Going through a divorce is challenging, but it becomes even more complicated when it involves significant wealth. If you're facing a high net worth divorce, you're dealing with large amounts of money and assets. This can muddle everything from legal strategies to personal emotions. The stakes are high in high-asset divorce cases, and the financial decisions will have long-lasting effects.
Having a solid divorce strategy is crucial to dividing luxury properties, business interests, or extensive investment portfolios. This blog will explore common pitfalls to avoid during high-net-worth divorce. Understanding the nuances of high-net-worth divorce cases will not only help you protect your assets but also position you for a stable future post-divorce.
What Is Considered a High Net Worth Divorce?
High net-worth divorces deal with much more money and complex property than most divorces. Typically, these involve individuals whose total net worth is over a million dollars. In ultra-high net worth divorces, this amount is much higher, sometimes reaching into the hundreds of millions.
In both of these cases, the assets up for division can include:
- businesses and shares in companies
- stocks and large investment portfolios
- bank accounts
- expensive items like yachts, artwork, and collectibles
- assets in other countries and international investments
- royalties and rights to inventions or creative works
Handling these high net-worth divorce settlements carefully is crucial because the stakes are so high. A small mistake can lead to a loss or gain of millions of dollars. That's why it's important to know exactly what all the assets are worth and to plan carefully.
Knowing all about the assets involved is the first important step in any high asset divorce. This helps in planning the divorce strategy and preparing for any challenges that might come up during the negotiation and legal stages of the divorce.
Mistakes to Avoid in a High Net-worth Divorce Case
Now that you know what is considered a high-asset divorce, you can try to avoid these mistakes.
1. Making Emotional Decisions
A divorce can be stressful and emotionally charged, regardless of your net worth. Because there's a lot at stake, emotions like anger, sadness, or frustration can easily cloud your judgment. If you let these emotions cloud your judgment, you could end up with a settlement that isn’t fair.
Be aware of how emotions influence your decisions. Wanting to "win" a divorce out of spite or to hurt the other person can lead to poor choices.
Keep long-term goals in mind, not just short-term wins. This helps make decisions beneficial in the long run, not just those that feel good at the moment. Always maintain clear, calm communication with your ex-partner to reduce misunderstandings and conflicts.
It’s always best to work with a professional. A financial advisor can help you make financial decisions about your assets because they objectively view your situation. This can make the entire divorce process smoother and more constructive.
2. Not Considering the Long-Term Financial Impact
Your financial situation will change after the divorce. It's important to update your financial plans to reflect your new status. This might mean adjusting your spending, savings, and investment strategies. Think about your long-term financial needs, not just what you need right now.
This includes retirement planning, major expenses like your children's education, and lifestyle needs. Consider a scenario where you can keep or sell the family home and split the proceeds. Keeping the house is appealing, especially for stability. However, if the ongoing maintenance costs and property taxes are high, your finances could be strained if you don't have additional income to support these expenses.
Don't try to do it all on your own. Financial planners and advisors offer valuable insights and help you create a plan that fits your new circumstances. Sometimes, taking a lump sum might seem attractive, but regular payments or retaining specific assets could be more beneficial in the long run.
3. Hiding Your Assets
In a high net-worth divorce, it might be tempting to hide your assets to avoid losing them. This is unlawful and can lead to significant penalties. Your ex-partner’s legal team could uncover this and leverage it to get even more than what they are entitled to.
If you are caught hiding assets, the court can impose severe penalties. These might include fines or even jail time, depending on how severe the situation is. Getting caught hiding assets in your high net worth divorce case can damage your reputation in court. This might lead the judge to view all your statements and actions with suspicion, which can negatively affect other aspects of your divorce, like custody or division of other assets.
If your high net worth divorce settlement is based on false information because assets were hidden, the settlement can be reopened and changed. This means you could end up losing more than you initially tried to hide.
4. Overlooking the Tax Implications
You could hire the best legal team for your divorce, but a lawyer isn’t an expert in your finances. A truly successful high-net-worth divorce strategy should have a financial planner to advise you about your assets. You should have access to a tax professional to help you make the best decisions.
Different assets come with different tax responsibilities. The cash sitting in your bank account doesn't have immediate tax effects, but selling stocks might lead to capital gains taxes. Knowing this can help you decide which assets to keep and which to let go.
Dividing retirement accounts isn't straightforward. You might need a special court order: Qualified Domestic Relations Order (QDRO). This order helps to split these accounts without triggering taxes or early withdrawal penalties.
Start a New Chapter with Sound Financial Advice
Let the team at Asset Preservation Wealth and Tax help you move forward post-divorce. Our financial experts work with an experienced team of tax professionals and accountants to give you a 360-degree view of your finances. This holistic approach allows us to see the bigger picture and adjust for your needs.
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Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
