Nearly every divorce will involve complicated issues. When ending a long-term relationship and dissolving their legal partnership, spouses may encounter disputes over how various issues will be handled, and they may need to address multiple types of financial concerns. However, a high net worth divorce can be significantly more complex than other types of divorce cases due to the substantial assets owned by a couple and the many financial factors that will need to be addressed. When couples with significant wealth decide to end their marriage, guidance and legal representation from an experienced attorney can be crucial.
At [[title]], we understand the unique financial issues that may play a role in a high net worth divorce. We work to ensure that our clients are prepared to approach the divorce process correctly, and we are prepared to advocate for your financial interests while negotiating settlements or arguing a case in the courtroom. With our experience handling complex financial matters and contentious disputes, we can make sure you will be able to achieve your goals and move on with your life after finalizing your divorce.
Many of the most critical aspects of a high net worth divorce will be related to the property and assets a couple owns. During the process of dividing marital property, spouses will need to consider all of the assets they have acquired during their marriage, as well as any debts accrued during this time. In Illinois, marital property is subject to equitable distribution, and assets and debts may be divided fairly but not necessarily equally between spouses.
In some cases, determining what constitutes marital property and what may be considered separate property can be challenging. When a couple owns substantial assets, and when one or both spouses earn large incomes, it may be difficult to separate the assets acquired during the marriage from assets that spouses owned before they were married. Marital assets and separate assets may become commingled, and the assistance of forensic accountants or other financial experts may be needed to trace assets back to their source and determine how ownership should be handled.
In a high net worth divorce, there may be various types of assets that may need to be evaluated and divided, including:
Real estate: These assets may include a family’s primary residence, vacation homes, rental properties, and commercial properties. To ensure that these assets will be addressed correctly, appraisals may need to be performed, and a couple may need to determine whether it may be preferable for one spouse to own certain properties or for properties to be sold during the divorce process. A couple may need to determine whether either spouse wants to retain ownership of their family home or whether they may be able to own and live in other real estate properties.
Investments: Stocks, bonds, mutual funds, and other financial assets may need to be considered. Properly valuing these assets can sometimes be difficult, and a couple will need to be aware of any complications that may need to be addressed when dividing these assets or transferring ownership from one spouse to the other.
Luxury items: Artwork, jewelry, luxury vehicles, yachts, private planes, antiques, designer clothing or furniture, or valuable collectibles may need to be considered when evaluating and dividing marital property. It may be necessary to perform appraisals to make sure both spouses fully understand the value of the assets they own. This will help them reach agreements that will allow each spouse to keep items that are important to them while protecting their financial interests.
Business Valuation and Division
In high net worth divorces where one or both spouses are entrepreneurs or business owners, determining how to address ownership of business interests can be one of the most important parts of the property division process. The valuation and division of business assets can be particularly complex, especially in situations where other partners or shareholders are involved in a business. Determining how to address these concerns will often require the involvement of forensic accountants or other financial professionals.
The process of valuing a business involves assessing its assets, liabilities, cash flow, market value, and future earning potential. Multiple different methods may be used to determine a business’s value, including evaluating its assets and liabilities, projecting future earnings and growth, or comparing it to other similar businesses that have recently been sold. This evaluation is crucial for determining the current value of the business and the continued benefits that ownership will provide.
When a business was founded or acquired while a couple was married, it will be considered a marital asset that must be considered when dividing property during a divorce. However, the issue of business ownership can become more complex if a spouse owned a business before the couple was married. In these cases, a business may be considered a separate asset that will not be subject to division between spouses.
However, if the business increased in value during a couple’s marriage due to the efforts of both spouses, that increase may need to be addressed during the divorce process. For example, if a couple invested marital funds in a business owned by one spouse, or if a spouse worked at their partner’s business and made efforts to expand its customer base, the business owner spouse may be required to reimburse the other spouse for these contributions.
During a divorce, there are multiple options for dividing business interests, including:
Buyout: One spouse may wish to retain sole ownership of a business, and they may purchase the other spouse’s interest in the business. This may be done by compensating them with other assets or through installment payments over time. This option may be preferred by a spouse who has been the primary owner and operator of a family business, since it will ensure that they will be able to continue in the same role and reap the benefits of the time, money, and effort they have put toward building and managing the company.
Selling the business: If neither spouse will be able to continue operating the business on their own after getting divorced, selling the company may be an option. This will require a business owner to prepare the business for sale, seek out buyers, and negotiate favorable agreements during the transaction. After the business is sold, the spouses may divide the profits earned along with other marital assets.
Co-ownership: In some cases, divorced spouses who have both been involved in a successful business may choose to continue working together to own and manage the company. This may be an option if spouses have a cordial relationship and are able to cooperate as business partners. To make sure they will be able to continue to manage the business successfully, a comprehensive partnership agreement should be created that will define each party’s rights, roles, and responsibilities. The agreement may also provide either party with the option to buy out the other party in the future.
There are a variety of tax considerations that spouses may need to address during a high net worth divorce. Properly considering these issues is crucial to avoid unexpected problems or surprises that could lead to financial losses in the future.
In general, taxes will not be assessed when assets are transferred between spouses during a divorce. However, if certain assets are sold, capital gains taxes may apply. For example, the sale of a home or other real estate property may result in taxes, although exclusions may apply in some situations. The sale of stocks or other investments may also have tax implications, and it is important to work with a financial advisor to make sure these issues will be understood and addressed correctly.
Other types of taxes may also affect spouses going forward. Each spouse will need to determine their filing status during and after the divorce process. In some cases, it may be beneficial for spouses to continue to file a joint tax return until their divorce has been finalized. They may continue to do so for any tax years in which they were still married on December 31. However, for the year in which the divorce is finalized, spouses will need to file taxes separately.
Following a divorce, spouses who share children will need to determine who will be able to claim child tax deductions and credits. Decisions about child custody may play a role in determining who may claim a child as a dependent and receive the associated tax credits. This may also allow a person to file as head of household, which can provide some tax savings.
The division of marital property may also affect the property taxes that spouses will be required to pay. A spouse who will retain sole ownership of their marital home or other real estate property will need to make sure they will be able to pay annual property taxes, as well as any other related expenses.
Retirement Accounts and Pensions
Retirement accounts such as 401(k)s and IRAs may represent significant assets owned by spouses. The funds in these accounts may need to be divided between spouses during the divorce process along with other marital assets. Pension benefits a spouse earned while they were married will also be considered a marital asset that may need to be addressed when dividing marital property. High net worth individuals may also earn different forms of executive compensation and benefits, such as deferred compensation, stock options, and bonuses, and all of these benefits will need to be properly addressed during the divorce process.
While funds in retirement accounts can be divided between spouses, transfers from one account to another will need to be done correctly to avoid potential penalties or other issues that could result in financial losses. For IRAs and 401(k) accounts, withdrawing funds before reaching retirement age will typically result in penalties. Taxes will also need to be paid when receiving distributions from tax-deferred accounts. However, these issues can be avoided through the use of a Qualified Domestic Relations Order (QDRO).
A QDRO is a legal document specifically designed to divide certain types of retirement plans between divorcing spouses without incurring tax penalties or early withdrawal fees. A QDRO provides instructions on how to distribute all or part of the funds in an account to an alternate payee. A QDRO can also be used to divide pension benefits and ensure that a percentage of the benefits a person receives after retirement will be distributed to their ex-spouse.
In many high net worth divorce cases, there may be a significant disparity between the incomes earned by the spouses. In situations where one spouse earns the majority of a family’s income, spousal support or alimony may be a factor. This form of support will require a spouse with a higher income to provide financial assistance to the other spouse for a certain amount of time after the couple’s divorce is finalized. The purpose of this support is to help ensure that both spouses can maintain the standard of living established during their marriage.
Spousal support/alimony is referred to as spousal maintenance in Illinois. When determining whether spousal support should be awarded, a family court judge may take several factors into account, including the income each spouse currently earns, their respective income-earning capacities, the length of the marriage, the standard of living the couple enjoyed while they were married, any factors that may affect the spouses’ ability to support themselves, the time a spouse may need to become self-supporting, the contributions a spouse made to the other spouse’s education or career, and prenuptial agreements or other agreements between the spouses.
In high net worth divorces, calculating an appropriate amount for spousal support can be complex due to the substantial assets owned by a couple, investments that generate passive income, and other financial factors that may play a role in a case. To make sure all issues related to spousal support will be addressed correctly, an experienced attorney can provide guidance while advocating for their client’s interests.
Contact Our DuPage County High Net Worth Divorce Lawyers
The team at [[title]] understands the unique challenges spouses face when they earn large incomes or own valuable assets. We have extensive experience helping clients navigate complex financial issues related to property division, spousal support, business valuation, and more. To learn how our Elmhurst high asset divorce attorneys can assist with your case, contact us at [[phone]] and arrange a consultation.