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How Attorneys and Wealth Managers Can Work Together to Protect Wealth in High-Net-Worth Divorces

By: Gus Dimopoulos

Divorces are often messy affairs, even before the division of financial assets begins. The process of carving up funds inevitably complicates matters further, especially in high-net-worth divorces. The diversity and value of assets involved introduce new levels of complexity, necessitating careful strategies for protecting wealth.

Wealth managers bring a unique combination of expertise and experience that many matrimonial attorneys may not possess, making their role crucial in high-net-worth divorces. Below are four key insights I have gained from collaborating with wealth managers to achieve the best possible outcomes for our shared clients:

High-net-worth divorces are fundamentally different. High-net-worth divorces present unique challenges that require specialized attention. Unlike typical divorces, which often involve straightforward asset divisions, high-net-worth cases involve a variety of complex asset classes. Wealth managers and divorce attorneys must work together to navigate intricate issues such as business valuations, short selling and put options, cryptocurrency, restricted stocks, deferred compensation, and more. These assets require careful handling to ensure accurate valuations and divisions, as errors can have significant financial repercussions for clients.

Equitable does not mean equal. As a matrimonial attorney based in New York, I’ve encountered many clients who mistakenly believe that New York is a 50/50 state where all assets are split equally in a divorce. In reality, New York follows an equitable division approach — which sounds similar but is fundamentally different. Equitable division is not always a 50/50 split. For example, if a divorcing couple began their marriage with minimal wealth and accrued it together over time while raising a family, then yes, it will likely be an equal split of most assets. But say it’s a second marriage, both parties have adult children, and one of the spouses entered the marriage with $30 million while the other had no wealth and did not dedicate significant time to raising children and managing a home. Then the split won’t be 50/50 — it will be another percentage the court deems equitable.

Collaboration during discovery is key. Collaboration between the wealth manager and divorce lawyer isn’t just important — it’s essential. During the discovery process, when financial documents are being shared to paint a full picture, both parties need to be actively engaged. In high-net-worth divorces, this process can run hundreds of thousands of dollars in legal fees alone – decades worth of statements from dozens of different accounts. If either party is not fully engaged, it can cost their client significantly in time and fees. Wealth managers bring crucial institutional knowledge to the table, such as the history of investments and their purposes. For instance, a $2 million withdrawal from a brokerage account a decade ago might seem suspicious, but an informed wealth manager could clarify that those funds were used to purchase a vacation home.

Master the tax nuances. Taxes are a tremendously important issue in high-net-worth divorces, and one that wealth managers and attorneys should never leave to the end. Every asset distributed in a divorce carries tax implications. Wealth managers and attorneys must fully understand the implications for every asset class before settlement negotiations begin, as the tax impact in high-net-worth cases can reach millions of dollars. For example, pre-tax employment benefits like retirement or deferred compensation assets cannot be traded against after-tax dollars. It’s not apples to apples. In addition, some assets are not liquid and cannot readily be transferred – for example, restricted stock, or an interest in a private equity fund. In those circumstances, creative approaches to equitable division need to be explored.

Working through a high-net-worth divorce is challenging for all parties involved, but it doesn’t have to be overwhelming. With the above strategies, wealth managers and divorce lawyers can be better equipped to navigate the complexities and ensure their clients’ interests are protected.

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

 

This article was originally published in Wealth Management and can be viewed here.

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