A high-stakes divorce is a complex proceeding. Due to the large number of assets involved at the end of the marriage, there are significant considerations you should take into account when planning for your divorce.
1. Understand Which Assets Are Subject to Division
When you divorce, only those assets that were acquired during the marriage are considered marital assets. Assets owned before the marriage are generally regarded as separate assets (some assets owned before marriage that increased in value during the marriage due to input or actions by the other spouse may result in that increase in value considered as marital assets). Assets that are considered separate are not divided in the divorce and remain with the spouse who owns them.
If you are the moneyed spouse, it is in your best interest to have as many assets as possible classified as separate so that you will continue to own them completely. If you are the non-moneyed spouse, it is in your best interest to have as many assets classified as marital assets, because you will get a portion of their value. To prepare for a divorce, it is helpful to begin to try to designate which assets are marital and which are separate. Obtaining the purchase documentation will assist your attorney in preparing your case.
2. Be Prepared to Value Assets
Once assets are identified and categorized as separate or marital, marital assets will need to be valued so that they can be accurately divided. Your attorney will ensure that proper valuation is obtained. Still, the more documentation you can provide as to purchase prices and current values, the more smoothly the process will move forward. Valuation is a key part of a high net worth divorce since there are a wide variety of assets. Ultimately your goal is that the assets you hope to get will be valued low and that the assets your spouse gets will be valued high.
3. Evaluate Your Prenuptial Agreement
If you have a prenuptial or postnuptial agreement, this will control how assets are divided. Have your attorney read and evaluate your agreement and determine if it is valid and, if so, how it impacts the distribution of assets in your divorce.
4. Understand How Assets Are Divided
In New York state, assets are divided in a way that is fair and equitable, not in a straight 50/50 split. The court’s method is called equitable distribution.
There are a wide variety of factors the judge will take into consideration when dividing your assets, including:
- The length of the marriage
- The age and health of both spouses
- The income of both spouses and their separate property
- The loss of inheritance, pension rights, and health insurance due to the end of the marriage
- The amount of spousal support (also called maintenance or alimony)
5. Plan for Debt Distribution
Equitable distribution applies to debts as well as assets. The same analysis is performed when the court looks at debt. First, debts are identified as separate or marital. Then each debt must be accurately valued. The court then relies on the equitable distribution factors to determine how to divide debts.
You can prepare by identifying all the debts, identifying if they are marital or separate, and obtaining documentation for the debts, including current pay-off amounts. You and your spouse might agree to pay off certain debts to simplify the divorce proceedings, or you can allow the court to distribute all accumulated debt. Secured assets are generally distributed to the spouse who also receives the asset associated with the debt. Unsecured assets can be used to offset distributions of high equity assets.
6. Consider Maintenance and Property Division Together
Spousal support is likely going to be a key consideration in your divorce. Maintenance should always be considered in relation to property division. Both determinations shift assets to the non-moneyed spouse.
If the property division is very robust, the amount of maintenance may not need to be as significant. And likewise, if the property distribution is closer to being an even division, maintenance would likely need to be considerable. Both maintenance and property distribution are methods for transferring assets. The difference between them is timing (property division is immediate and permanent while maintenance only lasts a set period of time in most cases).
7. Be Aware of Tax Implications
The distribution of assets in a divorce is usually not a taxable event; however, when there are many assets involved in a divorce, there is likely to be consolidation or sale of some assets, which can have tax implications. Make sure that your advisors have the opportunity to evaluate any proposed sales so that tax implications can be accounted for and planned for.
8. Identify Your Objectives
It is important to work with your attorney to define your strategy. You should be clear about your must-haves are before the divorce begins and where you are open to negotiation. There may be assets you feel very strongly about obtaining, and there may be debts you also feel strongly that you should not be responsible for. Discuss these baseline objectives with your attorney so they can plan your case accordingly.
Advance planning is essential in multifaceted divorce. Taking the time to consider the options, understand the legal implications, and carefully plan your strategy will ensure that your divorce proceeds in an organized way and results in the best possible outcome.