When couples with significant and diversified assets divorce, they face a complicated unraveling of shared property that can take months or, in some cases, even years to resolve. Determining how to divide the assets, what assets to sell, and which spouse gets an asset that cannot be divided, such as real estate, generally requires careful, well-informed negotiation.
This is especially true when a couple has been married for many years or acquired most of their net worth during the marriage. Even when a couple has a prenup, the agreement may not fully anticipate the acquisition of some post-wedding assets. Given how a settlement could affect their financial future and standard of living, the stakes are high for both parties to receive the best possible settlement.
What is a high-net-worth divorce? There's no official financial threshold that would determine this, but as a general rule, divorces are considered high-net-worth when a couple owns over a million dollars in liquid assets. These are assets that can be quickly converted into cash—bank accounts, stocks, and other securities. Assets like cars and real estate are not liquid.
Divorce in Pennsylvania
In Pennsylvania, the same rules apply regardless of a couple's total assets. At least one spouse must be a resident of the state for at least six months in order to file.
Spousal support is not automatic in Pennsylvania. A spouse must show the court why they should receive alimony. For high-net-worth couples, alimony is most likely to apply when one spouse makes considerably more than the other.
Pennsylvania allows for both fault and no-fault divorces. Both options have pros and cons, although fault divorces tend to be more expensive and time-consuming. Whether the couple files for a fault or a no-fault divorce usually does not affect the division of property.
While the amount of money and total assets may be significantly larger in high-net-worth divorces than in an average divorce, Pennsylvania uses the same 11 factors to determine the division of marital property. These are:
- Length of the marriage
- Any prior marriages
- The characteristics of each spouse, such as their age, health, employability, and sources of income
- Whether either spouse contributed to the education or training of the other spouse
- Each spouse's estimated income after the divorce
- Each spouse's current sources of income, including wages, annuities, trust funds, and retirement accounts
- Each spouse's contribution to the marital home, including acting as homemaker
- Each spouse's nonmarital property and assets
- The couple's standard of living during their marriage
- The economic circumstances of each party at the time of the divorce, including the sale of any assets and the potential tax burden
- The number and ages of any minor children
The Law in Action
Each of these factors can significantly impact the division of marital assets.
For example, a couple has been married for five years. During that period, one spouse has supported the other through medical school. The couple divorces when the student spouse is about to begin their final year of training. In the short term, the student spouse will likely need financial support, but in the long term, the student spouse is expected to make significantly more money.
A court may consider the financial support one spouse provided for the five years of the marriage, the student spouse's need for short-term support, and the student spouse's long-term financial prospects when dividing the assets.
This same couple divorcing after twenty years of marriage and an established surgical career would encounter a different calculus. In this situation, the support during medical school is likely to be less relevant than the surgeon spouse's current salary and the couple's current standard of living.
Types of Assets
For high-net-worth couples who have jointly acquired significant assets, such as a real estate portfolio or an art collection, dividing assets may take months, if not years, to determine. Given their singular nature and the emotional attachments that often come into play, art and jewelry can be especially contentious to divide.
Another complicated asset is a jointly-owned business. Continuing to work together may not be an option, but both spouses may wish to retain ownership of the business. If the couple cannot reach an agreement for continued joint ownership, or a desired buyout isn't feasible, the court may order the couple to sell the business and divide the proceeds between them.
Gifts and Inheritance
Pennsylvania does not consider gifts marital property, but the state does make an exception if the gift or inheritance is commingled with joint assets. For example, if one spouse inherits a large amount of cash and deposits it into a joint account, the state will view it as a joint asset unless it's protected by a prenuptial agreement.
List All Assets
Both spouses must provide an itemized list of all their jointly- and individually-owned assets and debts. The court will use this inventory to determine the equitable distribution of joint assets. Any property acquired during a marriage is presumed to be a joint asset unless the spouse it belongs to can demonstrate independent ownership.
Pennsylvania law forbids spouses from disposing of or hiding assets during a divorce. A court may issue an injunction if one spouse attempts to hide or move assets before or during divorce proceedings.
When one or both spouses bring considerable assets into a marriage, a prenuptial agreement can simplify the division of assets in the event of divorce. If one spouse challenges the validity of a prenuptial agreement, they have the burden of showing why the court should regard it as unenforceable. They must show they either did not enter into the agreement voluntarily or that the prenuptial agreement lacked a “full and fair disclosure.”
Child support can be difficult to calculate when a divorcing couple has minor children and significant assets. Children of high-net-worth couples are generally accustomed to a higher standard of living, and courts prefer to minimize the disruption to a child's life. Private schools, additional extracurricular activities, and even vacations may all factor into a child support determination.
Protect Your Assets
Promptly hiring an attorney experienced in divorce for high-net-worth individuals is crucial for protecting your financial future. While the same rules apply regardless of a couple's finances, significant assets can complicate divorces. In some cases, an attorney may be able to negotiate the division of assets without involving the courts. In other cases, they can help their clients navigate the court system.
If you are considering or in the middle of a high-net-worth divorce, contact attorney Joseph D. Lento at the Lento Law Firm today by calling 888-535-3686 or telling us about your situation online.