Divorce is often emotionally fraught. Deciding to end your marriage is often difficult – even when you know it’s the right choice for you. The legal issues involved in a divorce add another layer of complication and anxiety, particularly if you have children together – or significant assets.
High Asset Divorces
High asset divorces are often more challenging than other types of divorces. In many situations, it is more difficult to value and divide the assets. Even with a prenuptial agreement in place, high asset divorces require significantly more input from experts to value marital property appropriately.
Many people want to get through a divorce as quickly as possible. In a high asset divorce, it is usually necessary to take the time to have your assets accurately and fairly valued. This step is critical in ensuring that your financial well-being is protected in a high net worth divorce.
Valuation and Division of Marital Assets
California is a community property state, which means that all assets acquired during the marriage are considered marital property that is to be divided equally between the spouses. Both intangible assets (like patents or copyrights) and tangible assets (such as cash and property) must be included in the marital estate valuation.
Before the property can be divided, it must first be accurately appraised. In a high asset divorce, a couple may share a range of valuable assets, including:
- Business or professional practices
- Real estate holdings
- Cars, boats, planes, other vehicles
- Pension plans and retirement benefits
- Vacation property
- Insurance policies
- Equipment and machinery held by a business
- Inventory for a business
- Accounts receivables
First, each of these assets must be characterized as separate or community property. Generally, if the asset was acquired during a marriage, it will be considered community property subject to division. Property that a spouse owned before marriage, inheritances, gifts, and certain other assets is typically regarded as separate property.
For each of these assets, you will need a detailed accounting and valuation. In a high asset divorce, this can be difficult, particularly if one spouse attempts to hide the actual value of an asset. Typically, a divorce attorney will consult with experts, such as a forensic accountant, real estate appraiser, or even an antique dealer, to determine a value for a particular asset.
For personal property, three methods may be used to establish value:
- Cost: This option is typically used for items that would be easy to replace, such as a vehicle. The property is valued at the cost that it would take to replace it.
- Market comparison: this method considers similar items that have recently been sold and compares them to your property. It is most often used when the assets are rare or collectible and not easily replaced.
- Revenue: for assets purchased as an investment, an expert will calculate the potential future value of the property and its ability to generate income in the future.
Many spouses in high asset divorces own a business together. To value a business, a certified forensic accountant will examine several factors, including but not limited to:
- Assets and debts, including equipment, inventory, goodwill, patents, and other assets.
- Business profits, which are determined by looking at the company’s income and subtracting expenses.
- Increased value throughout the marriage
- Valuation date, which is typically set when the divorce paperwork is filed, or closer to the time of property distribution.
Once the accountant has analyzed the business’ assets, debts, and profits, they will then place a value on it. This may be done using the book value method, which bases value directly on the company’s bookkeeping, with adjustment for depreciation and appreciation. More commonly, an accountant will use the market approach method, which values the business at what a buyer would pay to acquire it based on its capacity to produce profits.
There are many considerations that your lawyer will take into account when working out a property division with your ex. Several complex tax issues are associated with high net worth divorces, particularly related to spousal support, benefit plans, real estate, and business entities. In addition, if you or your spouse have investments or assets outside of the United States, it can create additional complications.
How Can I Protect Myself in a High Asset Divorce?
Dividing property in a high net worth divorce requires a comprehensive, carefully crafted strategy. Without a plan in place, it is all too easy to make decisions based on emotion – and make costly mistakes as a result.
First, it is critical to identify your assets correctly. Depending on your situation, there may be arguments to be made as to why some or all of an investment should be characterized as marital property instead of separate property. For example, if your soon-to-be-ex started a business before you were married and community property monies and/or efforts were used to increase the value of the business- that separate property has been commingled with community property – and is subject to division in a divorce.
Second, assets must be valued appropriately before being divided. As described above, the valuation process can be lengthy and often involves hiring multiple experts. Skipping this step will often lead to receiving much less in a divorce than you are entitled to under the law.
Third, do not hide assets. While it may be tempting to conceal some assets, it will often backfire on you. Hiding assets is a form of fraud, and you could face sanctions from the court – and your ex may even be awarded a higher share of your marital property as a result.
Fourth, work from a place of logic rather than emotion. While you may be incredibly emotional about the divorce or even want to lash out against an ex who hurt you, try to approach it like a business deal. Keep in mind that the decisions you make during this time will affect you for the rest of your life – and act accordingly.
Fifth, hire an attorney who has experience handling high asset divorces. These cases are far more complicated than a standard divorce, between the sheer number of assets involved and the complexity of valuing them. It may be tempting to work with a lawyer that a friend recommends or who you know socially – but the best way to protect yourself in a high net worth divorce is to hire an attorney who knows what they are doing and who will put that knowledge to work for you.