What is a High Net Worth Divorce?
If you and your spouse have accumulated substantial assets, both before and during your marriage, you may undergo what is known as a high net worth divorce in Arizona. High net worth individuals have been defined as “holding financial assets (excluding their primary residence) with a value greater than US$1 million.” Source: Wikipedia. However, there are other classifications that can rule a person as a high net worth individual. If a person has less than $1 million, but more than $100,000, they can be classified as to be “Sub-HNW”. On the other hand, individuals who have a minimum of $5 million are considered a “Very-HNWI”. Lastly, according to reports from financial institutions, such as the Merrill Lynch World Wealth Report 2006, a person with an excess of $30 million in liquid assets or a disposable income of $20 million, they are defined as “Ultra-HNWI”.
When an individual, or a couple with combined assets have a net worth that exceed the common household, the division of assets and debts in a divorce can be more complicated. When you are searching for a high net worth divorce lawyer, it is important to choose one who is experienced with these kind of in-depth cases that will vigorously fight on your behalf and obtain the best possible outcome. The general rule of thumb is that the more assets and community property that you and your ex-spouse have, the more complex the property division portion of your divorce case will be.
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Difference Between High Net Worth Divorce and Common Divorce
High-net-worth divorces often involve highly complex business and legal issues that necessitate the help of an attorney who is experienced in handling complex asset division cases. The assets may be both more extensive as well as held in complex structures such as trusts. There might also be business interests, taxable investment accounts, art collections, jewelry, real estate holdings, retirement accounts, and more that will need to be divided.
In high-net-worth divorces, the couples might have entered into antenuptial agreements, and the cases are more likely to involve contentions over whether the property should be characterized as separate property or community property.
When a Trust is Involved in a High Net Worth Divorce
Many wealthier people have substantial portions of their wealth held in trusts. The manner in which the trust assets are handled can be critical in the outcome of a high-net-worth divorce case. Trusts that have been funded by one spouse with community property may be considered to be community property and subject to division in the divorce. Trusts that were established by third parties for the benefit of one spouse will normally be considered to be his or her separate property. However, the other party may argue that the trust should be considered as a factor in the amount of child support or spousal maintenance that the other spouse should receive.
Obtaining disclosure about trusts can also be difficult. The trusts may be located in the U.S. or in an offshore location. If the trusts are located in the U.S., the trustees will normally respond to a disclosure request. If the trusts are located overseas, the trustees may either respond or fail to do so. In that case, you may have to petition with the court in that country to direct the trustee to respond.
Ownership of a Private Business and its Assets
Privately-held businesses are frequently the most significant assets involved in high-net-worth divorces. When there is a private business in a high-net-worth divorce, it will have to be valued. Business valuations can be complicated, and they may be more so if the business has assets spread across multiple states or around the world. Properly valuing a business may require substantial investigative work and the help of forensic accountants and professional valuation experts.
Once a business is properly valued, it can also be difficult to figure out how it should be distributed. The shares that are held may be illiquid, or one spouse may simply be unwilling to give up his or her shares. The spouse that wants to retain a controlling interest of the business may need to give a greater portion of the liquid capital to the other spouse in exchange for retaining the business.
Dividing Real Estate Holdings
Many high-net-worth couples also have substantial real estate holdings beyond their marital home. They may have vacation properties and rental properties. All of these properties will need to be appraised to understand their fair market values. Some of these properties may be the separate property of one spouse if the spouse owned them before the marriage while others may be community property if they were purchased after the couple was married.
What are some Other Complex Valuations?
In addition to businesses and real estate holdings, high-net-worth divorces may also involve other complex valuations of the assets. Complex asset valuations may be necessary for a variety of different types of assets, including the following:
- Real estate holdings
- Intellectual property
- Retirement accounts
- Stocks and bonds
- Art collections
- Unvested interests
- Other high-value assets
Experts in the respective fields in which the different assets fall may have to analyze the assets and prepare written appraisals for the court. There may be competing experts that have been hired by each spouse who may have to testify in court about the methods that they used to arrive at their valuations.
What about Spousal Maintenance?
Spousal maintenance is frequently an issue in high-net-worth divorces. When there is a large disparity between the incomes of the spouses, maintenance may be ordered by the court. In some cases, however, the wealthier spouse will have insisted on a prenuptial agreement under which the lower-earning spouse may have agreed to waive spousal maintenance in the event of a divorce. The lower-earning spouse may challenge the validity of the antenuptial agreement if he or she signed it under duress or because of coercion. The spouse might also claim that the wealthier spouse did not disclose the extent of his or her assets so that the lower-earning spouse did not understand the rights that he or she was signing away.
Dealing with Complex Tax Issues
Divorce cases with a higher net value frequently involve complex tax issues. Many of the financial transactions that occur in a high-net-worth divorce have potential tax consequences. For example, spouses who will receive spousal maintenance must report it as income and pay taxes on it, and the spouses who pay spousal maintenance are no longer able to deduct it on their taxes. The spouses might also need to think about deductions and credits that they might lose in their divorces. The transfer of certain types of illiquid assets in a divorce can also involve tax consequences, including the following:
- Thrift savings plans
- Life insurance and retirement annuities
- Stock options
- Brokerage funds
The transfer of some of these types of assets may require the preparation of a qualified domestic relations order to accomplish the transfers without paying penalties or taxes. Borrowing from some of these types of assets may also result in a penalty. It is important for you to get advice about the potential tax implications of taking different types of assets from an experienced lawyer so that you can better understand the impacts the assets might have on your finances.
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Hiding or Concealing Assets
In some high-net-worth divorces, one spouse may try to spoliate, hide, conceal, or give away some of the assets in an attempt to prevent the other spouse from getting them in the property division. Some spouses may fail to disclose all of their assets simply to try to gain an advantage over their spouses in their divorce cases. The spouses that are trying to hide assets might transfer money from bank accounts that they disclose to accounts that they do not disclose. They might also try to hide community assets in trust accounts or to move their assets offshore.
Some spouses try to spend down a substantial portion of the community assets simply to leave less for the other spouses. They might also give away high-value assets to their family members or friends to prevent the assets from being divided in their divorces. All of these types of issues may require the assistance of investigators and forensic accountants who can track down assets that have been hidden, concealed, given away, or spoliated. If the full extent of the spouse’s actions cannot be uncovered, the court may be asked to draw adverse inferences against the spouse who engaged in the activities in the divorce trial.
Importance of a High Net Worth Divorce Attorney
High-net-worth divorces frequently involve many additional issues than ordinary divorce cases. If you are going through a high-net-worth divorce, it is important for you to work with an experienced divorce and property division attorney who is experienced in handling complex asset division cases. Contact the Cantor Law Group today to schedule a consultation by calling us at 602.254.8880.