• Jim Davis, P.C.

High Asset Divorce

High-Asset Divorce

Wealthy couples going through a divorce have concerns that those of more modest means may not. There are a few common areas where high-asset divorces differ from regular divorces.

Use of Experts Couples with a high net worth who are going through a divorce are much more likely to require the use of experts to help them get an understanding of what the marital property is worth. If either or both parties have an ownership interest in a business (aside from publicly traded stocks) or high value assets such as valuable antiques, an appraiser and/or valuation expert may need to be involved. If there are concerns about one party hiding assets, a forensic accountant may need to be hired to look at previous financial transactions. The specific experts that need to be hired will depend on the couple, but with a high-asset divorce it is usually a more complex process to put together a complete financial picture.

Asset Education

If you are the lower earning spouse in a high asset divorce, it’s important to get up to speed on learning and finding the assets that can become a part of your divorce settlement.

Don’t Forget the Degree

Wealthy parents should consider college tuition as an element of child support in a divorce settlement.

Tax Concerns Wealthy couples need to also be more aware of the possible tax consequences of their divorce. Divorce can offer both opportunities and pitfalls for couples undergoing a divorce. This is because during a divorce you can transfer assets between spouses tax-free in ways you cannot after the divorce. However, if you are not aware of how taxes will play into the divorce, you may end up paying much more than you were intending to. As tax codes change, so will strategies to avoid paying more taxes than you need to. This may also affect the timing of your divorce. Attorneys with experience in high-asset divorces can help you navigate the changing tax landscape.

Child Support While child support may be a concern for many couples, high-asset couples are in a more precarious situation. All states have child support guidelines that will calculate a presumptive child support amount. However, typically these child support statutes only apply to couples of more modest means. With high-asset divorces there is a wider window of potential child support that may be ordered. That means that wealthy couples may have less insight into the amount of child support a judge may order if the matter goes to court. There also may be expenses that are not always included in most child support negotiations, such as private school and/or college tuition.

Inheritance and Separate Property One of the biggest parts of the divorce process for some high-asset couples is determining what is separate property and what is marital property. Generally, any property that is earned during the marriage is considered marital property and thus the parties will often be considered to have equal ownership of the property. However, one exception to this rule is inheritance. If one of the spouses inherits money during the marriage the money will be considered separate property, and thus not divisible in the divorce.

This seems straightforward, but the concept of transmutation makes it much more complicated. Transmutation is a legal term by which separate property becomes marital property. This can happen through co-mingling the separate property with the marital property. For example, if one party inherits money but then places that money in a joint bank account with their spouse and uses that money for household expenses, it could be seen as being transmuted. Thus, all of the money in the account becomes marital property and subject to division. This can also happen to property that is brought into the marriage by either individual.

Pre-Marital Agreements While pre-marital agreements are starting to be recommended even for couples of average means, wealthy people are still more likely to have them. Generally, having a pre-marital agreement will make a divorce much simpler and less expensive. However, one party may contest the pre-marital agreement, which may mean that there is still a lengthy legal battle even with the pre-marital agreement. Couples can also draft post-marital agreements. These are almost exactly the same as pre-nuptial agreements, except they are negotiated and agreed to after the couple has been legally married.

Lifestyle Analysis You may have heard the phrase, “the lifestyle the parties have become accustomed to.” This comes from the idea that after a divorce, especially when there are children, the parties should be able to keep their lifestyle similar to what it was during the marriage if possible. The court will take an individualized approach to allocating current and future assets in situations where this concept applies.

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