The ABCs of High Asset Divorce

The song line, “more money, more problems” may not be true in all situations, but it definitely applies in the case of divorce.  People with wealth above a certain level, usually $650,000, constitute “high asset” divorce because of the numerous tax-related and financial-planning consequences associated with that level of wealth.

In a high asset divorce, a couple has amassed a variety of property in different forms – real estate, trusts, tax shelters, securities, and luxury items – all of which can be difficult to divide and can inspire bitter feuds between spouses.  Division becomes a challenge because of valuation and penalties.  Depending on the market, real estate and securities can have shifting values at the time of divorce and one spouse may feel as if the division undervalues or overvalues the asset which, when trying to equitably divide all marital property, can pose real issues.  Also, selling a large asset, whether a multimillion-dollar home or a six-figure annuity, can have significant tax consequences of 25 to 45 percent of the value of the asset.  Further, untangling a trust, particularly ones that may have a mixture of separate and marital property, can produce bitter feuds and drain a good part of the trust.

Given these problems of valuation and division, a high asset divorce usually requires a forensic accounting analysis.  An attorney will hire one or more financial experts in the fields of valuation and taxation to look at the marital estate and suggest possible divisions that have the least impact on the overall value of the estate – in essence looking to save the most of the marital estate for both spouses to enjoy rather than lose large chunks to the IRS.  A skilled attorney working with a skilled forensic accountant can devise settlement proposals that maximize both the asset priorities of the spouses and also the overall value of the estate.

Another issue too common in high asset divorce involves secreting assets in various ways to avoid detection by the other spouse, including “laundering” marital assets through multiple transactions of businesses or even storing funds in offshore accounts.  An attorney will have to retain forensic investigators to determine the likelihood of squandered or sequestered assets and help to discover or uncover these sums to assure a full, fair and final disposition of all marital property.

Many people think that high asset divorce will not involve any diminution of the standard of living since both spouses have so much wealth.  But that is not necessarily the case.  Regardless of wealth, maintaining a standard of living enjoyed while together becomes quite a challenge when essentially multiplied by two – the “Noah’s ark” problem of replicating two principal houses, two vacation homes, two luxury automobiles, two club memberships and so on.  Unless your attorney advocates strongly for maintaining this standard of living, a spouse could wind up much poorer in a day-to-day way than expected.  Also, looking long term, without skillful financial planning, a spouse could wind up without sufficient funds to last through retirement or illness or elder care.

This quick survey shows that high asset divorce brings with it a level of problems that only an attorney with a great deal of experience in this field can handle properly, to know the right questions to ask, the right assets to protect, the right standards of living to demand and the right settlements to propose.  High asset divorces will require more time and outside experts.  If you fall into the high asset divorce category, you should be sure you find an attorney who has the requisite level of ability and expertise.

If you have questions about high asset divorce, contact us – we can help.