Divorce Settlements & High Net Worth Individuals – What You need to Know

One unfortunate side effect of COVID 19 has been an increase in divorce rates across Australia, and family law offices expect the numbers to keep surging for the remainder of 2020. For those who have accumulated higher levels of wealth over the years, a divorce is typically more complex than others, can take longer to finalise and outcomes can be sometimes be unpredictable.

When your family has enjoyed a high standard of living for a long period of time, the needs of each party must be considered in a more generous way than in an ordinary divorce case. The Court may determine a spouse’s needs add up to a sizeable sum, which could run into many millions of dollars. It will also consider whether a party acquired much of their wealth prior to the marriage, or if it has been inherited by one party during the marriage?

All of these complicating factors and the uncertainty in these cases can make the divorce profess in the Family Court system hazardous and expensive. If you are headed for a high-net-wealth divorce there is going to be a lot for you to consider. Some of your assets may be difficult to divide and it could take months before land and property valuations can be assessed and agreed upon. There will also be tax considerations that will apply to any agreement reached between the parties.

However, with thoughtfulness and careful financial planning, you can still emerge on the other side in good financial health. So how do you go about managing complexities of a divorce?

Find a Good Team:

Regardless of your professional and financial acumen, you will be making some of the most difficult and consequential decisions of your life, during an emotionally stressful time. It goes without saying that you must find yourself a competent financial advisor, a good tax accountant and an astute family lawyer.

Often couples have shared the same financial professionals throughout their marriage. If a divorce is a legitimate possibility, you will need separate representation. Your financial team will be invaluable in safeguarding your best interests throughout the process. If you have one and not the others, ask your trusted adviser for a recommendation. These professionals are used to working together for common clients and towards a common goal, and would be more than happy to assist.

Determine Your Assets:

1.       Make copies of all-important financial records as soon as you can.

2.       Download account statements, while you still have access online.  

3.       Include photos that have date-stamps, to ensure you are treated fairly.

4.       Make a note of any gaps in your joint finances, or if there is anything you are unsure of, and let your team know these gaps as soon as practicable.

Below is a list of common assets to jog your memory:

·       Bank accounts

·       Superannuation funds / Super Pensions

·       Any loans, including your mortgage, car or personal loans

·       Credit cards

·       Recent payslips

·       Executive compensation plans

·       Income tax returns (past three years at a minimum)

·       Investment Properties / Commercial real estate

·       Vehicles

·       Works of art, jewellery and other collectibles

·       Share portfolios /Bonds

·       Businesses/Companies

·       Family or Unit Trusts

·       Hedge funds /Private equity funds

If you have ever lived or worked abroad, you must quickly check if your assets are held in other countries, which have different laws and are subject to different court jurisdictions than Australia.

It is always a good idea to determine whether an asset should be considered a ‘matrimonial’ asset or a ‘non-matrimonial’ asset.

For example, a property acquired before the marriage by one party that does not become the family home will likely be classified by the Court as ‘non-matrimonial’. An asset acquired after the parties' separation (but before divorce), may be considered ‘non-matrimonial’ because it falls outside the time of the marriage. In some cases, the wealth of an individual may derive in whole or in part from their family. The origin wealth in certain circumstances can justify a departure from ‘equality’ of asset splitting in a court decision, and as such family wealth can be considered non-matrimonial property.

Review Your Trusts

Assets can sometimes be held in complex structures, even via offshore trusts. Obtaining disclosure about trusts can be a difficult process. If the trust is located in Australia, a request can be made to the trustees to provide documentation, but the position becomes more complex if a trust is located offshore. Applications to the Court must be made for disclosure in the Australian court, or in an offshore jurisdiction's court

Value privately-owned businesses

Privately owned businesses are often one of the most valuable assets in a divorce, and valuing them can be a convoluted and difficult process.

Businesses can also be difficult to split up in a divorce. It may not be possible to sell the shares, or a party may want to keep hold of their shares and continue controlling the business. In either case, the party who wants to retain the shares may need to provide more ‘liquid capital’ to the other spouse, or raise the funds in another way. For example, if the business is cash rich, a special dividend could be paid out to fund the transaction.

Companies and trustees of trusts, which may form the business or hold shares in it, can apply to be joined to divorce proceedings, so as to best protect their own interests. Obtaining disclosure from these parties and the role that they play if successfully joined to proceedings can complicate matters further.

Non-Disclosure, Don’t get Caught Out:

In a divorce where there are lots of assets, the financial stakes are high. Sometimes one party may refuse to make full disclosure of their total financial position, in an attempt to gain advantage over the other party. They may transfer funds into non-disclosed (secret) bank accounts, and in some extreme cases, may even move their wealth overseas to hide it from disclosure.

Applications to the Court for emergency remedies can be made in unique circumstances, but keeping a detailed inventory of assets from the beginning, and maintaining a close eye on the movement of money will help prevent non-disclosure.

Future Forecasting – Its Important:

When going into a divorce, it's important to know what you are going to need to get by, after its all complete. It’s a good idea to track your household income and expenses on a monthly basis (including bills, food, clothing, entertainment, transport, childcare, school fees and anything else that you spend money on). This will not only help you build a post-divorce budget for yourself, but it is also critical for your lawyer to present your cash to the judge when they deciding how to split assets and debts, and whether to award spousal (or child) support.

You should also project future expenses. Look beyond the normal monthly expenses and include things like upcoming holidays, obtaining a new vehicle, future education costs and household maintenance over time. Your trusted Humble Goode financial adviser will be able to assist you with this financial modelling. Forecasting should account for both best- and worst-case scenarios, and depending on your age and circumstances will need to calculate your needs through to retirement.

Protecting Your Professional Reputation

As difficult as it is to find balance a demanding career and family life at the best of times, imagine how much more problematic and stressful it could be when going through a divorce. Focusing on the healthiest restructuring of your family while maintaining excellent performance at work is a winning strategy for both parties in a split

Maintaining your professional reputation must be a priority. Control how the message is spread and ensure the announcement of your new direction is done through the appropriate channels. Avoid serving legal papers at the office, or over-sharing details with your work colleagues.

Start Fresh with a New Attitude:

When your divorce is finalised and assets have been divided by the Courts, it will be time to clean house, and it is going to involve a fair bit of paperwork.

·       You will need to change names on property titles, shares and investments and any other assets.

·       You may need to close joint bank accounts and credit cards.

·       Any insurance policies held jointly will need to be reviewed and updated.

·       You may need to split self-managed super funds and create a new fund, or wind up the original.

·       Remember to change the beneficiaries on your trusts, superannuation and life insurance policies and don't forget to update your will.

Then finally, you will need a new financial plan for your future, starting with the pool of assets you've acquired or retained. It is an excellent time to sit down with your financial planner and map out a future based on your goals and objectives.

Why not speak to Humble Goode Financial if you need help with a divorce. We have expertise in dealing with financial and tax consequences in settlements, and can help guide you to a beneficial outcome at a time of uncertainty and worry.