact mortgage interest deductions. The spouse retaining the property might continue to claim these deductions.
• Interest income: Bond investments often generate interest income. The recipient of bonds in the divorce may be responsible for taxes on this interest income.

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Negotiation and Settlement for a Fair Division

Negotiating a fair and mutually agreeable division of investments in California divorces is a crucial aspect of the process. Both spouses should provide complete and accurate financial information. This includes detailed information about all assets, liabilities, income, and expenses. Full disclosure is crucial for building trust and ensuring transparency.

It is also important to clearly identify and prioritize individual interests and goals. This includes considering short-term and long-term financial needs, as well as non-financial considerations, such as retaining certain investments for sentimental reasons.

Be open to creative solutions that may go beyond a simple 50-50 split. For example, one spouse might retain the family home while the other takes a larger share of investment assets. Finding solutions that meet both parties’ needs can lead to a more satisfactory outcome.

Consider alternative dispute resolution methods such as mediation or collaborative divorce. These approaches involve a neutral third party to facilitate negotiations and help the couple work together toward a mutually acceptable agreement.

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The Role of Financial Experts in the Divorce Process

Financial experts play a vital role in accurately valuing diverse assets subject to community property laws in California. Their expertise ensures a precise assessment of the value of assets like investments, businesses, and real estate.

Given the tax implications of asset division, financial professionals in California divorces can offer insights into tax-efficient strategies. They help spouses navigate potential tax consequences, such as capital gains, ensuring optimal financial outcomes. It’s important to speak with a San Diego divorce lawyer who can utilize the knowledge of financial experts to protect your rights and interests throughout divorce proceedings.

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When Dividing Investments in a San Diego Divorce Becomes Complicated

The value of many investments includes the income earned on them. Generally, if an investment has generated income during the marriage, the spouses will split the profit. However, the division of an investment can get complicated, for example, if the asset was acquired by one of the spouses before the marriage but earnings on the investment occurred during the marriage.

Some investments purchased before marriage may be considered separate property, while others may not. Stock options can be particularly difficult to divide if they cannot be sold to a third party or do not have any real value. Divorcing couples may need a financial expert to determine how to divide investment income in a San Diego divorce.

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Protect Your Peace of Mind with Mattis Law, A.P.C.

At Mattis Law, A.P.C., we understand how difficult divorce can be. Our San Diego family law attorney can assist you with property division and every aspect of your divorce so that you can continue life with peace of mind.

Call us at (858) 328-4400 to discuss your next steps with a free consultation.

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