If you are considering a divorce, you may have come up with an idea that many have also come up with – if you’re transferring assets to third parties prior to divorce, that’s legal, and it will reduce the amount the court should find that you owe your soon-to-be- ex spouse. In theory, this sounds too good to be accurate, but superficially, it seems like it will work. If you transfer your $1 million in assets to your mom before filing for a divorce, you no longer have that $1 million, and the court cannot award half of it to your soon-to-be ex.
The truth is a lot more murky. In reality, laws are in place to prevent this type of scheme from succeeding. As such, here are three reasons why you should never try this tactic.
Transferring Assets to Third Parties Prior to Divorce: Three Reasons Not to Do This
If something sounds too good to be true, it probably is. In this case, transferring your assets is absolutely too good to be true. Here’s what can happen if you attempt to engage in this scheme.
1. Asset Division Gets Complicated Real Fast
California courts presume all property acquired during a marriage is community property. During the financial disclosure processes of a divorce, lawyers will almost always find your asset transfer. Once they do, they will inevitably argue to the court that your transfer was an attempt to hide marital funds. If the judge agrees, you will have to incorporate its value into the marital division, and you’ll also show the judge that you are potentially dishonest in character. The judge may scrutinize all your statements much more closely.
2. You May Encounter Tax Issues
Sometimes, transferring funds can run afoul of taxes. For example, if you have a 401k, a court-ordered division of that marital asset can avoid any tax headaches typically associated with an early withdrawal. If you don’t wait for this court order to withdraw it but instead transfer it to a trusted friend, you’ll have a huge tax bill at the end of the year. Additionally, since you were trying to hide marital funds, a judge will put that value back into the divorce settlement anyway. That makes it a double hit – you’ll pay taxes on the withdrawn amount, and half of it will go to your spouse anyway!
3. You’ll Find Yourself in a Weakened Negotiating Position
Transferring assets to third parties prior to divorce is typically seen as trying to undermine the divorce process. As you may imagine, judges do not like that. If the court catches you engaging in this behavior, expect to have everything you do scrutinized more, thereby leading to a weaker position in the case.
Bottom Line: Transferring Assets to Third Parties Prior to Divorce Is a Bad Idea
Trying to “shield” some assets during the divorce process can be very tempting. Ultimately, trying to shield assets typically results in more pain than gain.
Instead of hiding assets, contact us at (408) 560-4487 or complete our secure online form to schedule a case evaluation with one of our skilled high-asset divorce attorneys. We’ll advocate for you aggressively and legally to help you keep as much of your money as possible.
