“High net worth divorce” is a term that is often used where a divorcing couple have high value assets, but what does this really mean and what impact does this have when looking at a fair financial settlement on divorce?
For a divorce to be considered high net worth, the total value of the couple’s assets is usually more than they require to meet their individual financial needs. Need is an elastic concept. At its most basic it is having somewhere to live and money to live on. The more money a couple have the more generously need is likely to be interpreted. In many divorces the couple’s standard of living reduces when they divorce, as they cannot afford to buy two houses of the same value of their matrimonial home and they cannot afford to fund the same outgoings that they used to, as they are having to fund two households. In high net worth divorces this is not the case, as the assets are usually more than enough to allow both spouses to carry on with the same standard of living after they divorce.
If the assets are greater than the couple’s needs, who retains the balance of the couple’s assets once their respective needs have been met? If the couple have been married for many years and all the assets were acquired during their marriage, it may be that an equal division of all the assets is appropriate. However, an equal division is not appropriate in all divorces, and having more assets than are required to meet the couple’s needs will allow various legal arguments to be run to show why not all assets are matrimonial and therefore why one spouse should receive more than half of their total net assets. These legal arguments include the following:
- Pre–acquired assets – where one spouse brought significantly greater assets into the marriage than the other, it is possible to argue that some or all of the assets that they had at the time of the marriage should be ringfenced and not form part of the matrimonial pot which is divided between the couple. This argument is more likely to succeed if the assets that were brought into the marriage were not “intermingled” with other matrimonial assets. For example if one spouse has an investment property that they owned before the marriage and the other spouse has never contributed to it, this is likely to be considered non-matrimonial. Whereas savings that one spouse had at the time of the marriage, which were used to fund the purchase of a property jointly owned by the couple, have been intermingled and are more likely to be considered matrimonial.
- Post separation accrual – this is where one spouse has acquired assets after the couple separated. This does not include the latent growth in assets after separation, for example a property that has increased in value after separation due to an increase in value in the property market in general. This growth in value is likely to be considered matrimonial. However, it could include a new business started by one spouse after separation, which now has a significant value. If it is considered non-matrimonial it is likely to be excluded from the matrimonial pot.
- Inherited assets/gifts from family – if one spouse has received a significant inheritance or been gifted significant assets during the marriage, a judge can decide to ring fence those assets, treating them as non-matrimonial and leaving them out of the matrimonial pot that is divided between the couple. Again a judge is more likely to do this if they have not been intermingled with matrimonial assets.
High net worth divorce cases often include more complex assets structures, such as companies and trusts. The assistance of other professionals, such as accountants, is often needed to value business assets and to calculate the tax payable on the disposal of the assets, as the court will look at the net value of the assets, when deciding what a fair settlement is.
