Mistakes to Avoid in a High Net Worth Divorce
In my last article, I talked about high net worth divorce and key factors that often make these situations more complex than your standard divorce. Working with these clients requires close guidance, beginning with a comprehensive financial assessment to glean what will be termed community property or separate. From the start, I advise clients that it is crucial to employ caution and prudence regarding their finances in the lead-up to and during the process of divorce.
Obviously, it’s wise to avoid fund transfers that could appear suspicious or sneaky. While, in some cases, a client’s concern that his or her spouse could beat them to the punch and withdraw money first might be warranted, assumptions rarely put you in a better position. Allowing paranoia, spite, or anger to fuel decisions to move assets from a joint account spells disaster. As a divorce lawyer, my job is to protect my client. I cannot protect that of which I am not made aware; therefore, a client must discuss moving assets and possible consequences before taking action.
Reasons to move assets do occur, and safeguards exist to do so in an appropriate manner; however, shifting resources should never, ever be done for the purpose of hiding them. Not only is this simply the wrong thing to do, you will ALWAYS be caught. Count on it. And this action will ensure the entire divorce turns out much worse – every time.
In plenty of cases, a client takes financial steps that are well-intended, but could actually, inadvertently complicate. For instance, taking a separate property asset (an inheritance, a gift received, or an asset owned prior to marriage) and paying a community liability can decrease your separate estate and not result in any compensation for it. A client might sell a separate property asset to a family member in order to take it away from the marital estate, but as the money received from the sale could be considered community property, such an effort would backfire and do the exact opposite of what was intended.
Additionally, lawyers for both parties should be paid from the community pot – even in complex cases that require considerable legal expenses. (Though one party might hold a right to reimbursement for fees spent protecting or establishing the other party’s separate property assets.)
The high net divorce involves myriad, complex issues and potential variables. Lawyers and financial professionals both, therefore, are necessary to effectively assist divorcing high net worth couples. For example, distinctions exist between how child support and alimony are taxed and enforced (although alimony will no longer be an option after December 31st, 2018). Child support and/or alimony particulars must be addressed to figure accurately into a workable settlement.
Additionally, in the year that a couple divorces, determinations must be made regarding Federal income tax liability and payment. If the divorce happens to be reaching completion near the end of a year, there are often advantages to finalizing a divorce either before or after the new year, depending on details of the situation. At Hance Law Group, we have encountered all manner of issues that the high net worth divorce creates. Gathering specific financial advice along with our legal guidance will help the high net worth client make informed decisions.
It is a challenge to divide a marital estate in a divorce involving high net worth clients, yes—but it can be made infinitely more difficult, needlessly, by unintended missteps. I advise high net worth spouses considering divorce to be sensible in financial matters – but just as important, as early as possible—perhaps before informing a spouse of contemplations—consult an attorney competent in handling high net worth divorces. The conversation could end there, but the information gathered could prove priceless.
About the Author
Larry Hance is managing partner and founder of the Dallas law firm Hance Law Group. With more than 35 years of experience in family law, Mr. Hance uses his experience with the legal system, judges and other lawyers to help clients achieve the best possible results.