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How to Avoid Making Mistakes in a High Net Worth Divorce

In my last article, I talked about high net worth divorces and the factors that often make them more complicated than standard divorces. When I work with high net worth clients, I guide them through a process that starts with assessing finances to get a complete picture of what is community property and what is the client’s separate property.

I also advise my clients to employ caution and good sense when attending to their finances in the lead-up and during the divorce process. Obviously, it’s prudent to avoid any transfers of funds that would appear sneaky or suspicious. In some cases, a person will want to move assets from a joint account because he or she is afraid that the spouse will withdraw that money first. As a divorce lawyer looking to protect my client, I want to be privy to any decision to move assets, and, although there may be reasons to move assets to protect them, moving assets should never, ever be done for the purpose of hiding them.  Not only is it the wrong thing to do, but you will also ALWAYS be caught. And this action will make the entire divorce turn out much worse – every time.

But there are plenty of cases in which people are trying to do the right thing in a divorce, making financial moves that are well-intentioned, but might actually, inadvertently complicate a divorce. For instance, taking a separate property asset (inheritance, gift received, or owned prior to marriage) and paying a community liability with it can complicate financial negotiations. A person in a divorce might try to sell a separate property asset to a family member to take it away from the marital estate, but since the money received from the sale could be considered community property under certain circumstances, such a move could actually backfire and do the opposite of what was intended. And lawyers for both parties in a divorce should be paid from the community pot – even in complex cases that require considerable legal expenses (although the other party might have a right to reimbursement for fees spent protecting or establishing one party’s separate property assets).

There are also tax considerations that lawyers and financial professionals can help couples within high net worth divorces. There are differences between how child support and alimony are taxed and enforced, and those considerations should be figured into a settlement involving either or both. In the year that a couple is divorced, the couple needs to determine how to handle the tax payment, and there can be tax advantages to finalizing the divorce either before or after the new year. We frequently deal with all of these issues in high net worth divorces and can gather the financial advice along with our legal advice, to help clients make an informed decision.

It’s a challenge to divide a marital estate in a divorce involving high net worth people, but it can be made more challenging, needlessly, by a few unintended missteps. I advise anyone considering a divorce to be prudent in financial matters, and to behave as if the divorce will proceed – but more importantly, consult a lawyer competent in handling high net worth divorces as early as possible.