30 Jun Your guide to a smarter (and less costly) divorce or separation for high-net-worth individuals
When it comes to divorce or separation, a well-informed approach can make all the difference. And this is particularly true when significant assets are involved.
A high-net-worth financial separation can often bring added layers of complexity – from business interests and cryptocurrency to property portfolios and large superannuation savings. And this means the process is likely to be more complicated, time-consuming and expensive.
The higher the stakes, the more to lose. The more to lose, the higher the emotions. The key is preparation and not panic. With the right support and strategy, it’s possible to protect your financial future and minimise unnecessary stress.
What is a high-net-worth divorce?
A divorce or separation is considered ‘high-net-worth’ when it’s between individuals with a significant asset pool. There is no set dollar figure, per se, but typically this amount is $5 million or more in combined assets (although it may be as low as $2 or $3 million in some cases).
In any case, it means that the couple holds substantial assets – for example, business interests, investment properties, sizable superannuation, or even luxury cars. It may even be because the parties have a significant income stream or are in line to inherit a business, property, or other assets that would bring them into this category.
We care about this category because a high-net-worth divorce can be more complex than a typical divorce. Ex-partners might hold assets in complicated financial structures or with conditions attached. They may also have overseas assets, cryptocurrency or perhaps even Lottery winnings. Valuation of various property interests can be complicated, and there may be complex tax or structuring considerations associated with property or company interests.
Simply put, they’re just more challenging to navigate for the parties.
What to do in a high-net-worth divorce
When a separation involves substantial assets, the right strategy can make a world of difference — both financially and emotionally. Here’s what to do in a high-net-worth divorce.
Engage a team of experts
First things first. Make sure you have a trustworthy team of experts in your corner.
In a high-net-worth divorce, there’s a lot more to lose. So give yourself the best chance of a smarter and less costly financial separation by picking professionals you can trust.
You’ll need an experienced lawyer who specialises in family law. They’ll be able to explain your legal rights and obligations. If you have a Financial Agreement in place (aka prenup or postnup), your lawyer can assess your position and your best next steps. A lawyer can also help you understand the legal implications of your assets, including business interests, IP, trusts, overseas assets and more.
You’ll also need a financial advisor or accountant who can help navigate the intricacies of the shared asset pool. In high-net-worth divorce and separation cases, there are likely to be more assets, with a greater level of complexity. Complicated business interests, trusts, overseas bank accounts or assets, inheritances, shares and self-managed super funds (SMSFs) may all play a role. And there are also likely to be significant tax implications. An expert can help you understand the best way to handle these to see the best outcomes for your situation.
Identify and value your asset pool
With so much at stake, it’s common for ex-partners to disagree on what should be in the shared asset pool. For example, inherited wealth, financial gifts and family trusts can be controversial.
It can also be challenging to agree on the value of certain assets, such as intellectual property (IP) and business interests. Keep in mind that debts/liabilities are also included in the pool.
If the couple holds international bank accounts, property or other assets, this adds yet another layer to the financial separation onion. SMSFs and defined benefit funds can also take extra work to value.
It’s important to engage your financial and legal experts to conduct a thorough investigation. Don’t let your lack of knowledge be used against you when dividing assets. You don’t want your ex-partner to be able to hide anything or sell off assets before the division.
Remember that the person you married often isn’t the same person you’re divorcing. Be prepared for this and manage your expectations.
Comply with financial disclosure rules
A crucial part of financial separation is the disclosure process. This is when each side shares all relevant information with the other.
You must give ‘full and frank’ disclosure of all sources of earnings, interest, income, property and other assets. This includes everything that’s owned or paid directly to the individual/couple, that goes to another person or beneficiary, or that’s held in trusts, companies, etc.
You must also share if any property was sold, transferred, assigned or gifted in the year before the separation or since the separation.
It goes without saying – don’t try to hide anything during discovery. This could result in serious penalties and may lead to a more costly financial separation for you. If you think your ex may be hiding assets, forensic accountants might be necessary to uncover any undisclosed resources.
Consider tax consequences
While tax is always a consideration in the division of assets, this becomes even more crucial in high-net-worth divorce cases. When there’s greater wealth in the shared asset pool, the tax implications are usually higher as well. And selling or transferring assets as part of a financial settlement can trigger serious tax consequences.
It’s therefore crucial to consider the tax implications before making any financial moves. This is where having a financial advisor or accountant can help you save money in the long run.
[H3]Be prepared for multiple jurisdictions
Since a high-net-worth divorce is more likely to involve international assets – such as offshore accounts, overseas properties and investments across countries – it can also involve multiple jurisdictions. And each of these will have their own complex tax and property laws. Some of these may even have conflicting laws on marital property settlements.
For these reasons, it’s important that you work with a family law firm that understands these intricacies.
Privacy concerns
Unlike standard divorce proceedings, high-net-worth divorces can attract more, and unwanted, attention. This is especially true for public figures or business owners.
Family court proceedings are typically confidential, but you or your ex may want to keep things out of the court system for this reason. Our team can help you do that.
Keep a steady head
In high-net-worth divorces, the stakes are high, and emotions can run high too. But regardless of how confrontational your ex-partner becomes, it’s crucial you remain calm and steady.
We know it’s easier said than done with so many assets on the line, but this is where legal representation can really help. We can communicate your wishes on your behalf and help maintain some emotional distance between you and your ex-partner.
This will certainly help you to have a smarter and smoother financial separation.
If you’re going through a high-net-worth divorce or separation, we can provide specialised legal advice. Reach out to the Toomey Family Law team today.