Critical Concerns in a High Net Worth Divorce
While there is no precise definition, a high net worth divorce usually involves a couple with property having an equity value in excess of $1 million. Due to the size, variety and complexity of the assets and liabilities involved, high net worth divorces tend to take longer and be more problematic.
Wealthy people tend to have diverse portfolios of assets that can include investments, multiple residential and commercial properties and business interests. In some cases, a portion of the assets are held in foreign countries. During the divorce process, each spouse is required to fully disclose all assets to the other spouse. However, some people fail to reveal assets or even actively conceal them from their spouse.
Given that undisclosed assets can substantially affect a high net worth divorce, litigants should exercise due diligence in reviewing their finances. This is especially important where one spouse is primarily responsible for the income and financial affairs during the marriage. Due diligence takes time and requires financial advisers and legal counsel to ensure asset disclosure.
As in all divorces where property division is at stake, each asset must be identified as either “separate” or “marital.” Separate property generally consists of assets one spouse owned before the marriage or acquired by gift or inheritance at any time. Marital property includes any other assets acquired while the parties are married. Separate property is normally retained by the owner during the divorce and marital property is divided. Note, however, that a spouse’s separate property can be treated as marital property if the other spouse helped fund the purchase or enhance the value of the asset.
Each asset must be properly valued. While this is straightforward for cash and most types of securities, other types of assets aren’t as simple to value. High-end properties, complex investments and interests in ongoing businesses can be difficult and time-consuming to assess. Plus, in many instances there are a variety of possible appraisal methods and no uniform evaluation standards. As such, the parties may have disputes over the fair value of one or more assets. Resolution often requires a judge to hear from experts on each side.
Federal and state taxes must also be considered in high net worth divorces. Selling or dividing assets may trigger tax liabilities or change the tax treatment of certain assets. This can substantially affect one or both spouse’s tax bill after the marriage is dissolved. While certain capital gains are exempt from taxes on sale, wealthy people will have situations in which the value far exceeds the exemption and a large tax assessment will be due. The divorcing spouses must be aware of all tax implications of a proposed settlement.
Based in Scottsdale, Clark & Schloss is one of Arizona’s premier family law firms. Our attorneys and support staff have the knowledge, skills and experience to handle all aspects of high net worth divorces. Feel free to call us at 602-789-3497 or contact us online for a consultation.