Asset Division and Tax Considerations in High-Net-Worth Divorces

By: Gus Dimopoulos

Certified public accountants and other financial professionals excel at deciphering complex financial matters, especially when it comes to asset management. However, it’s not unheard of for both financial experts and lawyers to get caught off guard during the asset division process in a high-net-worth divorce.

High-net-worth divorces are inherently complicated. Even when emotions are set aside, there remains a tangled web of numbers and laws to navigate: significant asset divisions, intricate tax rules, state-specific nuances, and more. To best serve their clients, financial professionals and divorce attorneys must collaborate effectively and approach the process with a few shared fundamental understandings:

Recognize that all high-net-worth divorces are unique. While many financial professionals have experience assisting divorcing clients with asset division, each high-net-worth case is unique. There is no universal playbook. Diverse and complex asset classes such as business valuations, cryptocurrency, deferred compensation, and restricted stock require specialized knowledge and significant time to divide. Small mistakes in these cases can have substantial financial repercussions for clients.

Pay close attention to tax implications. High-net-worth divorces come with numerous tax intricacies, and again, even minor errors can be costly—sometimes in the millions. Financial professionals and divorce attorneys alike should have a robust understanding of tax implications well before negotiations start—preparation is key. For instance, it’s important to know that pre-tax employment benefits like retirement or deferred compensation assets cannot be traded against after-tax dollars. If pre-tax assets such as a private equity fund are going to be retained by the parties and divided later, the future tax implications must be considered now and equitably handled. Inheritance is another significant area; a divorce can alter who gives or receives an inheritance, along with the associated tax impacts.

Dismiss notions of a ‘perfect prenup.’ If either party in a high-net-worth divorce believes a prenuptial agreement has already resolved everything, they should recalibrate their expectations. There is no such thing as an ironclad prenup. Marriages and their contexts are fluid, and these legal documents will inevitably be examined in a different context from the one in which they were drafted. Prenups are extremely valuable, but they aren’t bulletproof, and financial professionals should consult early with an experienced attorney to learn of any potential challenges.

Prepare for complicated forensics. High-net-worth divorces often involve non-traditional assets that are difficult to value and divide, such as intellectual property and royalties. These assets don’t have the same straightforward forensic trails—deposits, withdrawals, etc.—as traditional assets like IRAs and bank accounts. Collaboration between financial professionals and divorce attorneys is essential to establish equitable, practical valuations and divisions.

Revisit beneficiary designations. It’s rare for divorcing couples—high-net-worth or otherwise—to keep each other as beneficiaries in the event of death. Financial professionals and divorce attorneys must work with clients to ensure all beneficiary designations are updated following the conclusion of the divorce. In high-net-worth cases, more designations are likely to be affected, as large inheritances may come into play. Financial professionals should also be familiar with legal regulations regarding divorce and beneficiaries, such as New York’s “Automatic Orders” domestic relations law. Many judges may interpret this law to mean that divorcing couples cannot change their retirement account beneficiaries during divorce proceedings.

High-net-worth divorces are complicated affairs, and even seasoned financial professionals can be caught off guard by the intricacies of asset division and tax elements in some cases. Matrimonial attorneys, likewise, can also find themselves unprepared for the complexities. Close collaboration, transparency, and the pooling of expertise between financial professionals and divorce attorneys are essential to secure the best possible outcomes for clients.

Gus Dimopoulos, Esq. is managing partner of Dimopoulos Law Firm P.C., a matrimonial and family law firm based in New York City and Westchester County, N.Y. that specializes in high-net-worth divorces. For more information, visit www.dimolaw.com.

This article was originally published in NYSSCPA’s TaxStringer on January 7, 2025 and can be viewed here.