When going through a divorce, you probably have many questions. First, you must consider what your new life will look like going forward. Before you get there, however, you must deal with the details of the divorce itself. This often brings many concerns about money, property, child custody, and so on.
These questions compound in high net worth divorce. Most likely, your finances and holding are already complicated. Figuring out how to split your assets reasonably.
The good news is this: The same rules apply to all divorcing couples, regardless of their finances. In some cases, such as child support, there is a sliding scale. Struggling families will pay a lower percentage than comfortable families. When it comes to property division, however, states tend to use the same standards for everyone.
How Property Is Normally Divided in a Divorce
Generally, U.S. states use one of two methods to distribute assets among divorcing couples: community property division and equitable division.
In community property states, the goal is to give each spouse 50% of the assets. In this context, the word “assets” applies to marital property. Therefore, couples will split money, physical property, and even debt evenly.
The term “community property” directly refers to these marital assets. Generally, anything that either party purchases during a marriage belongs to both parties. “Separate assets” originate from outside the marriage. It includes property you owned before you were married, inherited assets, and gifts you received from someone outside the marriage.
Nevada is a community property state.
Most other states use the equitable model. Ostensibly, this system distributes property according to fairness. You could say that assets go to the most “deserving” of the spouses.
In both systems, you must make a case for entitlement. Essentially, you need to prove that you are the primary user of or contributor to the property in question. Take the house, for example. If you spent the marriage as a stay-at-home parent, and you receive primary custody of the children, it makes the most sense for you to keep the home.
Challenges Unique to a High Net Worth Divorce
As we’ve mentioned, people with a lot of money and assets tend to have complicated finances. Whether your state is based on an even split or pure fairness, it still won’t be easy for the court to cleanly spread property around. Here are some complications inherent to a high net worth divorce.
Spousal Support and Lifestyle
Generally, courts use several different factors to determine spousal support. One of them is keeping both spouses within their accustomed lifestyle.
This standard becomes vague when the family is wealthy. You could, theoretically, keep someone very comfortable by paying them only a fraction of your overall income. To you, that may seem fair, but it probably won’t to them.
These scenarios lead to conflict, and only a skilled attorney can help clear up the mess.
Money is easy to split, especially in a community property state. The court can simply give each person half of what’s in the bank.
Physical property takes a bit more work, but the process can still be clean. First, the court determines who is entitled to the property. Then, it transfers ownership to that person.
Some assets, however, get muddy. Perhaps you have money tied into stocks and bonds. Some of it is in your name, and some of it is in your spouse’s name. Some of these items have a large value, and some aren’t worth much. Chances are, you also have several other deals spread across real estate, rare collectibles, and more.
Then there are digital assets. It’s difficult to split these, as they may be tied to specific accounts. First, you’ll have to figure out who owns and controls these accounts, and then you must split their value from there.
You’ll need an attorney who can surgically attack these problems. It will take time to simply decipher who currently owns what. Only then can you start negotiating a fair distribution with your spouse.
Dividing Value in a Community Property State
Remember, in an equal property division state, both spouses should walk away with 50% of the assets. Regardless of your tax bracket, this system can create problems. For any property you keep, you will owe your spouse 50% of its value.
Imagine an average American household. The wife gets to keep the house, which is worth $400,000. Now she owes her husband $200,000. She isn’t wealthy, and the home’s worth is tied to the property itself.
Problems like these can compound in families with a high net worth. So much of your property’s value can be tied into complicated investments, and you may not have the liquid assets to create an easy, 50/50 split.
To maintain an equal split, community property states give spouses several options.
- Spouses can sell property and split the profits equally.
- Spouses can directly pay one another for half the value of property.
- Spouses can trade assets until each has 50% of the marital property.
- In most circumstances, the court will order some combination of the options above.
If you have questions about your property in a high-net-worth divorce, you can reach out to our firm today for help. Just call (702) 904-9898, or contact us online.