A divorce that involves significant wealth often comes with added complications. Untangling complex financial interests requires clear, methodical thinking at a time when one or both spouses may be overwhelmed by negative emotions that can cloud that thinking. If they’re anxious to put the past behind them and move on, they may not take the necessary time to appropriately value and divide their assets.
Let’s look at five common mistakes couples in high-asset divorces make that can cost them money for years to come.
1. Not considering tax implications
The value of an asset can be diminished significantly if the tax implications aren’t considered. Fortunately, the law gives divorcing couples some tax breaks when exchanging property so they avoid capital gains taxes. Legal tools like qualified domestic relations orders (QDRO) can prevent tax penalties for couples dividing retirement accounts.
2. Not factoring in long-term financial impacts
Couples too often fight over high-value assets, like homes or boats, without considering the ongoing costs of maintaining them. It’s critical to consider not just the value of the asset you want, but whether it’s worth what it will cost to maintain, insure and pay taxes on.
3. Trying to hide assets
When a spouse has complex assets like a business, overseas accounts or cryptocurrency, they may be tempted to hide them, move them or even spend them so they don’t have to divide them. That’s why forensic accountants are a frequent addition to a “divorce team.” They know how to locate hidden assets.
Intentionally hiding assets means providing untruthful financial information, which can bring financial and other penalties. It can also cause the other spouse to retaliate in some way. Overall, it’s not worth the risk.
4. Incorrectly valuing complex assets
One of the biggest challenges in a high-asset divorce is determining the current value of certain assets. This includes real estate, business interests, investments and more. Some assets fluctuate in value constantly – particularly in an uncertain economy. It’s critical to agree on how specific assets will be valued before they’re divided.
5. Making emotional decisions
Finally, as noted earlier, too many divorcing spouses let emotions cloud their thinking. They end up fighting for things they don’t want or need rather than focusing on the things that will most benefit them going forward. That’s why it’s important to focus on long-term goals rather than short-term “wins.”
By having sound legal as well as financial and other professional guidance, individuals can minimize the risk of making these and other costly mistakes when the combined assets of years of marriage are on the line.