Understanding the Risks of a High Asset Divorce

 Posted on March 21,2018 in Divorce

If you are a member of a high net worth family and accustomed to a certain standard of living, a divorce can post a significant threat to your assets and lifestyle. To protect your best interests, you should understand the unique risks and challenges you may face in a high asset divorce.

Take the Time and Get the Advice to Do It Right

You may want to get your divorce over with as quickly as possible, so you can move on to the next phase of your life. You may not want to devote a lot of time to the process, as you may run a business that requires most of your attention or have a job that requires a lot of time away from home.

However, you must remember that the decisions made during a divorce settlement have long-term implications, possibly through the end of your life. In a high asset divorce, it literally pays to hire the right experts to ensure an equitable division of assets. 

High asset couples, particularly those with children, should also consider the potential benefits of a collaborative divorce approach, such as greater privacy and scheduling flexibility, in place of a more contentious court litigation approach.

Separate Assets vs. Marital Assets

In addition to building an accurate list of assets, each asset must be classified correctly as a marital or a separate asset. This distinction can be especially important when a couple’s assets involve a family business, high-value family heirlooms, or real estate co-owned with relatives such as a vacation cottage.

• Marital assets are those acquired or earned during the marriage. This typically includes any increase in the value of a separate asset that occurred during the time of the marriage. Michigan law calls for not a straight 50/50 split of marital assets but rather an equitable division.

• Separate assets are those that were owned by one spouse prior to the marriage or inherited by one spouse, which have not been commingled with marital assets. While each spouse typically gets to keep their separate assets in a divorce, that is not 100 percent guaranteed. Under Michigan law, a court may award one spouse a just and reasonable share of the other spouse’s separate property if the division of marital property alone will not provide sufficient support for the recipient and any children under their care.

Most debt is assumed to be marital debt, to be equitably divided along with assets. However, a judge may consider a variety of factors in determining what is “fair” in a given situation. 

Asset Valuation

The exact value of assets must be determined before an equitable division can be determined. Some assets are relatively easy to value, such as investment accounts and most real estate. Other assets will require the hiring of expert appraisers, particularly when the divorcing couple owns numerous pieces of high-value jewelry, artwork, antiques, atypical real estate, and the like.

Privately-held businesses also require valuation, including estimates of future earnings and determination of the specific gain in value during the marriage if the business was one spouse’s property prior to the marriage. In addition, special steps may need to be taken to protect the value of the business during the divorce.

Tax Consequences

Out of all the factors that can impact the final value of your divorce settlement, you might not rank tax consequences as a top priority. But taxes can take a major bite out of your settlement if you are not careful. For example, if assets must be sold—e.g., to obtain cash necessary to cover transitional living expenses, purchase of separate residences, spousal support, or child support—the divorce settlement should specify who will pay the capital gains taxes. The valuation of retirement accounts should factor in any future taxes that will be owed when money is withdrawn from those accounts.

The ultimate goal should be to extract the maximum value from the collection of assets held at the beginning of the divorce process, so that each party gets as much as possible in the final settlement.

Trusted Divorce Attorneys in Southeast Michigan

High value divorces come with unique issues and risks. Working with an experienced Farmington Hills divorce attorney will make sure your best interests are protected in both the short term and the long. Call Elkouri Health, PLC at 248-344-9700 to schedule a free, no-obligation consultation with a skilled high-value divorce lawyer at our Novi, Michigan office.

Sources:

https://mjieducation.mi.gov/documents/family-qrms/537-divorce-checklist/file

http://www.icle.org/modules/books/chapter.aspx?chapter=15&book=2011553510&lib=family&sections=2&from=store

https://sub.bvresources.com/bvwire/February2018Issue185-3.html