What is a high net worth divorce?
High net worth divorces are those that have accumulated significant wealth and assets during the marriage.
These assets may include complex compensation packages with restricted stock units based on State, regional or companywide annual performance, it could include W-2 and K-1 income for self-employed or entrepreneurial individuals, real estate acquisitions (personal and commercial), multiple businesses, various investments, retirement plans, and inherited wealth.
The Complexity of High Net Worth Divorce
A high net worth divorce will have extra layers of complexity since there is so much at stake in these types of situations. In these divorces, the property division process is far more complicated and can involve a high level of contention which heightens the trauma and stress leading thereby making it a high-conflict divorce.
You can potentially alleviate some of the contentious issues and avoid some of the common divorce mistakes by utilizing an attorney who focuses on high-asset, high-conflict divorces.
An experienced, high-asset Arizona divorce attorney will have the knowledge and resources to ensure that your divorce is resolved as fairly and equitably as possible.
Arizona is a community property state which means that all property acquired by either spouse during the marriage is considered to be a community asset. Upon divorce, all property will be equitably divided, but that does not necessarily mean equally divided although it is more often than not.
Arizona law does not require that the division of marital property be exactly equal, but it must be fair and equitable. The marital community, for determining what is considered community property, begins at the date of marriage.
When Does The Marital Community End?
The marital community ends at such time that one spouse has the other spouse served with a divorce or legal separation petition. At that time, the marital community, for financial purposes, is considered terminated. Any wealth or assets acquired after that date are not part of the marital community that is divided.
Property or assets accumulated prior to the marriage are typically considered the sole and separate property of the spouse that brought the asset into the marriage and is therefore not subject to division in the divorce. Determining separate property can be complicated for property or retirement accounts.
Divorce & Retirement Accounts
A retirement account may have been started prior to marriage and then funds get added to or contributed during the marriage, making the retirement account a commingled asset.
Distinguishing which portion of those funds are sole and separate versus joint and the gains and losses attributed to each portion is a complicated calculation done by a QDRO (Qualified Domestic Relations Order) preparer. Max N. Hanson, Esq. is the QDRO preparer at Owens & Perkins.
Determining the division of a business owned by one or both spouses can also be very complicated in a high-asset divorce. Oftentimes, it will be necessary to hire an expert to determine the value (or increase in value) of a business and then to determine how much of that value is separate or community property.
Experts such as a Business Valuation expert (ABV – Accredited in Business Valuation) or Certified Financial Litigator (CFL) or Certified Divorce Financial Analyst (CDFA) are often called upon to determine the value of a business for determining the equitable division.
During the Trial, a Judge will most likely rely on the reports provided by these experts, although there is always a dispute among the expert reports being presented to the Court.
These experts will also be subpoenaed to appear at the Trial and testify as to their findings and conclusions as set forth in their reports. In most cases, each spouse will hire their own expert and both experts will testify at Trial. For that reason alone, it’s important to hire an experienced high-asset divorce lawyer who has working relationships with experts who have litigation experience and are comfortable testifying in front of a Judge.
In addition to a fair and equitable division of the assets, the Court will also allocate a fair and equitable distribution of the debt incurred during the marriage. Some debts, such as student loans or tax obligations incurred prior to the marriage may be considered the separate debt of one spouse.
Factoring In Marital Waste
Marital waste may also be a factor to consider in the division of assets and debts in a high-conflict, high-asset divorce. Marital waste occurs when one spouse wastes or squanders community funds or assets or when they spend extravagantly for their own benefit or for a third party, thus depriving the other spouse of those assets.
Marriages often dissolve due to the infidelity of one spouse or both. If one spouse spent a significant amount of money on an affair during the marriage, that can certainly be a bone of contention and trigger for the non-cheating spouse, but the analysis on whether to take that claim to Trial will depend on whether there is any monetary return that could be achieved in Court, the amount that was allegedly “wasted” and ability to prove the waste. Mere speculation is not sufficient.
Other examples of marital waste may include a spouse with a gambling or drug problem or a spouse who sells off some of the community assets or withdraws money from a joint account and uses those funds to benefit themselves and not the community. Proving marital waste is never easy.
Many states require that the dissipation of assets takes place around the same time that the marriage breaks down which may indicate a deliberate intent of depriving one spouse of the community assets. You won’t be able to make a waste claim simply because at the time of divorce you suddenly don’t agree with your spouse’s spending habits throughout the marriage.
Additionally, the expenditures that are being alleged as waste cannot benefit the marriage in any way. For example, taking a loan from a 401K to pay for a marital home kitchen remodel is not going to be considered marital waste at the time of divorce. Even if one spouse is spending significant money on hobbies like golf, gambling or other activities may not be considered “waste” in the eyes of the court even if the other spouse did not participate or receive a direct benefit.
How To Prepare For A High Net Worth Divorce
1. Know what you and your spouse own:
If you’re facing a high net worth, high conflict divorce, you need to understand what assets you and your spouse own and gather documentation. It will save you tens of thousands of dollars in legal fees.
Marital property is property that you obtain after you get married and includes: real estate, retirement accounts, investments, bank accounts, and personal property. Gather bank account statements and retirement statements, tax and business documentation, and statements indicating any type of debt that is owed. Gather EVERYTHING you can get your hands on that is financially related.
2. Determining the value of your assets:
Once you figure out what you own, the next step is going to be determining the value of what you own. As previously discussed, if you or your spouse own a business or businesses, you will need to employ a business valuator to determine the value of the businesses, real estate appraiser to determine the value of residential and/or commercial real estate, art, antiques, collections, coins, horses, boats, ATV’s RV’s, firearms, etc, etc, etc.
3. Don’t comingle your inheritance ever:
If you receive an inheritance; PLEASE put it in a separate bank account in just your name alone. If, during the marriage, you decide you want to spend some of it, for whatever reason, just realize the amount spent will be gone. In Arizona there is no divorce reimbursement for inheritance that was commingled or spent during the marriage, it’s just money that no longer exists.
4. Don’t sell, transfer, or change your property:
In Arizona, when a divorce is filed, the state laws prohibit the sale, transfer, or changing of title on any property that you own. This order is called a Preliminary Injunction. The order preventing the sale or transfer of property is in effect on the person that filed the divorce or legal separation from the date of filing and it is effective on the other spouse from the date he/she is served until the Decree of Dissolution is entered by the Court.
In some instances, the Court may allow the sale of property during the dissolution process (or the parties can agree to sell something), but the proceeds are often held until either the Court makes a final determination on the equitable distribution of the assets or the parties themselves agree (usually through the mediation process).
Making any changes to property while the Preliminary Injunction is in effect could result in the Judge enforcing penalties such as contempt of Court. Additionally, these actions would reflect poorly upon the spouse violating the Court order.
In summary, high-asset, high-conflict divorces are very complicated just by their varied nature. Consulting with and hiring an experienced attorney that is knowledgeable in high asset cases should be your first step.
If you or someone you know needs assistance in a high-conflict, high-asset divorce, the Scottsdale family law attorneys at Owens & Perkins have the experience and skills to help guide you through this complicated process.
Our highly rated attorneys, Michelle J. Perkins and Max N. Hanson have each practiced for over 25 years in Arizona and have the expertise needed to handle your high-asset divorce. Please call or text our offices at 480.994.8824 to schedule a complimentary thirty (30) minute consultation today.