High-Net-Worth Divorce: Financial Strategies for Your Assets

November 1, 2024

From both a legal standpoint and in terms of its impact on one’s life and emotions, divorce is divorce, regardless of the couple’s combined or individual net worth, and the assets to be divided up. However, the higher the value of assets involved, the more complicated divorces can be. High-net-worth divorces, such as those high-profile affairs that play out between celebrities, under intense media scrutiny, tend to be more contentious than others. LRVS Advisory provides some essential details that you should know when splitting up a household with many assets and millions of dollars.

There is no formal definition of a high-net-worth divorce. Generally, the term is applied to any divorce involving a minimum of $1 million in assets. However, the value of the dollar is not quite what it used to be, so this definition is now more expansive and vague. When we speak of a high-net-worth divorce today, we mean a divorce that involves several million dollars’ worth of assets.

It is important to note that the rules are exactly the same for any divorce, regardless of the value of assets involved. However, when high values and several assets are to be divided, things get particularly complicated. 

Firstly, HNWI couples will usually have more categories of assets to divide. It is not a simple matter of two bank accounts and one or two homes. There might be trusts, foreign holdings and an entire portfolio of properties and other investments to take into account. This will mean that a wider breadth of legal guidelines and stipulations will have to be applied.

Secondly, not only are more laws involved, but these laws are more difficult to apply because a wealthy couple’s finances are so complicated. Some assets may be harder to define and categorize, for example. As more assets, more sections of the divorce code, and potentially more third parties all get involved, there are more opportunities for complexity, and the rules can tend to interact in tricky, even contradictory ways.

During or even before a divorce, it is always a good idea to have a divorce financial advisor on your team, to help you prepare for and successfully navigate these complexities.

There is no general formula for successfully managing a high-net-worth divorce. However, there are some general guidelines that you would do well to keep in mind. 

Start by seeking both legal and financial advice. If you have not already retained legal counsel, that is probably the first thing you should do. Speak to a lawyer with experience and expertise in high-net-worth divorce. Then, consult your HNWI financial advisor. You need to know exactly what you have, how it is to be divided, and how the law applies. 

Some of the matters you will need to consider during your divorce proceedings are asset identification, asset valuation, tax considerations, and alimony.

• Asset Identification: Itemize all your assets. Who owns what? What kinds of assets are they? What would be considered marital property, etc.? The marriage regime – in or out of the community of property, prenuptial and postnuptial agreements – will be an important factor here.

• Asset Valuation: Each asset will need to be evaluated as accurately as possible by appropriate experts. Official appraisals and valuations will need to be presented in court. 

• Taxes: When high-value property is being distributed, all kinds of tax considerations come into play. These tax implications will have to be determined by a CPA or tax attorney.

Alimony: Aside from the division of assets, alimony may also be a factor in a high-net-worth divorce. This applies when one partner is financially dependent on the other to some degree.

Since there is more at stake in a high-net-worth divorce, there is often a higher chance that one of the parties will act impulsively and make one of the following common mistakes. Be careful to avoid these four errors:

• Trying to speed up the proceedings by accepting an offer: Don’t let the desire to wrap things up force you to accept a settlement offer too quickly. You may end up paying too much or receiving too little. Instead, let the process play out and let the lawyers and legal advisors do their work.

• Leaving taxes out of your calculations: Remember that there will always be tax implications, no matter how the divorce is settled. Whatever assets you are awarded will be subject to taxes. Don’t neglect to keep track of who will be paying taxes – and how much. Your financial advisor will help you with this.

• Hiding assets: Don’t try to hide assets so that they won’t be included in the settlement. Also, don’t assume that your partner won’t try to do this. Hiding assets can have serious legal effects if discovered.
• Trying to boost or diminish net worth with large purchases: Sometimes a spouse may try to increase their alimony award by making huge purchases to show how expensive their lifestyles are. There are other reasons to distort the appearance of one’s net worth by making lavish purchases, but be warned: this never works. 

Once the divorce is finalized, you will need to craft a strategy to help you remain financially secure for the years to come – no matter what you may have lost or gained. Put a budget in place that will help you manage your savings and spending based on your new net worth, taking your assets and income into account. A financial advisor can help you draw up a plan for your future, considering the post-divorce state of your income and assets.

There are several ways to protect your assets in a divorce, but these measures will need to be put in place long before a divorce ever happens. Even if your marriage never ends in divorce, it is still prudent to take proactive steps. These include:

• Drawing up a prenuptial or postnuptial that specifies the division of assets
• Document all gifts and inheritances
• If you file for divorce, make sure you time it right
• Review and update your estate plan
• Avoid keeping everything in joint accounts
• Once again: never hide assets!
• Make a list of all assets and liabilities, and update it regularly.

Contact us if you would like to find out more about the benefits of having one of our dedicated family CFOs help you manage your assets and finances before, during, or after a high-net-worth divorce.

*Disclaimer:

This article is provided by McAdam LLC (“McAdam” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

This article is the sole opinion of this individual and is not indicative of the firm’s beliefs.