Most divorcing couples go through a process of figuring out how to split their property, such as the home they share, retirement accounts, and other assets. However, high-net-worth couples often face significant obstacles during a divorce because they have substantial wealth and frequently own complex assets that are challenging to assess and divide among parties. If you and your spouse have significant assets and want to get divorced, you need practical legal advice to protect your financial interests, the value of your assets, and your future.
Understanding the Legal Landscape of High-Net-Worth Divorces
Attorneys and courts usually consider a divorce “high net worth” when a couple has a combined net worth of $1 million or more. Although a high-net-worth divorce will involve many of the same issues as other divorces, including division of assets, alimony, and child custody/support, resolving these issues can become much more complex in a high-net-worth divorce. A high-net-worth couple may have complex assets, including stocks/bonds, real estate holdings, and business ownership interests. Some high-net-worth couples also have a significant disparity in their earning capacities, with one spouse earning substantially more than the other. Accordingly, high-asset divorces often require financial experts and investigators to help the parties and the court understand the full scope of a couple’s net worth.
In Alabama, most divorces are “no-fault,” meaning that no fault is assigned to either spouse for the breakdown of the marriage. However, under Alabama law, a spouse may also file for divorce on any of the following grounds:
- Abandonment for at least one year
- Imprisonment for at least two years on a sentence of seven or more years
- Commission of a crime against nature
- Drug or alcohol addiction
- Confinement in a mental hospital for at least five years for incurable insanity
- Separation for at least two years
- Domestic violence
- The wife’s pregnancy at the time of the marriage without the husband’s knowledge or agency
The duration and timeline of a high-net-worth divorce will depend on various factors, including the size of the couple’s estate, the complexity of their assets, whether the couple has a pre/postnuptial agreement, and whether the spouses can settle outstanding issues without the court’s involvement. When couples have complex finances, inventorying and appraising their assets can take time. Couples can speed up divorce by negotiating or mediating their outstanding issues.
For most couples, the home is usually the most significant asset in the marital estate, making dividing other assets the couple owns much easier. However, in high-net-worth divorces, spouses may own complex assets such as vacation homes, income properties, investment portfolios, business interests, jewelry, artwork, and collectibles/antiques.
The unique complexities of a high-net-worth divorce make pre-divorce planning critical for spouses. Pre-divorce planning can streamline the divorce process, reducing the time and financial expense spouses must spend on their separation. Pre-divorce planning will ensure spouses can protect their financial and parental rights. Pre-divorce planning usually involves gathering your family’s financial documents and records, securing access to funds your spouse cannot cut off, and figuring out where you will live once you and your spouse separate.
Costs and Implications of High Asset Divorce
High-net-worth divorces can become incredibly expensive because high-net-worth couples sometimes contest financial issues. These couples may need to hire appraisers, financial experts, and forensic accountants to understand the marital estate before considering how to divide assets. Spouses should also seek legal representation from an attorney experienced in high-net-worth divorces; not all divorce attorneys will have that experience. When couples have assets in multiple jurisdictions, they may need to hold legal proceedings in each jurisdiction to split up the marital estate. All these factors can increase the cost of a high-net-worth divorce.
Dividing assets in a high-net-worth divorce can also result in loss of value or depreciation of assets. Depending on the assets involved, splitting a marital estate may cause assets to lose value or spouses to incur higher tax liabilities or penalties, such as when selling capital assets or withdrawing money from retirement accounts.
Finally, divorce comes with an emotional cost for the family. Divorce can be difficult even when couples have an amicable separation. The breakup of the family can cause significant trauma for children. The pain of divorce can amplify when spouses have a bitter relationship, fight over every detail, or treat divorce like an “all or nothing” affair or an opportunity to “hurt” the other spouse.
Couples can reduce the financial and emotional costs of divorce by pursuing settlement negotiations or divorce mediation to resolve the outstanding issues in their divorce without the need for litigation.
Asset Division and Evaluation
High-asset divorces frequently involve dividing valuable or complex assets such as investment portfolios, vacation homes/income properties, business ownership interests, and executive benefits like stock options. Couples and courts must obtain appraisals to determine the value of high-value or complex assets. For example, a spouse may hold a partnership interest in a small or closely held business. The couple and the court must determine the value of the business to calculate the value of the spouse’s ownership interest. Usually, couples and courts rely on expert appraisers and forensic accountants to calculate the value of complex assets.
Dividing intangible assets like business ownership interests can be challenging. Businesses may have ownership agreements that prohibit the transfer of interests through divorce. However, a non-owner spouse may have the right to half the value of the other spouse’s business ownership interest. Often, a couple or the court will resolve this problem by awarding the non-owner spouse another asset of equivalent value.
During asset division in divorce, the court must also identify spouses’ assets as marital or non-marital. While marital property gets divided in divorce, each spouse typically keeps the non-marital property they own. The law presumes that any property acquired during the marriage or the growth in value of assets during the marriage is considered marital property. In contrast, any property or value acquired before the marriage usually constitutes non-marital property, aka separate property. Inheritances and exclusive gifts received during the marriage also qualify as non-marital property. However, spouses can convert non-marital property into marital property by comingling non-marital assets with marital assets or using non-marital funds to pay for marital property.
Unfortunately, hiding or siphoning assets can occur in high-asset divorces. A spouse who earns most or all of the family’s income may believe they deserve to keep the family’s property. Do you suspect your spouse may have concealed assets during your marriage or in preparation for divorce? If so, you need a high-asset divorce attorney who can work with investigators and forensic accounts to locate those assets and prove they belong in the marital estate.
Divorce Financial Strategies
A high-net-worth divorce will require careful financial strategy planning. The planning process begins with understanding Alabama’s equitable distribution laws. Under Alabama’s equitable distribution system, the court will divide a divorcing couple’s assets fairly, though only sometimes evenly. A court will consider various factors to determine a fair or equitable division. These factors may include:
- The length of the marriage
- Each spouse’s financial contribution to the marriage, including contributions that a spouse made to the other spouse’s education or professional development
- Other non-financial contributions to the marriage, such as homemaking or raising children
- Each spouse’s overall physical and mental health
- Each spouse’s education and training
- Each spouse’s earning capacity
- Each spouse’s post-divorce parental responsibilities
- The standard of living during the marriage
- Whether either spouse has substantial, non-marital assets or income
- The tax implications of a proposed division
- The value, nature, and location of marital assets
Courts may weigh each relevant factor based on the individual circumstances of a case.
Financial planning should also consider how to protect your family’s assets from losses that may occur due to divorce. Plans should include ensuring you can access money after separation, especially if you don’t currently earn income. You should also carefully consider any significant financial decisions or transactions you make if your marriage is headed for divorce, as a court could find that your spending amounts to waste.
Planning should also account for the tax implications of divorce. Under federal tax law, your marital status for filing purposes depends on your marital status on the last day of the tax year. If you receive tax benefits from a married or head-of-household status, your divorce can cause you to lose those benefits for the year you get divorced. However, this also means you must continue to file as married while going through divorce; if you continue to file jointly, remember that you and your soon-to-be-ex remain jointly liable for any errors or misrepresentations on the return. Finally, you should consider other tax issues, including who will claim dependency exemptions for your children, potential tax liabilities if you liquidate marital assets during division, and tax implications of dividing retirement accounts.
Finally, consider your finances post-divorce, including how much of the marital estate you might receive in an equitable division, whether you will receive alimony, and whether you currently work or plan to return to the workforce following divorce.
Children and Custody Considerations
Like any other family, high-net-worth couples must consider child custody following separation and divorce. Alabama has child support guidelines to help courts calculate support obligations. Courts may deviate from the guidelines in high-asset divorces because the law states that children have the right to benefit from both of their parents’ good fortune. Thus, even if a lower-earning parent becomes the parent of primary physical custody, the children should continue enjoying the living standard from the marriage.
Couples should also consider how their divorce may impact their children’s financial future. High-net-worth families may set up trust funds or investment accounts to help pay for higher education. If families don’t have this kind of financial planning, one parent may insist on establishing trusts or other financial vehicles to ensure a high-net-worth parent doesn’t disinherit their children after divorce.
Agreements and Their Impact
Many high-asset couples will have a prenuptial agreement, especially if one or both spouses enter the marriage with significant wealth, or they may create a postnuptial agreement after accumulating wealth during the marriage. Pre/postnuptial agreements can make a high-net-worth divorce easier because spouses have already agreed on financial issues like property division and alimony. A court will enforce a valid pre/postnuptial agreement, even if a couple’s financial circumstances have drastically changed since signing the agreement.
Substantial growth in family wealth may lead one spouse to find the pre/postnuptial agreement they signed years ago unfair under the present circumstances, potentially resulting in a legal challenge to the agreement. However, a successful challenge to a pre/postnuptial agreement will require a spouse to prove the agreement’s invalidity. Grounds for invalidity may include one spouse failing to disclose material financial information, coercion, undue influence, or duress.
When spouses in a high-net-worth divorce have disputes over outstanding financial issues, they can resolve those disputes without resorting to costly litigation. Couples may choose to pursue one or more forms of alternative dispute resolution (ADR), including:
- Negotiation: A conversation between spouses (or through their legal counsel) to hammer out an agreement settling a dispute
- Mediation: A more formalized type of negotiation facilitated by a neutral third party called a mediator who helps spouses understand each other’s positions and identify mutually agreeable solutions.
- Arbitration: A trial-like proceeding where both sides present their case to the arbitrator, who will resolve the dispute based on the parties evidence and arguments
Although many couples resolve their divorce disputes through ADR, in some cases, court litigation becomes inevitable. Given the stakes in a high-asset divorce, high-net-worth couples may have a higher chance of ultimately ending up in court to resolve their disputes.
Role of Experienced Legal Counsel
You can best protect your financial interests and future in a high-asset divorce by hiring an experienced high-net-worth divorce attorney with the resources to retain financial experts, property appraisers, and forensic accountants to help you pursue your fair share of the marital estate or other financial benefits like alimony.
If you and your spouse have a high net worth and are getting a divorce, you need experienced legal counsel to guide you through the complexities of high-net-worth divorce litigation. Contact Leigh Daniel, Attorney At Law, today for a confidential consultation to discuss your legal options with a high-asset divorce attorney.