- October, 2021
Six factors to consider in high-net-worth divorces
By Daylyn J. Miller
Money rarely simplifies relationships, and this is certainly true when it comes to divorce.
When complex assets such as a business, professional practice, retirement assets, investment property, or stock options are involved, it can make untangling your finances infinitely more complicated. That is why it is important to work with an experienced family lawyer who can understand the unique nature of high-net-worth divorce. Based on my experience handling high-net-worth divorce cases, the following are six factors that are important to consider:
- Valuation experts are often involved
A lawyer is not the only professional you will need to hire when you are involved in a high-net-worth divorce. If either you or your former partner owns a business or operates a professional practice in the legal, medical or another sphere, setting a value on the business will be important.
Our firm has connections with a host of valuation experts, each with their own specialization, depending on what is required in your case. Other than business-related assessments, pension and real estate valuators are some of the experts that we commonly utilize in our practice.
- Interpretation of corporate financial statements
In high-net-worth divorce cases, it is important to understand how to read corporate financial statements. Properly interpreted, these documents will have an impact not only on assessing the value of the property that needs to be divided between the parties, but also on the income of the payor for support purposes.
- Business assets need to be split
There are various options for splitting a business or professional practice, which includes a division of shares among the parties, such as a butterfly transaction, or a compensation payment that relieves one party of any interest in the corporation. Part of your lawyer’s job is to determine which means of division are possible and practical in your case, as well as what arrangement will work best for you.
- Clients must consider tax implications
Whenever property is divided between two parties, the transaction can have different tax consequences depending on how the division is carried out. It is important that these tax consequences be considered when determining the division of family property and debt. For example:
- In-kind division: Similarly taxed assets must be either divided in kind or the taxability of the assets considered in the division. For example, funds in a savings account are taxed very differently than funds in an RRSP, and as such, we often equalize parties’ respective RRSPs by way of a tax neutral spousal rollover.
- Pensions: The standard pension statement from a retirement provider often does not provide the information needed for the purpose of division if one party seeks to solely retain their pension. In such cases, we often commission an actuarial valuation that accounts for pre-tax and post-tax values before deciding how to value and divide the pension.
- Contingent tax liabilities: Accounting for the tax consequences of possible future circumstances is a large and growing area of the law, particularly as it relates to a divorce. For example, an older professional who is approaching retirement can expect to incur certain tax liabilities in the near future when they wind up their practice or sell it. There is specific law on when latent tax liabilities can and cannot be taken into account as part of property division.
- Child and spousal support
In high-net-worth divorce cases, often one party will have an income that exceeds thresholds and may require particular consideration and adjustment from amounts determined in accordance with the Federal Child Support Guidelines or Spousal Support Advisory Guidelines. Additionally, how to determine a party’s income when they operate a company will require further consideration, as the income reported in that party’s personal income tax return is often not depictive of the income that is otherwise available to the party through the corporation. Finally, the division of property may impact one, or both, parties’ income or income earning potential, and this will need to be considered in the final resolution of child and spousal support.
- High-volume document disclosure
The quantity and complexity of property in a high-net-worth divorce case heightens the importance of proper and complete document disclosure. Gathering all the documentation can be challenging, and may meet resistance from the opposing party, however, it is imperative that the necessary disclosure is obtained, whether by agreement, or in some cases by court order, to ensure that we have the documents needed to properly account and value all family property and debt.
Every family law case is unique and must be assessed on its particular facts and circumstances. If you are facing a separation or divorce and would like to discuss your options, we would be glad to assist.