High Vs. Complex Assets in Divorces

In Arizona, a “high net worth” divorce is defined as a divorce that has financial assets over $1,000,0000. However, it is important to understand the $I million asset threshold alone does not necessarily mean it is complex. For example: Is a $1 million dollar investment that needs to be divided simply high asset…or complex? It depends. If that asset was accumulated during the course of a marriage, its division is likely straight-forward. However, if that same investment account is a combination of pre-marriage contributions and contributions during the marriage, the tracing of the funds to separate the individual contributions versus the community contributions can make that asset division complex. Similarly, if the funds are held in a trust, that complication can also make the division more complex. Finally, if the investment account poses serious potential tax implications requiring the expertise of a CPA or tax attorney, the situation has escalated from high-asset to complex. 

High net worth cases may be the result of one party having received the majority of the funds from a trust or inheritance, which at first glance seems not complex. However, depending on how the funds were received and what were done with the funds (e.g. commingling or transmuting of funds), this type of matter may be highly complex and need serious investigation by potential use of experts to protect the assets. Such issues are often highly contested and lead to significant litigation that needs to be fully supported through discovery and proactive advocacy. 

Business interests are another area that can create a high asset divorce, but they do not always mean complexity.  Businesses do more often lead to complex litigation, but there are exceptions normally with smaller businesses. Some businesses are not very valuable and are easy for the parties to divide. Similarly, some businesses were started well before the marriage and therefore the community may only have limited claims to the interest in the business that may or may not lead to litigation. However, this is an area that is fraught with landmines that can completely change the course of the property division in a divorce. Just a couple of examples would include fair compensation. In Arizona, when a party owns the business as separate property, the non-owning spouse may have a claim based on not being fairly compensated for his or her labors during the marriage. Another issue occurs when the business has grown in value; expertise is required to ascertain whether  the growth is attributed to the business naturally growing or the results of the owning spouse. In the event there are any disputes in the business value, the parties will most likely need to retain a business valuator to review the financials and investigate the history to determine a range of values. Business valuations have a number of subjective considerations that a skilled attorney can address that may have a tremendous impact on the community value, and ultimately, the amount a party has to pay to keep his or her business separate. 

High income earning parties can also lead to high net worth cases. This may not be very complex if both parties are equally high earning, but if one spouse is earning significantly more than the other spouse, that leads to a number of issues related to child support and spousal maintenance which may fall into the complex category. It is important for a party, in this type of situation, to have an experienced and skilled attorney willing and able to advocate for the appropriate application of income to be used in arguing these type of situations. We recently saw a great example of this when Kim Kardashian was awarded $200,000 a month in child support in California. Now, given the amount of money that is being earned in that matter, $200,000 may be appropriate, but in Arizona this award would be hard to justify, and would require a skilled attorney to fight for a reasonable amount that meets the children’s needs without what our state views as ‘punishing’ the high earning parent. 

It is my opinion that everyone seeking a divorce should consult with an attorney to at least understand his or her rights and the strengths and weaknesses of their respective position. Moreover, when you start dealing with more complex issues or division of higher valued assets or debts, it is even more important to seek the advice of  a skilled divorce attorney and other relevant experts that can help protect assets and avoid costly and unfair liabilities as you move forward into the next chapter of your life.