Costly errors are a possibility during a divorce, especially when significant material assets are subject to division. When the financial and emotional stakes are high, such as in a high net worth divorce, couples should be extra cautious about how they handle their legal proceedings.
Divorcing couples do not necessarily need to be millionaires to be considered as having a high net worth. In divorce law, it is widely recognized that a high net worth simply means having complex assets, which may just happen to have significant financial value.
Examples of assets that are deemed highly valuable include life insurance policies, pensions, vacation homes, retirement accounts, art collections, vintage cars, antiques and even businesses. High net worth divorces that involve assets like these require additional time and legal skill to handle.
Considering the above depiction of “high net worth,” spouses in the midst of a divorce would be wise to avoid certain mistakes that are common during legal proceedings. Following are several pitfalls recognized by Illinois lawyers and that divorcing spouses should steer clear of:
Pitfall #1: Mishandling marital and non-marital property.
Assets in a high net worth divorce can reach tens of thousands or even millions of dollars. Under Illinois law, marital property is divided equitably, rather than split equally in a divorce. Since high net worth couples tend to join their property, non-marital property is often lost.
A clear picture of the complexity of marital property division can be seen in the instance of one spouse receiving a large inheritance. The spouse deposits the cash sum into a joint account. At first, the inheritance is non-marital property but becomes marital property once deposited in the joint account.
How the receiving spouse handles his inheritance dictates how much of that monetary payment would be considered his in the event of a divorce. It is easy to see from the above example how combining assets into marital bank accounts entitles the divorcing spouse to a significant portion of the inheritance.
Pitfall #2: Underreporting assets.
Individuals with a high net worth may be tempted to hide assets. Failing to report assets, such as luxury boats, vacation homes or income, works against the divorcee in court. In fact, the court sees a serious lack of credibility in the individual who under-reports any amount of his property.
Divorce lawyers are familiar with spouses who stash significant assets in offshore accounts or transfer large assets to a third party to avoid divvying up their resources. In the majority of cases, the spouse’s deceit is uncovered. Lying about assets disrupts the length of time necessary to finalize divorce proceedings.
Hiding assets or income is also punishable in court. The judge may require the divorcee to pay sanctions as a consequence for the dishonesty. Alternately, the court may force the individual to surrender additional assets to the divorcing spouse as a penalty for the deceitful act of under-reporting.
Pitfall #3: Allowing emotions to overrun.
On occasion, divorces proceed on unfriendly terms. Resentment, anger, regret and guilt are common emotions that fuel a divorce. When high net worth couples cannot wait to legally separate from their spouse, they may let emotions override their decision-making skills.
When reason takes a backseat to emotions during a divorce, spouses may agree to all negotiations without considering the consequences. A spouse may wish to speed up the divorce proceedings to finalize the divorce as soon as possible; but for high net worth couples, hasty agreements can be expensive.
Forensic accountants and financial advisors, in addition to the divorce lawyer, are important professionals to have on a legal team. Experts like these will require time to conduct business valuations or sort out finances and taxes. A spouse who rushes the divorce due to emotions loses out financially.
Failing to take the time to fairly negotiate alimony or the division of property just to quickly dissolve the marriage will have short- and long-term financial consequences for the high net worth divorcee. A skilled lawyer will help achieve a reasonable resolution where emotions do not monopolize the negotiations.
Pitfall #4: Handling taxes inefficiently.
The year in which the divorce finalizes affects federal income tax liability. A divorce that will be settled near the end of any given year may have financial advantages if finalized early the next year or, depending on details, within the same year. Child support is taxed differently after divorce.
High net worth couples on the brink of divorce should seriously consider their tax liabilities and payments. Working with financial advisors and divorce attorneys experienced in high net worth cases is extremely beneficial when attempting to fully comprehend distributions and alimony.
Pitfall #5: Heeding non-professional advice.
In sincere attempts to support a divorcing spouse, friends and family shower advice, opinions and legal strategies. While the moral support is welcome, acting on unprofessional legal advice can have dire consequences—especially when the financial stakes are exceedingly high.
High net worth couples with intentions to dissolve their marriage should consult trained, legal experts during all facets of the divorce proceedings. A divorce law attorney who specializes in high net worth divorces is qualified to offer expertise that will ensure the spouse receives a fair settlement.
Couples on the verge of divorce and with complex assets benefit from legal advice provided by professionals who are experienced in handling high net worth cases. The divorce lawyers at Allen Gabe Law, PC, offer extensive knowledge in Illinois divorce law.
Our attorneys’ skills in all areas surrounding legal and financial matters ensure the represented spouse receives the most equitable division in a court of law. Appraising business assets and ensuring that prenuptial agreements are honored are examples of how the legal team at Allen Gabe Law, PC, protects our clients’ interests.
Before your high net worth divorce heads to court, consult Schaumburg’s most well-respected divorce attorneys. Allen Gabe Law, PC, is committed to both preserving and furthering your best interests during a forthcoming divorce.