- What constitutes a high net worth divorce?
- What tends to be the key concerns in a High Net Worth Divorce?
- Hidden Assets or Unrecognised Assets.
- Business Assets.
- Property Assets.
- Overseas Assets.
- Other investments and pensions.
- Other considerations.
What constitutes a High Net Worth Divorce?
Different organisations use different definitions for what constitutes a high net worth divorce. However a reasonable definition that covers most situations, is where the assets of either party or both parties together exceed financial needs or expenses. The wealth involved can include trusts, properties, personal assets and business assets, on and off shore assets, inherited wealth as well as pensions.
What tend to be the key concerns in a High Net Worth Divorce?
Apart from getting through the process with a minimum of conflict between both parties, the satisfactory division of finances and assets are likely to be the greatest concern to those involved in the divorce.
Generally the courts will seek to divide assets evenly between a couple as they would in any other divorce situation. The difference is that the division of assets tends to be more complicated in a high value divorce down to the number of assets, complexity of those assets and sometimes the location of them as well. The courts will give consideration to where the assets came from originally, in terms of who brought the assets to the marriage in the first place. It could be the assets were purchased during the marriage.
The valuation of assets can be a sticking point in many High Net Worth divorces as that obviously has implications in several different areas. In the same way that the value of assets are of importance in probate matters, there are possible tax liability issues connected with the valuation of assets during a divorce. They may not have immediate impact but it may influence decisions and financial matters at a later date. Expertise in this area is essential. What is the historic value of business interests at the present date? What should be done about investments that have grown in value during the marriage? Is the growth in value perceived or actually quantifiable?
There will also be tax implications. Decisions that are made now are likely to impact on tax that has to be paid in the future.
Hidden Assets or Unrecognised Assets
The identification and inclusion of money and assets into the divorce mix at an early stage is crucial to a successful outcome in a high net worth divorce. Though parties can sometimes try to hide assets from their spouse, owned items or investments are not always recognised by individuals as items to be included in the divorce “pot” and genuine mistakes can be made. As is common in many relationships, one party may have a lot more responsibility for the financial affairs of the marriage then another. This can lead to the situation where one party does not have detailed knowledge of the true financial circumstances of their spouse.
If you are faced with a situation where one party is attempting to hide assets, it can be down to following the trail where funds have been transferred to non-disclosed bank accounts, or where there is a transfer of assets to offshore accounts. This is a particular issue of concern in a high net worth divorce situation. Where there are innumerable bank accounts and a vast number of assets, it can often make the identification of when monies or assets are removed difficult. Experienced legal specialists will know how to track these “lost” assets.
In the courts in this country, the accepted position for a divorce settlement is a 50/50 split of matrimonial assets. With regard to business assets the approach can vary somewhat. Some businesses are very large and valuable, so often dwarf everything else under consideration in that individual divorce. The key problem is that the structures of businesses tend to be far from straightforward and also, very often, involve interest from other parties, such as partners or investors. Calculating the value of an individual’s shares in a business requires significant expertise. This can be dealt with by instructing a joint expert to value the business.
An interesting example of what one party in a high net worth divorce wants a business to be treated as in a divorce as opposed to what the legal system regards as fair is to be found in the case of ASOS (Robertson v Robertson  EWHC 613).
ASOS is a clothing website originally targeted at the film and TV sector but has since grown hugely to be one of the largest fashion suppliers in the UK. Nick Robertson, the founder of ASOS wanted the business to be regarded as a non-matrimonial asset, as he argued that he had started the business before he married his, then, wife. The judge did not agree with that position but took a different stance with regard to establishing a fair settlement. In the end the Judge based the amount to be paid on a percentage of the value of the increase of the business during their marriage. This may be a slightly unusual result but it does demonstrate that there is an element of individual approaches towards this particular “asset class” in high net worth divorce.
Not all businesses are quite as large as ASOS. Sometimes both parties are actually involved in the business itself. In that situation it requires the skills of those with an understanding of business liquidity and structures, and a good accountant to be required to suggest how one party can most tax efficiently be removed from the business and even if the business itself is viable or needs to be liquidated to satisfy the demands of the divorce settlement.
The whole question of matrimonial and non-matrimonial assets is rather complex. Those assets that have been acquired during a marriage (marital acquest) should be shared equally though the questions of needs and fairness do come into consideration.
The amount of property involved in a divorce is usually a good indicator of whether the divorce is high net worth or something more mundane. If there are multiple holiday properties, investment properties, second homes and apartments in Mayfair (for example), then it’s a pretty good indicator that the situation is somewhat different to the ordinary man in the street.
As with other asset classes, the starting requirement to reach a fair split of assets is to agree an up-to-date valuation for each property. After that then due consideration needs to be given into the tax implications of transferring ownership or selling any or all of the properties.
Identifying assets can be complicated at the best of times. If the assets are in a different country, the process can be more complex particularly if one party or the other does not want them to be found. During marriage it is useful to keep track of where assets accrued in your marriage are located. Not many of us anticipate a divorce further down the line but if the worst happens then it can save a lot of time and money in locating the assets at that time.
Not declaring assets held overseas can prolong divorce proceedings and increase legal costs. If there is a suspicion that overseas assets are not being declared it can impact on your side of the case and may end up negatively impacting on the final settlement.
The bottom line is that overseas assets, as long as they are judged to be included, will form part of the Financial Order issued by The Courts. Please note though that it may not always be possible to retrieve overseas assets even with an enforcement order. Sometimes an overseas country, which is out of jurisdiction, may not uphold an order.
Other investments and pensions
Not surprisingly, the connection between investments and wealth is fairly strong. A high net worth marriage and divorce is likely to involve a great many investments parked in different investment vehicles. There is also the question of pensions. As in ordinary divorces, the value and importance of pensions can be particularly underappreciated in divorce proceedings. Pensions are often a home for significant wealth that will be accessed down the line in life. Sharing existing pensions in a divorce is not unusual and your legal representative should be able to brief you on this.
Trusts are always a bit of a favourite haunt for those seeking to lock money away out of sight. Holding assets in offshore trusts to protect wealth can be common.
This can make matters a little tricky in assessing what should be considered in a divorce, however a request can be made to the trustees for full disclosure. It can be more difficult where trusts are based overseas.
Sometimes one party may argue that they have made a contribution to the marriage that should be considered that is different to ordinary financial considerations. This could be in terms of going beyond what is expected in a marriage in terms of social events, background support, helping with strategy and advice on a business etc. The problem with this type of contribution is that it is hard to quantify in terms of raw financial data.