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Top 10 Mistakes in High Net Worth Divorces
Divorces are never easy or pleasant. There are so many factors that both parties need to consider, such as sharing or splitting of assets, who gets what, what about the kids, the dog, the cars, alimony, the house, visitation rights… the list goes on and on. Very often, divorcing couples find they agree on some things, but not on others, and neither feels they should budge.
Time for an attorney? Absolutely. Even a simple consultation can answer important questions, and it is well worth the time. Compared with what one could lose (financially and otherwise) from making a mistake – through ignorance of law, or through emotional reaction in a time of stress, the cost of good legal advice pays for itself many times over.
This is especially true of high net worth divorces, where a large amount of money, property, businesses, assets and other items are at stake. High net worth divorces have a much higher potential for mistakes on both sides. The divorcing party often feels betrayed, angry, aggrieved, disappointed. It can be very emotional, and that’s not the best frame of mind to make decisions that result in the best long-term benefits.
The party being divorced often feels shame, embarrassment, guilt, anger, often believing they didn’t do anything to deserve this, and they let emotions get in the way of well-informed decisions. It’s easy for either party to say or do things they will later regret, or to sign documents the other party may have prepared which are likely not to be in your best interests.
After more than 22 years as a litigator and with experience handling high net worth divorces and complex family law issues, I thought it would be a good idea to list what I believe are the top 10 mistakes made in high net worth divorces, almost all of which can be prevented with good legal counsel.
1. Agreeing to Anything Just to Get the Divorce: “I have to get out!” Clients say this to me usually for one of two reasons (barring physical violence which of course necessitates immediate action): The first reason is along the lines of “I can’t stand my spouse; I will give them anything to get away from them!” The second reason is often “I am in love (with someone else) and they are my soul mate, so I have to get divorced immediately”. Agreeing to terms such as alimony, or division of assets and liabilities just to get away from a person or just to be with someone else can have devastating effects on you financially. Therefore, it is important that a thorough analysis be taken before finalizing your divorce.
2. Guilt and Divorce: When one spouse wants out, they are bound to feel guilt whether justified or not. At the inception of divorce, the spouse experiencing guilt tends to give more than they should; i.e. a wife entitled to alimony waives all claims; a husband with lucrative premarital assets agrees to give those non-marital assets to the wife. As cold as it sounds, when it comes to money, a divorce is the equivalent to the dissolution of a business and decisions should not be made on emotions or without sound professional advice.
3. Hiding Assets: Some spouses think they are clever and transfer their valuable assets to a third party such as a business partner or child from a former marriage. Transfers like these can (and most likely will) be set aside as fraudulent and you will have lost the most important thing you have in a courtroom – your credibility. From that point forward you are in a losing position for everything else related to a proper or reasonable divorce settlement. It’s not worth it.
4. Failure to Properly Account for Assets and Liabilities: When you get divorced you will need to fill out a financial affidavit and provide certain financial documents mandated by the law. It is important to take this inventory seriously and ensure all information is accurate and up to date. It is time consuming and tedious to put these items together, but failure to do so properly can leave you holding onto liabilities that should not be yours or your giving up assets or alimony you should not be obligated to give up.
5. Failure to Consider Tax Consequences: When you divorce and you receive certain assets you could be taxed on distributions or you could agree on an alimony amount based on your budget without considering how much you will actually clear after taxes. Tax considerations are a critical component of a high net worth divorce.
6. Failure to Investigate: In high net worth marriages, usually at least one of the parties is sophisticated financially. Therefore, it is important to invest money up front investigating whether assets or income may exist that are not readily apparent. To accept what your opposition is telling you because you do not want to invest the time and money at the front end could be a very costly life-time mistake.
7. Listening to Friends: “My neighbor got a divorce and she got millions”; “My friend got a divorce and he didn’t have to pay a dime”. Everyone’s situation is different, and everyone’s case is different. Therefore, do not compare your case to anyone else’s. There are different judges, laws change and opposing counsel changes. No two divorces are alike. Deal with yours according to your specific circumstances, and with proper counsel and advice, you will come out ahead.
8. I Am Angry – They Are Going to Pay: Anger can be a great motivator, but at the same time it can lead individuals to want to make the other side pay dearly for the hurt they have caused. While that may feel good initially, in the end, the money you are making the other person spend is your money too. It is best to allow your lawyer to help you put your anger aside so you can make the best decisions financially for your future. Revenge is not an appropriate motivation for making sound decisions in an already difficult and emotionally stressful time
9. Getting the Toughest Lawyer: Unfortunately some people think that a lawyer who is difficult and nasty is the “best lawyer”, and will get the most for them from the other party. The truth is that this type of lawyer is making him or herself money at your expense. Lawyers are your advocates and are hired to represent you zealously to the best of their ability – not to start fights so they can enrich themselves at your expense. A good lawyer will fight hard for you, but will not provoke or extend a fight that isn’t in your best interests.
10. Failing to Hire the Right Lawyer: It is critically important that when you are going through what is probably the most emotionally devastating experience in your life, that you have a lawyer that is going to help you think clearly, strategically and guide you through the legal minefields so that once the dust has cleared, you will have a bright and financially secure future.
On a closing note, there is probably one more piece of advice I think is good common sense. If you are a high net worth individual, or your spouse is, consulting an experienced attorney about asset protection, and ensuring everything is in orderbefore you commence a divorce proceeding, or as soon as you are served with divorce papers, is a very smart move. It’s always better to be prepared with good solid information before you act hastily or react emotionally. Find an experienced attorney, knowledgeable about asset protection and the issues that are likely to be of importance in your situation – such as child support, visitation rights, property distribution, for example – and get the facts before you act. In divorce cases, knowledge is power.
Don’t hesitate to contact us at any time if you are considering a high net worth divorce action, or if you are the aggrieved party. And don’t hesitate to share this article or provide us with any comments or questions you may have.
While we all get married “forever and ever”, and we all hope the bliss never ends, people often find themselves in untenable marriages. Believe me, getting married is a lot easier than ending one, and that’s why you need the right attorney if that time ever comes.