If you are entering a high asset divorce, then you should prepare for the wide variety of complex topics that often accompany this situation. From determining how to divide investments and rental properties to handling inheritances and business assets, countless matters may require your careful attention.
This article looks at some common, complex issues encountered in high asset divorces. It provides insight into addressing these issues for a smoother outcome.
Defining a High Asset Divorce
A high asset divorce is one where the marital assets, including real estate, investments, trust funds, and business interests, have a significant value. As a general rule, these assets exceed one million dollars.
Such divorces can be highly complex, and they require specialized legal assistance to ensure a fair settlement.
In a high asset divorce, property distribution is not limited to dividing bank accounts, vehicles, and personal property. It can also involve valuing and dividing businesses, investments, art collections, and other expensive property.
Legal considerations in high asset divorces include:
- Asset valuation
- Tax laws and consequences
- Prenuptial or postnuptial agreements
- Determining marital vs. Separate property
Anyone going through a high asset divorce must seek the guidance of experienced legal counsel. Otherwise, they could make costly mistakes that could harm either spouse and lead to legal consequences.
Complex Topic #1: Inheritances
Generally, inheritances are considered separate property, and they are not subject to division in a divorce settlement.
However, even separate property can become commingled. For instance, a couple could use an inheritance to purchase a joint property. This purchased property may be considered marital, making it eligible for division.
If the inheritance was gifted to both spouses jointly, it would probably be considered marital property as well.
Complex Topic #2: Rental Properties
First, you must determine who keeps the property, then you must create a fair deal for splitting the income generated.
Complex Topic #3: Business Assets
Understand the value of each asset and how to divide it among the spouses fairly. Part of your consideration should be whether a spouse receives a lump sum or a continuous revenue stream.
Attorneys and financial professionals can assist in the valuation process, and they can help untangle the legal aspects of dividing a business.
Whether they are small or large, business assets can have a huge impact on each party’s financial stability.
Complex Topic #4: Tax Consequences
Divorce is always a complicated process, and when it involves high-value assets, the tax implications add another layer of complexity.
Divorcees with high-value assets must pay close attention to tax laws as they play a significant role in the final settlement. Whenever you transfer property ownership, there can be tax consequences.
Even if you decide to sell the asset, you may be forced to struggle with capital gains taxes. Capital gains tax is levied on the profit earned from the sale of an asset, such as stocks, real estate, or investments.
In a high asset divorce, you must also consider qualified domestic relations orders (QDRO’s). These legal documents outline the division of retirement assets in a divorce.
Understanding tax implications makes a big difference in a divorce settlement. Make sure to work closely with experienced legal and financial professionals who can guide you through these complexities.
Complex Topic #5: Retirement Accounts
The first step is determining the value of these accounts. You can accomplish this through an actuary or financial expert.
From there, create a settlement plan that gives both parties a fair share of the assets. Remember, dividing those assets comes with tax implications, and those expenses should be factored into the agreement.
Complex Topic #6: International High Asset Divorces
In high asset families, it is common for the spouses to come from different countries or own international assets. In these cases, cultural differences, language barriers, and divergent legal systems all add layers of complexity to an already difficult situation.
First, you must determine which jurisdiction will handle the divorce. You may need to rely on just one region’s laws, or you may be forced to use a blend of each. Each jurisdiction will have its ways of handling issues like property division, spousal support, child custody, and prenuptial agreements. Navigating these legal intricacies involves understanding the laws of both regions, and it will require strong legal assistance.
Despite the challenges, with the right team and approach, achieving a favorable outcome in even the most complex international divorce is possible.
Ford & Friedman is here to help guide you through a complex, high net worth divorce. To meet with our skilled professionals, schedule time with us by calling Ford & Friedman or contacting us online.