Navigating a High Net Worth Divorce: Financial Insights

As a financial professional working with individuals and families for over two decades, and specifically divorce for nearly 9 years, I've encountered numerous complex cases, especially when it comes to splitting assets and income streams in a high net worth divorce. Unlike typical divorces, where the division of assets may involve a house, a car, and some savings, these divorces often include a portfolio of financial holdings, from real estate to various investment vehicles, and complex compensation structures. 

In this blog post, I provide insights on the unique challenges and considerations involved in navigating the financial landscape of high net worth divorces.

Complex Assets and Income Structures

One of the defining characteristics of a high net worth divorce is the complexity of assets and income. From multiple real estate properties to various investment portfolios, including both traditional assets and emerging investments like cryptocurrency, each investment comes with its own tax implications, liquidity considerations, and risk profiles. Additionally, executives or business owners may have compensation packages comprising of stock options, restricted stock units, and deferred compensation, adding layers of intricacy to determining current and future income streams and property considerations.

Specifically, complexity often arises in the following ways:

• Determining separate versus marital property: This may require historical reporting, review of trusts, or analyses of prenups.
• Valuing assets: You may need to hire additional professionals such as appraisers and tax specialists, and conduct valuations. A discovery process, or search for hidden assets, may require a forensic accountant.

Business Valuations and Retirement Accounts

In high net worth divorces, businesses owned by you or both you and your spouse often require thorough valuations, which can be both costly and time-consuming. You may have invested capital in other businesses as well, through venture capital or other investment structures. Similarly, retirement accounts, possibly spanning several types and structures, require professional assessment for equitable division.

Inheritances, Trusts, and Income Streams

Determining the marital or separate nature of inheritances or assets held in trusts adds another dimension to the asset division process and always requires oversight from an experienced family law attorney. In some cases, high net worth individuals may have multiple income streams that are taxed differently. These dynamics are best assessed by a team of professionals, including tax and financial experts, in an effort to provide you with a comprehensive understanding of each source and its implications for post-divorce financial stability.

Time and Conflict

Unlike conventional divorces, which typically conclude within six months, high net worth divorces often extend over one to two years or longer due to the complexity of financial arrangements. Gathering documentation, conducting due diligence, and valuing assets require meticulous attention to detail and may involve engaging additional professionals such as appraisers and forensic accountants. Addressing any unmet financial needs during this extended process can also be stressful and become timely and expensive. This will likely take an emotional toll on you, your family, and could negatively impact your career and/or social life.

Spousal Support and Retirement Planning

Spousal support in high net worth divorces falls outside of spousal support calculation norms, encompassing various income sources beyond wages, such as rental income and investment dividends. Therefore, property division can feed into the support considerations. Furthermore, if you are in your 50s or older, retirement planning takes precedence, resulting in a thorough evaluation of future income sources and asset allocation, which can result in financial security in later years.

The Importance of a Divorce Team

Given the multifaceted nature of high net worth divorces, assembling the right divorce team is important. In addition to experienced legal counsel, enlisting the expertise of financial planners, tax specialists, and divorce coaches can help streamline the process and minimize conflict. Effective communication and collaboration among team members helps navigate the complexities inherent in high net worth divorces.

High net worth divorces present financial challenges that require careful navigation and expert guidance. By understanding the complexities of asset division, income assessment, and long-term financial planning, you can work towards equitable resolutions while safeguarding your financial future. With the right support system in place, your high net worth divorce process can accelerate a smooth transition to the next chapter of life. 

We assist in resolving the financial aspects of high net worth divorces. Contact me, Amy Melander, CFP®, CDFA®, for a free consultation to learn more about our services.