Understanding High Net Worth Divorces and How They Work

When it comes to settling a divorce as quickly and painlessly as possible, the primary difference usually comes down to how easily the couple’s assets can be divided. If the couple has only been married for a few years, does not have any shared real estate, and only has one shared bank account for the entirety of their marriage, the process can be pretty straightforward.

However, when a couple has been married for many years, has children, and has a diverse array of shared assets beyond a simple bank account, it can draw out the process significantly. This is usually most common with couples going through a high net-worth divorce, and when such cases arise, the need for a skilled and experienced divorce attorney is much higher. Without one, a high net worth divorce can be drawn out significantly longer and may even lead to the loss of significant assets. Schedule a consultation with our experienced team so we can explore your options and help you achieve a favorable resolution.

What Is a High Net Worth Divorce?

While there’s no legal definition of a high net worth divorce, the term typically refers to the dissolution of a marriage where the couple’s combined assets exceed $1 million. These cases are more complex than standard divorces due to the sheer value and variety of assets involved, which may include business interests, business assets, multiple real properties, extensive investment portfolios, and other high-value assets like art collections, collector automobiles, valuable jewelry, or luxury items. This type of divorce requires careful valuation and division to help ensure a fair outcome while complying with applicable state laws, such as the complexities of California’s community property rules.

High net worth divorces often involve unique financial considerations, such as executive compensation packages, which may include stock options, deferred payments, and substantial bonuses. Additionally, prenuptial or post-nuptial agreements, complex tax implications, and concerns over asset protection and confidentiality further set high net-worth divorces apart, making experienced legal counsel essential for both parties. High-net-worth grey divorces come with unique considerations in high-net-worth grey divorces that demand detailed financial planning.

Why Is a High Net Worth Divorce Different from Other Divorce Cases?

It’s frequently said that more money equals more problems. This statement couldn’t be truer when it comes to divorce. People who have large estates often decide to diversify their assets, which is a great way to maintain their wealth, but it usually leads to more complicated divorces.

For instance, say you and your spouse have invested in the stock market, the appreciation of these investments will need to be examined with a fine-toothed comb to understand things like:

• When were the shares purchased?
• How long have the shares been held?
• Who managed the investments?
• Was “community effort” or “luck” involved in the proliferation, and why it matters?
• Who is the rightful owner of each share?

Property Division

High-net-worth divorces often come with significant non-monetary challenges. In cases where one or both spouses own a business together, division or restructuring of business leadership or operations may play a role in executive divorce negotiations. Property division can take months or even years with both spouses (and their legal teams) performing in-depth investigations into:

• Real estate ownership
• Motor vehicle ownership
• Retirement funds
• Insurance policies
• Bank accounts
• Trusts and wills
• High-value collections such as art, jewelry, autos, coins, and antiques

Custody Disputes

Custody disputes can be more complex in high-net-worth divorces, particularly if the family’s wealth provides for a higher standard of living and more resources that influence the child’s lifestyle and educational opportunities. The stakes in these custody cases can be elevated, with each parent looking for a parenting arrangement that reflects their values and intentions for maintaining the child’s well-being.

Additionally, high-profile divorces may involve concerns about privacy and reputation, making confidentiality agreements and protective measures essential. These non-financial aspects require strategic legal handling to balance parental rights, the best interests of the child, and the preservation of the family’s dignity and privacy.

What Not to Do in a High Net Worth Divorce Case

Before we get into the best process for navigating a high-net-worth divorce, let’s address some of the ways to avoid common mistakes that can affect a high-net-worth divorce case from the start.

Don’t Neglect Proper Asset Valuation

In high-net-worth divorces, accurately valuing complex assets like businesses, investment portfolios, and luxury collections is essential for a fair division. Skipping asset appraisal can lead to significant undervaluation, which may result in an inequitable settlement. Business valuations, for instance, need to account for current market value, future income potential, and any associated liabilities.

In the event of a divorce, you might want to engage efficient appraisers and financial analysts to help ensure all unique assets are fairly assessed. This can go a long way in mitigating conflicts and helping both parties receive an equitable share of the marital estate. If you’re not sure where to start, ask your divorce attorney for references.

Don’t Ignore Tax Obligations

Overlooking the tax consequences of asset division can have significant financial repercussions. Certain assets may come with tax liabilities that reduce their actual value, such as capital gains taxes on investments or income tax on spousal support. Without proper planning, you may agree to an asset division that looks fair on the surface but leaves you with unexpected tax burdens that diminish your financial stability post-divorce.

Don’t Conceal Assets

Concealing assets during a high-net-worth divorce can have serious legal consequences. Courts require full financial transparency to make an equitable division of assets, and failing to disclose all holdings can damage your credibility and result in harsh penalties, such as losing your half of the hidden asset, or facing contempt of court charges. Hidden assets, when discovered, can also lead to the reopening of settlements and further litigation, prolonging the divorce process and increasing costs greatly.

Avoid Acting Impulsively

High net worth divorces often elicit strong emotions on both sides, but acting impulsively, such as liquidating assets or making major financial decisions without consulting your attorney, can undermine your legal standing and financial security. Hasty actions can be perceived as an attempt to hide or devalue assets, which may lead to negative legal outcomes.

Decisions made in the heat of the moment can compromise strategic advantages and make it harder to achieve a fair settlement. It’s crucial to remain patient and work closely with your legal team to approach each step with thoughtful planning.

Protecting Your Assets in a High Net-Worth Divorce

There are several different strategies that individuals can utilize to protect their assets during a high net-worth divorce. Many of these involve pre-divorce or earl marriage estate planning, such as through prenuptial or post-nuptial agreements.

These agreements outline how assets will be divided in the event of a divorce and can shield significant business interests, inheritances, or other high-value property from being part of the marital estate. If a pre-existing agreement does not exist, a post-nuptial agreement, signed after marriage, can still provide some level of protection.

Of course, if divorce proceedings have already begun, these strategies may not be the most effective route, especially if the divorce is not amicable. If this is the case for you, the best choice you can make to protect your assets in a high net-worth divorce is to hire a divorce attorney who has experience handling these types of cases. A high net-worth divorce law firm will have all the necessary connections to be able to perform in-depth financial investigations and prepare strategies to help you achieve the best possible outcome following your divorce.

How Assets Are Divided in High Net-Worth Divorce Cases

California is a community property state. This means each divorced spouse is entitled to half of the marital estate, which includes real estate, investment portfolios, business interests, and other valuable assets. However, the division of assets in high-net-worth divorce cases is usually much more intricate due to the complexity, the existence of prior agreements, and the variety of holdings involved.

Is a Property Settlement Agreement Enforceable by Law?

Simply put, no. In many divorce cases, the parties may use a Property Settlement Agreement (PSA) or a Marriage Settlement Agreement (MSA) to manage the distribution of assets in their divorce. but, until such document is incorporated into or becomes part of a Divorce Judgment, it is barely worth the paper it is written on. Generally speaking, an MSA or PSA outlines the terms of how assets, debts, and other marital obligations are to be dealt with or divided between spouses during a divorce. It usually also includes provisions for spousal support, child custody, and visitation arrangements.

PSAs/MSAs are typically negotiated and agreed upon by both parties, either directly or through mediation, and are then incorporated into a judgment before submitting to the court for approval. These agreements are enforceable by law once they are incorporated into the judgment and approved by the court. This means if one party fails to comply with the terms, the other party can seek enforcement through legal means, such as filing a motion for contempt or requesting specific performance.

Courts generally uphold PSAs/MSAs as long as they are fair, do not violate public policy, and were entered into voluntarily by both parties with full disclosure of all relevant financial information.

Do You Have a High Net Worth Divorce Case? Pinkham & Associates Can Help

High-net-worth divorces can be complex and emotionally charged. To protect your assets, to obtain fair and equitable child custody arrangements, to deal with business ownership and division, and to characterize, value and disburse real estate assets, it’s crucial to have skilled attorneys like Pinkham & Associates by your side. Pinkham & Associates will minimize stress and maximize your chances of a favorable outcome. Pinkham & Associates have been doing exactly this for more than 25 years. In high-net-worth divorces, working with a skilled child custody attorney is critical for protecting parental rights.

Do you need immediate legal representation or advice? Pinkham & Associates has your best interest at heart. With over 25 years of experience in family and divorce law, our divorce attorneys are fully equipped to handle divorce cases regardless of the level of assets at stake. Schedule a consultation with us today to learn more.