Dealing with the financial aspects of a high-net-worth (HNW) divorce is rarely straightforward, and is an area that could throw in some complex areas for paraplanners. In this article, Lois Rogers, Partner at Ribet Myles Family Law offers some useful guidance.
HNW individuals often hold a wide range of assets, including business interests, property portfolios, investments, pensions, trust arrangements, deferred compensation (including stock options and RSUs) and high-value items such as art or jewellery.
All of these must be carefully identified through a disclosure process and accurately valued to achieve a fair financial settlement on divorce.
Below are some key dos and don’ts to consider when dealing with assets in a HNW divorce.
Do get early specialist legal advice
Given the complexity of the financial and commercial issues often involved in HNW divorces, obtaining advice from a specialist family lawyer at an early stage is essential.
They can advise on the optimum process to resolve the case, help navigate financial disclosure and valuation requirements (particularly where significant assets such as businesses or high-value property are involved), advise on settlement parameters and negotiate on your behalf.
Do consider a pre-nuptial agreement
For HNW individuals, protecting financial security in the event of divorce is an important consideration. More and more people are choosing to enter into pre-nuptial agreements, and they are no longer regarded as being only for the UHNWs.
Early consideration and an open discussion between parties prior to marriage can facilitate a smooth path for drafting and negotiating a pre-nuptial agreement, which may ultimately help safeguard significant assets owned before marriage and any future inherited wealth.
A well-drafted pre-nuptial agreement can set out how assets, including business interests, will be treated on divorce, helping to preserve assets such as non-matrimonial property or a family business and will hopefully reduce the scope for future disputes.
While not automatically binding, properly prepared agreements are increasingly given effect by the English courts, subject to fairness.
Don’t assume a property belongs to one spouse simply because it is in their name
In marriage, what matters is how and when an asset was acquired, not just whose name appears on the title deeds. A home purchased during the marriage and treated as the family home will usually be classed as a matrimonial asset, meaning both spouses may have a financial claim – regardless of the ownership structure or who funded its purchase.
However, this does not automatically result in an equal division of its value on divorce.
For HNW individuals, property is often among the most valuable assets in a divorce. Outcomes in relation to property on divorce may involve sale, transfer, or retention of properties, as well as considerations of tax implications, rental income and long-term investment value.
Do consider the full financial picture
HNW divorces typically involve more than just real estate property. All the parties’ resources including investments, cash savings, debts, pensions, income and future earning capacity form part of the overall financial settlement.
Understanding of the character of each asset is important, such as when it was acquired (i.e. before or during the marriage), whether it was inherited, gifted or how it was otherwise purchased (and from what source) and whether it has been co-mingled or jointly used by the parties.
When it comes to distribution (i.e. dividing up the assets), the overall resources are taken into consideration, rather than splitting each asset in isolation.
How to divide the overall financial resources can take into account an individual’s preferences and in some cases it may be appropriate for one spouse to retain a greater share of one asset (such as a pension) while the other retains more equity in property (the principle of off-setting).
When assets are illiquid and/or difficult to value, it may be appropriate to share in the ultimate risk/ reward of any potential payout in the future.
Do prepare your financial disclosure properly and ensure that assets are valued satisfactorily
Preparing financial disclosure can be a complex and laborious undertaking but it is essential to ensure that it is done correctly. Errors or omissions can increase delays and costs due to further questioning or, worse, accusations of deliberate concealment which leads to distrust and can make negotiating more challenging.
When there is a dispute over the ownership, contributions towards, an asset (for example, if it is held in one party’s name), retaining detailed records of financial contributions – including mortgage payments, shared bills, property improvements, or maintenance costs – can be useful when establishing entitlement.
Proper valuations are equally critical. Complex assets such as private companies, shareholdings or illiquid investments often require input from forensic accountants or independent valuers, often jointly instructed to provide independence as their duties are to the Court, not the parties.
Liquidity, sustainable income and potential tax consequences must all be carefully assessed to ensure that any settlement reflects the true value of the assets involved.
Don’t attempt to conceal assets or other resources
Both parties are under a duty of full and frank financial disclosure, requiring a complete and accurate picture of their resources.
Any attempt to conceal wealth – for example, through undisclosed bank accounts, offshore trusts or under-reported business income – is taken very seriously by the courts. Consequences can include adverse costs orders, a more generous award to the innocent spouse, and, in extreme cases, further sanctions for non-compliance with court orders.
Do aim for an early, fair agreement if possible
Reaching an agreement at an early stage can significantly reduce costs, time and emotional strain. This is not always possible in all cases, and negotiations can only take place fairly when the financial landscape is clear.
With the increasing delays in the Court process, there are many options to resolve cases outside the Court arena (non-court dispute resolution) which can be tailored to the individual circumstances of the case (such as mediation, roundtables, collaborative law, private FDRs, solicitor negotiations and arbitration), ensuring the best chance of settling the case as soon as possible
Consider confidential forms of non-court dispute resolution
Many cases are being resolved outside the court process to save time but also to ensure full discretion and confidentiality for the parties involved.
Lois Rogers, is a partner at Ribet Myles Family Law
Main image: romain-dancre-doplSDELX7E-unsplash
