Divorce is a difficult process emotionally and often financially, and it only gets more complicated for higher-net-worth individuals. More financial assets to divide, more issues to contest, and more to gain or lose.
In order to reach a fair and agreeable settlement, you need to know what to expect, and the best way of preparing for your divorce may be to retain an attorney who knows how to protect your best interests. The following four tips will help you navigate your high-net-worth divorce.
1. A High Net Worth Divorce is More Expensive
Community assets are divided during divorce in a way that is determined to be fair and just by the court. High-net-worth individuals have greater assets to divide, making the process more involved for the divorcing couple and their attorneys.
Tip: Gather and Understand Your Financial Documents
You’ll need to study and understand your finances in ways you may not have before. Regardless of your financial background, you’ll need to know everything about your finances before getting a divorce. Make sure to retain and use these documents before beginning your divorce proceedings.
It is crucial to do this before divorce proceedings begin because this information often disappears after the divorce is underway. It can become more difficult to find the information you need once you and your spouse begin dividing your belongings, and once the documents like tax returns or W-9s disappear, it’s often impossible to use the information until formal legal proceedings are underway. How can you know or plan for what to divide if you don’t know the full extent of your assets?
If you cannot determine the full extent of your assets, forensic accounting may be necessary to track down hidden assets and to determine the parties’ financial holdings and history. Forensic accountants can also help determine whether properties may be separate or community property, but their services will cost additional time and money during the divorce proceedings.
What is Separate vs. Community Property?
Separate property is not divided during divorce. It is usually owned prior to the marriage, inherited or received as a gift at any time.
High network estates usually have to trace separate property assets to prove to the court that the asset or cash should NOT be included in the community property bucket. Tracing basically provides a record of exactly when the asset was received and the relevant transactions.
These records are intended to prove whether or not separate property assets may have been mixed with community assets, resulting in a loss of its separate property status. For example, one party may have deposited a payroll check earned during the marriage into a separate property banking account.
2. High Net Worth Divorces are More Likely to be Long and Contested
High-net-worth individuals are typically in a better position to afford the contest over community property. The cost of their legal representation becomes a smaller portion of the equation compared to what they stand to gain from the other party.
These cases also tend to take longer than the typical divorce case. Evaluating the assets to determine their value can take time. Additionally, it must be determined whether certain assets are considered separate or marital property. Fleshing out which assets should go with which spouse can also be cumbersome. All of this leads to long, drawn-out court battles. It is not unusual for divorce cases involving high net-worth couples to last many months or even years.
Tip: Talk to a Valuation Appraiser
If you are part of a couple who has a complex financial portfolio, you will often want to bring in an appraiser to value the overall amount of the state. This is one of the most important parts of determining the accurate value of the couples’ estate. If only one spouse owns and operates a business or other operations that are part of the estate, it is very important for the other spouse to get his or her own valuation expert to determine how much the operation’s assets are worth.
A valuation expert can also point out the assets that you may be missing in your own valuation of the marital estate. Life insurance policies, for example, can be major assets, but divorcing couples often overlook these assets. The value of life insurance policies can be a major portion of the marital estate. Overlooking these assets can cost you a great deal in your divorce.
3. They Often Involve Out-of-State or International Assets
High-net-worth individuals often maintain property or conduct businesses in other states and countries. Many times, these issues also have tax consequences. Complex asset issues require the assistance of a lawyer who has a thorough understanding of high-value assets, business interests, and international issues.
If you or your spouse has connections with overseas jurisdictions, you need to act fast by asking for early expert advice before taking action in court.
4. Alimony and Child Support Payments are Much Larger
There may be a need for temporary orders related to spousal support, temporary living arrangements, the payment of legal expenses and child custody matters while the divorce is technically pending.
Child support is intended to meet the financial needs of children involved in the divorce, including educational, medical, and extracurricular needs. Individual states have child support guidelines. For example, as of the date of this post (November, 2018), Texas’ child support guidelines are based on an individual’s net monthly income, and the amount of net monthly income considered for support purposes is capped at $8,550. In some circumstances, child support can be awarded above this cap, if the needs of the child are proven to exceed the amount of money that would be normally be awarded under the child support guidelines.
Alimony payment calculations may also cause difficulty and confusion in a high-net-worth divorce. When spouses conceal assets like property and bank accounts from discovery, it may result in alimony payments that leave one spouse at a distinct disadvantage. Unfortunately, it is not at all unusual for one party to take advantage of the other during a high-net-worth divorce, whether through misrepresenting assets or fraudulently concealing financial information.
Tip: Accurately Calculate Child Support and Alimony Payments
The guidelines for calculating child support are complicated, so it’s often difficult for a spouse to determine the appropriate amount to pay. Without a proper calculation, the payments may not cover the amount that the child truly needs in order to be properly supported.
For couples who have a complex marital estate that needs to be divided, a team of specialists who understand the unique issues affecting high-net-worth divorces will often be a worthy investment. One of the most important people a person going through a divorce can have on such a team is an experienced divorce attorney. An attorney who has dealt with the complexities of high-net-worth divorces in the past will be in a unique position to offer clients the best advice possible on how to ultimately attain a fair divorce settlement that will prepare them for the future.
About the Author: Alfredo Ramos is a writer specializing in issues important to parents and families – leveraging his experience in divorce, adoption, and other cases through work with the Ramos Law Group.