Divorce can be a messy, stressful situation. When a wealthy couple divorces, those emotional and logistic stressors surrounding legal separation are compounded by the additional complexity of disentangling valuable assets and property shared within marriage and ensuring that both ex-partners walk away as satisfied with the division of assets as possible.
High asset divorce has its own unique considerations—and in this article, we will delve into these considerations and take a look at the factors that make high net worth divorce difficult, as well as offer tips on how to prepare for divorce and how to protect assets in divorce couple to ensure a smooth and low-conflict legal process.
What is a high asset divorce?
A high asset divorce is, put simply, when a couple with significant collective wealth and assets—such as high-value real estate, significant investments, retirement accounts, business ownership stakes, and valuable personal property—decides to divorce. The dividing line between a typical divorce and a high net worth divorce is roughly $1 million in highly liquid assets shared by the divorcing couple.
In these circumstances, one or both individuals may be high net worth individuals themselves. Divorce means the wealth you and your soon-to-be ex-spouse have shared since you married must once again be separated, but it’s not as simple as giving the both of you back the separate assets you had before you married.
Separate assets may have become commingled with marital assets, marital assets may have appreciated or depreciated in value, or new shared assets may have been acquired. There’s also the question of how, if one spouse entered into the marriage with significantly more wealth than the other, the other spouse can take care of themselves and maintain an appropriate standard of living while adjusting to post-divorce circumstances.
It is usually nigh-impossible to go back to the exact same state of affairs prior to marriage—adding thorny questions about how to divide millions of dollars worth of assets between two people to the myriad complications that cause sleepless nights for in-progress divorcees.
More money really does mean more problems, to quote The Notorious B.I.G., and that adage can certainly apply to divorce when significant wealth is on the line. Let’s take a look at what makes high net worth divorce difficult:
Substantial Financial Obligations
High net worth divorce isn’t just about dividing and redistributing marital assets—it’s about dividing and redistributing debts and obligations as well. Splitting up high-value assets also means splitting up mortgages on multiple properties, significant debts, and long-term financial assets such as alimony or child support. The question of how to fairly divide these obligations while considering each party’s post-divorce financial stability isn’t an easy one.
Business and Asset Valuation
Determining the monetary value of certain assets such as one’s ownership of or stakes in a business and deciding how to distribute those assets is particularly complicated—demanding detailed analyses of financial statements, market conditions, and future earning potential.
Hidden Assets
When significantly valuable assets are at stake, one or both parties in a divorce might try to hide or underreport income or the value of certain assets or use other tactics to reduce the apparent value of certain pieces of property in order to secure a more favorable position in asset distribution negotiations. These tactics often take a lot of work by legal and financial experts to overcome in the pursuit of a fair division of marital assets.
Capital Gains and Investment Gains Tax Liabilities
Answering the question of who gets what in the aftermath of a high net worth divorce doesn’t just decide who gets the wealth from certain valuable assets—it also decides who shoulders certain tax burdens.
The transfer of assets such as stocks, bonds, or real estate before, during, or after the divorce process can incur capital gains taxes or other liabilities. During a divorce, both parties need to think carefully about the potential tax implications of who receives which assets to avoid unexpected financial burdens.
What assets are protected in a divorce?
In Tennessee, certain assets are still considered separate property after marriage—meaning they will not be divided between spouses after divorce, as long as these assets aren’t commingled with marital property. These protected assets include:
- Assets and properties owned by either spouse before marriage
- Inheritances or gifts granted to one spouse, assuming they have not been commingled with another spouse’s assets
- Compensation received by one spouse from a personal injury lawsuit—unless it compensates for lost wages or medical expenses paid with marital funds
- Assets that have been explicitly designated as separate by prenuptial or postnuptial agreements
- Retirement accounts that were established before marriage and maintained separately after marriage
How to Protect Assets in a Divorce
In the state of Tennessee, legal concepts known as “co-mingling” and/or “transmutation” determine how separate properties become marital properties, and disentangling these shared properties back into separate properties upon divorce is a complex enough topic for a blog post in its own right. Tennessee divorce courts aim for a “fair” division of marital assets—though “fair” does not always mean “equal.”
Protecting assets in a divorce between high net worth individuals means taking proactive measures to settle potentially contentious debates about the fair distribution of wealth. In our free Divorce Asset Protection eBook, we dive into wealth preservation in these situations in more detail and provide advice on ensuring a clear and fair division of marital assets.
Tips for Preparing For a High Net Worth Divorce
When you and your spouse decide that divorce is the best course of action for your household, the sooner you start preparing for the legal procedure, the easier it will be to overcome the unique challenges of a high asset divorce. Make sure to do the following as soon as possible:
- Conduct a full lifestyle analysis and take stock of what both you, your soon-to-be ex-partner, and your family will need to maintain the standards of living you’ve grown accustomed to post-divorce.
- Make sure you fully understand the present and long-term potential value of your property and assets.
- Consider marital debts and all possible tax ramifications.
- Carefully organize your financial documents and resources to make determining a fair division of assets easier for yourself, financial experts, and the courts.
- Prepare to negotiate alimony and other measures to ensure that both you and your spouse can “maintain a familiar lifestyle” and transition smoothly to a post-divorce “new normal.”
- Consider non-financial matters such as child custody and visitation. Regardless of your family’s net worth, divorce can be rough on children and strain parent-child relations if not handled with careful and prudent planning.
- Seek high net worth family law experts and financial specialists. Enlisting the help of experts in family law for high net worth couples as well as appraisers, valuation experts, and forensic accountants sooner rather than later means you and your spouse get appropriate and timely advice from the word go and start off on the right foot.
Between questions about asset division, wealth preservation, and beyond, divorce is a trying time—doubly so for high net worth couples—and demands a wide range of legal and financial expertise. MHPS Law is here to help you and your family navigate high net worth divorce issues and secure fair and satisfactory settlements that safeguard your financial well-being.
To get started, reach out to our legal team for a consultation today.
