Every divorce case is different, but if you’re a high-net-worth couple, that difference is even more apparent as certain complications make the process even trickier. Before you head into mediation or the courtroom in Sugar Land, TX, be sure you understand how to split property during a high net worth divorce.
How Do You Split Property During a High Net Worth Divorce?
High net worth couples are likely to have accumulated substantial marital property during the time they were married. Marital property includes anything earned or acquired during marriage such as vehicles, jewelry, artwork, stocks, houses, offshore accounts, bonds, and more. As long as the property was acquired during the marriage, by either individual, it is considered marital property. The challenge in a divorce is determining how to divide the mutually accumulated property in an equitable way to ensure each person receives a fair value.
Even though Texas is a community property state, it requires equitable distribution of assets upon divorce. Community property refers to the property that was acquired by either individual during the marriage. Property that was acquired by either individual prior to the marriage doesn’t become community property once a couple marries. Anything you owned solely before the marriage remains solely your property upon divorce-so long as you can prove it. A challenging part of divorce proceedings is determining what is community property and what is separate property.
Despite Texas following community property law, it doesn’t mean your spouse automatically receives half of everything you own. Otherwise, the division of property would be fairly simple. Instead, the court takes into account various financial factors to determine an equitable distribution for both individuals. It’s important to understand that in the context of property division, equity and equality don’t have the same definition. Equality means everything is split evenly, while equity means you both get what you need.
All types of property will be considered by the court to ensure it is divided equitably, but you can also work with the other party to determine what you believe is an equitable division of assets. Some factors that should be considered when dividing property during a divorce include the following.
- How much individual property you each own
- How much in tax you’ll have to pay on asset
- How much earning potential you each have
- What the effect of the divorce will be on your future financial standing
To ensure an equitable division of assets, all property must be disclosed by both individuals involved in the divorce. If one party believes the other is attempting to hide assets, a forensic accountant may become involved to identify any discrepancies during the disclosure process and verify that all property is properly disclosed. This is one way in which high net worth divorces become more complicated, since one party may attempt to hold on to more property than is legal.
Valuation of Property
Another complication of high net worth divorces is the valuation of property, which must be done to ensure there is a full accounting of all mutually-owned assets. Sometimes, one individual involved in the divorce doesn’t understand the couple’s financial circumstances and could be at a disadvantage in the division of assets. In a case like this, a valuation expert and a forensic accountant may both be necessary to identify all property acquired during the marriage.
An example of why a forensic accountant may be necessary is if one spouse is a business owner who has sold off everything except a 20% stake in the company. The owner then splits the 20% stake into four different trusts, each having 20% of the owner’s 20%. The other partner agrees to split the stake the owner has in the company, not realizing that at this point, it’s only 4% rather than a full 20%.
In this example, it is critical that the forensic accountant identify the four trusts so that when the company is fully sold, the partner receives their share of 20% rather than 4%. If the company sells for $10 million, the difference is spitting $400,000 (4%) versus $2 million (20%). Unless this property is accurately identified and accounted for, the individual who is not the owner of the company could end up with a very non-equitable division.
Along with ensuring the marital property is divided equitably, another challenge faced by high net worth couples during a divorce is the issue of support, which includes both child support and alimony (post-divorce spousal maintenance). There are several reasons this becomes more complex with high net worth couples, including the fact that there are usually more child-related expenses like boarding or private school, and competitive activities than with children in lower-income brackets. There may even be inheritance trusts to handle.
Additionally, with the trend moving toward true 50/50 custody, both physical and legal, child support is not as one-sided as it once was, with the non-custodial parent usually providing support to the custodial parent. The court will determine custody and child support based on the best interests of the children involved, which is usually joint custody.
Spousal Maintenance Determination
Determining how much support one partner has to pay to another is part of the equitable division of property. The court will look at how much earning potential each individual has and whether each person is currently employed and contributing an income to the marriage. If both individuals have substantial incomes, the court most likely will decide not to award either party spousal support. However, if one partner is financially dependent on the other, alimony will come into play.
The amount each person earns will determine whether one party is dependent on another or not. For example, if one person is earning $400,000 a year and the other person is earning $300,000 a year, there will likely be little if any alimony awarded to either party. If, however, one person is earning $650,000 a year and the other person is earning $50,000 a year, the second person will likely be considered dependent on the first.
Temporary Spousal Support
In some high net worth cases, one party may be awarded temporary alimony (known as spousal support) if there is a substantial difference between the incomes of each individual and the household expenses are deemed to be high. Factors will be taken into account when determining temporary alimony, but the reason it’s temporary is usually that the lower-earning party is expected to be able to earn more money in the near future.
Even in high net worth cases, long-term alimony may be considered at the discretion of the court and can have a time limit or be indefinite. The court will take into account factors such as marital misconduct; earnings and earnings capacities; age; physical, emotional, and mental conditions; earned and unearned income; length of the marriage; separate property; educational backgrounds; tax consequences; and standard of living; among others.
High net worth couples often have more complex divorces than others, but that doesn’t mean you have to give up half or more of all property you own. Contact Skillern Firm today to learn how we can help ensure your marital property is appropriately valued and divided up as equitably as possible.