Breaking up a marriage is always stressful, especially if you’re preparing to navigate a high-net-worth divorce. With many assets to divide and a lot of money on the table, divorce can turn into a protracted, public, litigated mess that strips away much of your hard-earned property. Knowing the ins and outs of this process can help minimize the many points of contention you are likely to encounter along the way.
If you are planning to divorce and own significant assets, it’s vital to consult not just a divorce attorney but an experienced asset protection lawyer who can help you safeguard your money. Such legal backing will help protect your assets while being fair to all parties.
Now, let’s take a deep dive into what a high-net-worth divorce is, why it’s so tricky to handle properly, and what you can do to protect your wealth if you’re facing this type of divorce.
What Is a High-Net-Worth Divorce?
While it’s difficult to set a threshold at which a garden-variety divorce turns into a high-net-worth divorce, generally speaking, high-net-worth divorces involve many assets and considerable marital property.
The average divorcing couple must decide how to divide the marital home, a joint bank account, and maybe a couple of savings accounts and insurance policies. In contrast, high-net-worth couples may own multiple real estate properties, one or several businesses, company stocks, valuable vehicles and collectible items, foreign assets, and a substantial level of money. With so much property to split, asset division becomes a challenge.
Why Such Divorces Require Special Attention
In a high-net-worth divorce, it can be a lot more difficult to achieve a settlement agreement that will satisfy both parties. The process may require business valuation, financial consulting, and intense, prolonged mediation. Furthermore, such a divorce is much more likely to turn into a contested divorce if negotiations fall through.
Even if you have a prenuptial agreement or a trust in place, your former arrangements may not reflect your current situation. You may discover that some of your assets are vulnerable, so you’ll need a skilled asset protection lawyer to help you defend your financial stability.
What are the biggest concerns in a high asset divorce?
Let’s list some of the main issues you may face if you have many assets and plan to dissolve your marriage.
Tax implications are an often-overlooked pitfall of high-net-worth divorces. When marital property splits between both parties, this might change capital gains or create tax liabilities.
For instance, let’s say you divide holdings 50/50, but then it turns out one part bears a significantly higher tax burden. In this case, you have to consult a professional to balance out tax considerations during property division.
Standard child support guidelines cover day-to-day expenses like housing, food, and medical care. Children from higher-income families may have additional costs, like private education and summer camps. That’s why determining child support in a high-net-worth divorce may involve a lot more back-and-forth negotiations.
Inheritance and Separate Property
When preparing to divorce, it’s vital to determine which of your assets count toward marital property and which are separate assets.
Generally, anything you’ve earned during marriage is marital property unless you have a pre-or-postnuptial agreement keeping certain assets separate. Some assets, like inheritance or gifts, count as separate property even if you acquired them while married. To prevent the mixing of funds, you should always keep your separate assets apart from joint property.
You may have signed a prenuptial agreement before you were married, but if many years have passed since then, the prenup may no longer be relevant, or it may overlook many significant assets you have acquired. Moreover, unless a prenup is rock-solid, your spouse may contest it.
If you’re used to a certain lifestyle, you and your soon-to-be-ex-spouse may wonder whether you’ll be able to maintain your standard of living after the divorce. This consideration may come into play when discussing property division and spousal support.
Privacy and Public Exposure Concerns
High-profile couples often find it hard to keep their divorces private. Generally, you’ll have a better chance of avoiding public exposure if you and your spouse go for a collaborative divorce and avoid litigation.
Wealthy couples typically hold substantial assets like real estate, businesses, stocks, cryptocurrency, expensive vehicles, and valuable collectible items. Valuing these assets correctly can be a challenge during asset division. For instance, if you want to buy out your spouse’s share of a real estate property, you must both agree on how much the asset is worth.
Spousal Support Determination
Typically, the lower-earning spouse will seek spousal support from the higher-earner. Spousal support negotiations can lead to conflict if one spouse has unreasonable demands or a prenuptial agreement stipulates a certain spousal support amount, but one spouse contests this agreement.
Use of Experts
During your divorce, you might need to work with business appraisers, real estate appraisers, financial advisors, forensic accountants, mediators, and other professionals to source accurate valuations and help you reach an equitable divorce settlement.
Business Ownership and Division of Interests
You or your spouse might own businesses that you worked hard to build. Maybe it’s a family business you nurtured together or a company you established separately but that still falls under the definition of marital property. You and your spouse may consider different solutions, like one party buying out another’s shares or liquidating a business and splitting the proceeds.
Determining Equitable Distribution
Most states follow the principle of equitable distribution when dividing property during a divorce. “Equitable” means splitting assets fairly, not necessarily equally. When a couple owns many diverse assets, achieving equitable distribution is often a lot more challenging and time-consuming.
When deciding on asset division, courts may consider factors like how long the marriage lasted and how much each spouse contributed to acquiring marital wealth. As you may guess, this may be open to interpretation.
Balancing Needs and Avoiding Pitfalls
Sailing through divorce requires a careful balance between protecting your interests and acknowledging the other side’s rights. You want to be fair and avoid any illicit moves, but you also need to shield your wealth against unjust claims.
Beware of the following pitfalls during a divorce.
No one wants a prolonged divorce that drains time, energy, and resources. On the other hand, you also need enough time to reach a fair, comprehensive settlement that values your assets correctly and covers all essential points, including property division, child and spousal support, and a parenting plan.
Taxation is a major factor in high-net-worth divorces, and overlooking it could leave you with an unbalanced settlement. For example, let’s say you sell your marital home and its value exceeds the capital gains tax exemption. Your settlement must take this point into account to ensure each side pays its share of the tax.
Hidden assets are often a stumbling block in high-net-worth divorce proceedings. Divorce involves discovery, a process during which both spouses provide a full picture of their assets, debts, and income.
Concealing assets during a divorce is illegal. While there are legitimate methods you can use to protect your assets from an ex-spouse’s claims, like setting up a trust, hiding assets is something you should never do.
If you suspect your spouse is concealing assets, you might need to work with a forensic accountant to uncover hidden bank accounts, cryptocurrency, real estate, and other concealed property.
In high-net-worth divorces, one party may start excessive spending shortly before or during divorce proceedings. Sometimes, people will do it to siphon away marital funds, acquire assets, and hide them. In other cases, one party may try to make their ongoing expenses look higher to secure more spousal support.
If this happens, you may need a freezing order to restrict your spouse from spending more than would be reasonable. Deliberate wasteful spending can factor into a divorce settlement, meaning one spouse loses whatever they spent frivolously.
Mediation as an Option
Mediation is almost always preferable to a protracted, stressful, and expensive litigated divorce. Collaborative divorce gives you more control and flexibility, so you can find creative solutions that suit both sides. However, litigation may be inevitable if your spouse has excessive demands, refuses to negotiate, turns your children against you, or attempts to hide property.
You’ll naturally seek a family law attorney to represent you during a divorce. It’s important to choose a divorce lawyer who knows how to handle high-net-worth divorces. However, you might also need an asset protection lawyer who will focus on shielding your property.
Assets in High-Net-Worth Divorces
When preparing for divorce, one of the first things you should do is make a list of everything you own, jointly and separately. The following assets often form a central part of property division negotiations.
Your marital assets may include:
- Primary and secondary residences like your family home, vacation home, and rental properties
- Joint bank accounts and possibly also accounts in one spouse’s name only if they contain jointly acquired funds
- Marital investments like stocks, bonds, mutual funds, and securities
- Marital businesses, including jointly owned businesses and businesses established in one spouse’s name during the marriage
- Tangible property, or marital assets like vehicles, boats, jewelry, art, and collectibles
- Marital income and proceeds from businesses and investments
Separate Property in Divorce
Some of your assets may be separate property, and as such, not subject to division during a divorce. These may include:
- Any property you owned before the marriage and kept separate from marital property throughout the marriage
- Inheritances you received and trusts that hold separate property
- Gifts you received from your spouse or family members
- Businesses or properties you established or acquired before the marriage
- Any assets listed in a prenuptial agreement as separate property
As long as you’re not divorced or legally separated at the end of a tax year, you remain married for tax filing purposes. While married, you can file either jointly or separately. Many couples choose to file jointly so they can collect a larger tax refund.
If you collected a substantial tax refund the last time you filed your taxes as a couple, you must consider this amount in your divorce settlement.
Many couples hold insurance policies in which they list each other as beneficiaries. After divorce, policyholders will usually contact their insurance provider and designate a different beneficiary.
However, if your insurance policy has a cash value, it might count as a marital asset. As such, it may be subject to property division like other marital property. You may have the option of canceling the policy and splitting the proceeds.
You and your spouse might hold high-value household goods such as antique furniture, expensive carpets, and other valuable items. These may also factor into your divorce settlement. For instance, if one of you wants to keep the furniture, a professional appraiser can let you know how much the items are worth and deduct the value from that spouse’s share of marital funds.
In general, debt follows the same rule as assets: any debt accumulated during the marriage is usually divided between both spouses, while debt acquired before the marriage stays separate. The proportion in which marital debt splits between you and your spouse may depend on the state you live in and other factors.
Filing for legal separation or divorce will usually protect you from liability for any new debt your spouse acquires henceforth.
The Role of Trusts in High-Net-Worth Divorce Proceedings
The right kind of trust can help you protect assets during and after a high-net-worth divorce. Essentially, the trust functions as an entity that holds assets while you relinquish some legal ownership of any property you transfer to it.
Ideally, you should set up such a trust before marriage, ensuring it only holds your premarital property. You can also establish a trust in your name only when married, but you’ll need to avoid placing any shared assets in the trust.
If you’re already anticipating a divorce and decide to open a trust to shield assets, the trust may be subject to scrutiny by the court. Consult a lawyer to consider your asset protection options when preparing to end your marriage.
Premarital and Marital Property in a Trust
If the trust holds marital assets, it counts as marital property. You can’t open a trust in your name and then siphon off marital funds or property into the trust to exclude them from asset division.
However, establishing a trust is an excellent method to keep property separate and avoid the commingling of funds, which can cause many complications in divorces. For example, a trust can hold the inheritance you receive or own a business you establish using your premarital funds. Avoid funding an asset protection trust with any shared property, like money from an account you share with your spouse.
To ensure your trust does its job, you must work with a skilled lawyer who will draft your trust document using the correct legal language. For instance, the trust should specify that non-beneficiaries won’t be entitled to any distributions from the trust.
Which type of trust should you choose for asset protection?
An asset protection trust must be irrevocable and managed by an independent trustee. This means you give up direct control over trust assets. However, depending on its structure and the trustee you choose, an asset protection trust can still provide flexibility and allow you and your beneficiaries to profit from trust distributions and enjoy trust assets.
Domestic asset protection trusts (DAPTs) are comparatively easy and affordable to set up and can provide a considerable degree of asset protection. However, under certain circumstances, it may be possible for ex-spouses to target assets held in a DAPT. In general, domestic asset protection trusts can and have been compromised historically, so they may not be the best option for high-net-worth individuals.
For high-net-worth individuals, offshore trusts provide a much stronger asset shield during a divorce. When a lifetime of accumulated wealth is at stake, it may be worthwhile to invest in setting up an offshore trust that will protect your assets from your ex-spouse’s claims, creditors, lawsuits, and bankruptcy.
It’s much more difficult and expensive for an ex-spouse to contest a trust in an offshore jurisdiction, and if they do attempt it, their suit will probably fail.
A competent asset protection attorney can help you choose the right strategy to keep your wealth safe in a divorce.
Blake Harris Law: Protecting Your Assets in a High-Net-Worth Divorce
If you’re facing a high-net-worth divorce, you may wonder what happens to your hard-earned property. Will aggressive divorce litigation take away your business, money, real estate, cryptocurrency, and other valuable assets?
Contact us at Blake Harris Law for effective, law-compliant asset protection strategies in divorce. We can help you shield your assets from unfair property division claims and preserve your financial stability as you start the new chapter of your life.