Divorce

The Costly Divide: Key Financial Considerations In High-Net-Worth Divorce

Last updated on May 15, 2024

In many respects, getting a divorce, especially in the case of a high-net-worth divorce, has a lot of similarities to selling a house. Sure, there are emotional ties and memories, but there are also practical realities. Just like a house, a marriage needs to be viewed as an investment. You have invested a great deal of time and money into your marriage, and you want to make sure you get a good return on that investment.

While the emotional aspect of divorce is difficult, and shouldn’t be minimized, the financial aspects of divorce cannot be ignored. There will be plenty of time to process the emotional elements of and reflect on the past, but in order to move on, and set yourself up for success, it is important to focus on the practical matters at hand. A high-net-worth divorce involves a lot of moving parts and financial considerations that are not present in the average divorce that doesn’t involve sizable assets, business interests, etc.

Because of the complexities involved in high-net-worth divorce, it is essential to have a divorce attorney who has experience handling such matters and understands the unique financial considerations that need to be taken into account. Let’s take a look at some of the key financial  considerations that must be addressed in a high-net-worth divorce, and how a divorce attorney can help.

What Is A High-Net-Worth Divorce?

High-net-worth divorces are those where both spouses have a joint net worth of $1 million or greater. The same issues need to be resolved in all divorces – child custody, child support, asset and debt division, and spousal support, to name a few – but that being said, high-net-worth divorces are typically much more complicated because there are generally more assets to divide, and those assets tend to be much more complex.

Where You Divorce Is Important

Everyone knows that getting divorced means that you not only lose a spouse but also half of your money. However, what “half” really looks like depends on the state where you file for divorce.

Some states share all marital property equally at divorce, but some states embrace what is called “equitable distribution,” in which the division of marital assets and liabilities is determined based on a fair and just allocation that considers the specific circumstances of each spouse. This often involves a detailed assessment of factors such as individual contributions to the marriage, financial needs, earning capacities, and future economic prospects. The goal is to ensure that the final settlement is equitable and provides each party with a reasonable and proportionate share of the shared marital estate, taking into consideration factors like the duration of the marriage, childcare responsibilities, and any sacrifices made to support the other spouse’s career or education. This approach aims to promote a more balanced and just outcome compared to a strict “equal” division of assets. New York is an equitable distribution state.

Only nine states actually have community property laws that require strict equality in dividing marital property in a divorce: Arizona, California, Louisiana, Idaho, Nevada, New Mexico, Texas, Washington and Wisconsin. In those states, marital property is almost all property (including income and debt) that accrued during the marriage, and it is divided 50/50 in a divorce.

If you are the sole provider for the family or make significantly more money than your spouse, you will probably keep your income and the majority of the assets you have amassed. However, depending on the circumstances surrounding your divorce, you may still be required to pay spousal support. Each divorce is different, so discuss yours with a qualified divorce lawyer.

Regardless of where the marriage occurred, the state in which the divorce takes place usually follows its own guidelines and regulations to determine a fair and equitable distribution of property.

The Significance Of The Timing Of Asset Acquisition

In both types of states, whether assets were acquired before or during the marriage will be weighed when dividing assets in a divorce. Assets acquired prior to marriage are likely to be deemed separate property and thus not subject to division, but the maintenance, improvement or increase in value of those assets acquired before marriage during the marriage can affect the ultimate distribution. In equitable distribution states, both marital and non-marital property can be subject to distribution based on factors that are dependent on the length of the marriage, financial contributions, and spousal efforts during a marriage.

Factors To Consider In HNW Divorce

In high-net-worth divorces, there are several important considerations that are more critical than in typical divorces, including:

  1. Complex asset valuation: High-net-worth divorces often involve complex and diverse assets such as multiple properties, business interests, investments, trusts, intellectual property, and international assets, which often require the expertise of specialized consultants to be properly valued.
  2. Asset Tracing and Concealed Assets: High-net-worth individuals often have the resources necessary to hide assets or income when going through a divorce. Proper discovery and tracing are extremely important to ensure a fair distribution.
  3. Tax Implications: Property settlements in high-net-worth divorces can involve significant tax consequences. It is important to take into account the tax impact of property division, spousal support, and other financial arrangements.
  4. Spousal Support: In high-net-worth divorces, the question of appropriate designation and period of spousal support can become more of an issue due to the high income and assets that may belong to one spouse.
  5. Business valuation and ownership: If you or your spouse own a business, a forensic accountant or someone who values businesses would need to analyze and possibly complete the valuation of the business and division of it.
  6. Prenuptial and Postnuptial Agreements: Prenuptial or postnuptial agreements, which stipulate financial arrangements in the event of a divorce, are common among HNWIs, particularly those who have accumulated considerable wealth since marriage.
  7. Wealth Preservation: Protecting and preserving the wealth acquired during the marriage is also a key goal in many high-net-worth divorces. Trust formation, estate planning and tax planning are all tools that can be employed to protect and preserve a party’s wealth and assets.
  8. Legal Representation: High-net-worth divorces are extremely complicated, and a lawyer who specializes in these types of cases is a must. A knowledgeable attorney will be able to help clients with issues such as the valuation of an estate, tax implications, ownership of a business, and spousal support.

Contact New York Family Law Group For Your HNW Divorce Case

When it comes to investments, like your marriage, it is important to strive for the highest possible return. Although your relationship ultimately didn’t work out as you had hoped, that doesn’t mean that you need to settle for anything less than what you rightfully deserve. You have invested your time, money, and emotions into your marriage, and it is only fair that you receive the value of that investment back. This will allow you to position yourself in the best possible way moving forward. To ensure that you achieve the maximum return on your investment, it is crucial to work with a divorce attorney who can assist you in obtaining the greatest value from your divorce.

High-net-worth divorces require a thorough understanding and application of complex property valuation, asset tracing, tax implications, alimony/spousal support, business valuation and prenuptial/postnuptial agreements. It is essential to seek the guidance of skilled legal professionals to safeguard and maintain the assets accumulated throughout your marriage. Reach out to New York Family Law Group today to explore how we can make certain that you achieve the most favorable result from your divorce settlement.

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