High Net Worth Divorce Guide

High net worth divorces (typically involving $1 million+ in assets or $500,000+ annual income) require specialized handling due to complex asset structures, business interests, and significant financial stakes. ## What Qualifies as High Net Worth **Asset Thresholds:** - $1 million+ in marital assets - $500,000+ annual income - Business ownership with significant value - Multiple real estate properties - Substantial investment portfolios - Stock options, RSUs, or other executive compensation **Common Asset Types:** - Businesses and professional practices - Commercial real estate - Investment properties - Hedge funds, private equity - Art, jewelry, collectibles worth $100,000+ - Offshore accounts and foreign assets - Intellectual property, patents, trademarks ## Unique Challenges **Complex Asset Valuation:** - Business appraisals require experts - Investment portfolios need detailed analysis - Tax implications of different division scenarios - Hidden or offshore assets - Marital vs separate property classification complex - Multiple jurisdictions (international assets) **Privacy Concerns:** - Public court records expose financial details - Media attention for high-profile individuals - Business reputation at stake - Confidentiality of trade secrets - Protecting children from publicity **Tax Planning:** - Capital gains on property transfers - Alimony tax treatment - Qualified Domestic Relations Orders (QDROs) for retirement - Estate tax implications - Timing of asset liquidation

Business Valuation Methods **Three Main Approaches:** **1. Asset-Based Valuation** - Values company's assets minus liabilities - Good for asset-heavy businesses - May undervalue going concerns - Typically lowest valuation **2. Income-Based Valuation** - Based on earnings capacity - Uses multiples of EBITDA or revenue - Most common for operating businesses - Accounts for goodwill **3. Market-Based Valuation** - Compares to similar businesses sold - Difficult to find comparable sales - Good for established industries - Most reliable if comparables available ## Marital vs Separate Business **Fully Marital:** - Business started during marriage - Both spouses contributed (labor or capital) - Marital funds used to grow business - Subject to full division **Fully Separate:** - Owned before marriage - No marital funds invested - Spouse didn't contribute labor - Not subject to division (but increase in value may be) **Hybrid (Most Common):** - Started before marriage but grew during - Separate investment but marital labor - Complex valuation of marital portion - Requires forensic accountant ## Division Options **Buy-Out:** - One spouse keeps business - Pays other spouse for their share - Common for professional practices - May require payments over time **Co-Ownership:** - Both remain owners post-divorce - Requires ongoing relationship - Detailed operating agreement needed - Risky if any conflict remains **Sale:** - Sell business to third party - Divide proceeds - Clean break - May get less than value as going concern **Asset Trade:** - Business owner keeps 100% - Other spouse gets offsetting assets - Common: Business for house/retirement - Requires equal value assets available

Common Hiding Techniques **Offshore Accounts:** - Foreign banks and tax havens - Cryptocurrency wallets - International business entities - Undisclosed foreign investments **Business Manipulations:** - Understating business value - Deferring bonuses until after divorce - Paying fake salaries to family members - Creating fake debt to business - Transferring assets to business **Personal Transfers:** - Gifts to family members - Purchasing assets in others' names - Overpaying taxes (to get refund post-divorce) - Expensive "business expenses" (actually personal) **Investment Strategies:** - Unreported investment accounts - Bearer bonds or cash - Safety deposit boxes - Antiques, art, collectibles not disclosed ## Discovery Tools **Formal Discovery:** - Interrogatories (written questions) - Requests for production (documents) - Depositions (sworn testimony) - Subpoenas to third parties **Financial Forensics:** - Forensic accountant ($200-500/hour) - Review 3-5 years of financial records - Trace funds and transfers - Identify lifestyle inconsistencies - Analyze tax returns for red flags **Electronic Discovery:** - Email and text message review - Bank transaction analysis - Credit card statement patterns - Social media evidence **Third-Party Investigation:** - Subpoena banks for account information - Request employer records - Review business financial statements - Public records search (property, vehicles, boats) ## Red Flags **Warning Signs:** - Lifestyle doesn't match reported income - Sudden decrease in income - New debt appearing - Transferring assets to family - Refusing to provide financial documents - Unexplained cash withdrawals - Multiple bank accounts or credit cards

Types of Executive Compensation **Salary and Bonuses:** - Base salary (clearly marital income) - Annual bonuses (marital if earned during marriage) - Signing bonuses (may be separate if paid before marriage) - Retention bonuses (timing determines classification) **Stock-Based Compensation:** - **Stock options:** Right to buy company stock at set price - **Restricted stock units (RSUs):** Company stock granted over time - **Performance shares:** Stock based on performance metrics - **Stock appreciation rights (SARs):** Cash value of stock increase **Other Benefits:** - Deferred compensation plans - Pension and retirement benefits - Life insurance policies - Club memberships - Company car or housing ## Marital vs Separate Classification **Time-Based Test:** - When was compensation granted? - When did it vest? - What period does it compensate? **Common Scenarios:** - **Granted and vested during marriage:** Fully marital - **Granted before, vested during:** Partially marital - **Granted during, vested after:** Partially marital - **Granted and vested after separation:** Likely separate ## Valuation Complexities **Stock Options:** - In-the-money options have clear value (current price - strike price) - Out-of-money options may have speculative value - Vesting schedules affect division timing - Tax consequences of exercising options **RSUs:** - Value based on current stock price - May need to wait for vesting to divide - Tax withholding reduces actual value received - Company may restrict transfer **Performance Shares:** - Uncertain value (depends on future performance) - May need to estimate likely payout - Division method: Immediate vs wait-and-see - Risk allocation between spouses ## Division Methods **Immediate Offset:** - Calculate current value - Spouse receives equivalent value in other assets - Clean break - Employee spouse keeps all future compensation **Deferred Distribution:** - Divide when compensation actually received - Tracks original percentage split - Both share risk of value changes - Requires ongoing relationship **Hybrid Approach:** - Immediate settlement of vested portions - Deferred distribution of unvested - Balances certainty and fairness

Pre-Divorce Planning **Document Everything:** - Maintain separate property documentation - Track inheritance and gift sources - Keep premarital asset records - Document business ownership dates **Avoid Red Flags:** - Don't transfer assets - Don't hide income or accounts - Don't overstate business expenses - Maintain transparent finances ## Tax-Efficient Division **Tax Considerations:** - Asset transfers incident to divorce (tax-free) - Capital gains on appreciated property - Alimony tax treatment (post-2018 changes) - Retirement account division (QDRO required) - Timing of stock option exercise **Tax-Smart Strategies:** - Give spouse assets with lower cost basis - Keep high-basis assets yourself - Divide retirement accounts tax-free via QDRO - Time sales to minimize capital gains - Consider installment sales vs lump sum ## Prenuptial/Postnuptial Agreements **Enforce Existing Agreements:** - Review prenup or postnup carefully - Ensure proper execution - Check for unconscionability - Verify full disclosure occurred - Challenge if signed under duress **If Agreement Exists:** - May limit property division significantly - Courts generally enforce if fair - Must still divide assets not covered - May address alimony waiver ## Asset Protection Strategies **During Marriage:** - Maintain separate bank accounts for inheritances - Don't commingle separate and marital funds - Keep detailed records of separate property - Business interests in separate entity **During Divorce:** - Obtain restraining orders on asset transfers - File lis pendens on real property - Request court to freeze accounts if necessary - Monitor for suspicious transfers - Use forensic accountant to trace assets