Understanding Asset Distribution in High Net Worth Divorces

Divorcing spouses watching a judge sign their divorce decree; asset distribution arrangement.

Understanding Asset Distribution in High Net Worth Divorces

Many couples face financial challenges as they prepare for, and work through, the legal separation of assets –– a process known as asset distribution –– in a divorce. The specific nature of those challenges, however, will be different for couples in high net worth divorces than for separating spouses from low- or middle-income households. The provisions of Az. Rev. Stat. § 25-211 (2023), establishing Arizona as a community property state, can lead divorcing spouses to assume that the market value of every asset either owns will be divided simply, 50/50, in the divorce. A variety of factors, however, can result in an asset distribution process for an Arizona high net worth divorce that is highly complex. Strong preparation is critical in approaching asset distribution in high net worth divorces. Call (480) 719-2558 to book a consultation with Sullivan Law Office and begin developing your strategy without delay. 

Separate vs. Marital Property in Arizona

The distinction between separate and community property is an important aspect of all divorces in Arizona – including those involving high-net-worth spouses. According to Az. Rev. Stat. § 25-213 (2023), each spouse keeps their separate property after the divorce, and these assets are not eligible for division. This type of property takes numerous forms:

  • Assets acquired before spouses signed their marriage contract
  • Assets acquired after the date of separation
  • Gifts acquired at any time from third parties
  • Inheritance acquired at any time

Community property, on the other hand, is quite straightforward. As long as it is not an inheritance or third-party gift, any asset acquired during the marriage should be divided equally between both spouses in the event of a divorce according to Arizona’s community property system. 

Capital Gains and High Net Worth Divorces

High-net-worth individuals are well-acquainted with both the complexities and rewards of capital gains. Add marriage and divorce into the equation, and managing capital gains can become even more complex. That being said, spouses can approach this subject with clarity and efficiency if they understand the basics of the community property system in Arizona. A consultation with the Sullivan Law Office provides opportunities to ask questions and receive targeted guidance. 

The Increase in Asset Value During Marriage is Community Property

If a separate asset increases in value during the marriage, the net gain may be considered community property. Family estates often include assets that have increased in value, and even a relatively obvious investment can generate lucrative returns. The American Enterprise Institute points out that over a 10-year period, a typical S&P 500 index fund can generate returns of over 125%. Remember, the length of the average marriage in the United States is about eight years – more than enough time to double the total value of a family couple’s shared wealth. Examples of assets that can often increase in value during marriage include:

  • Real estate
  • Stocks
  • Fine art 
  • Collectibles
  • Designer clothing
  • Precious metals
  • Cryptocurrencies
  • Bonds
  • Treasuries
  • Businesses

As an example of how these capital gains accrue over time, a college student might purchase 400 shares in a new tech company shortly after graduating for $1 per share. A few years later, this budding investor might get married. Over the course of a 10-year marriage that ultimately ends in divorce, the stocks may increase in value to $100 each. Even though the underlying stocks were purchased prior to the marriage, an Arizona court may find that the net increase is due to the combined efforts of both partners during the period of their marriage. As such, the spouse who purchased the stocks walks away from the marriage with the underlying separate property – the initial $400 stock purchase price. The remaining $399,600 becomes community property, and each spouse will receive approximately half of its value. As a result, the spouse who purchased the stocks gets $201,200, while their ex walks away with $199,800. Note that this logic applies to any other asset that appreciates in value during marriage. 

Accurate Asset Appraisal Is Crucial

Many high net worth divorces may involve hard-to-value assets, and it makes sense to carefully assess anything that might be more valuable than spouses realize. For example, a spouse might have purchased a sculpture that, after a few years of appreciation, is worth millions of dollars. The other spouse may have no interest in fine art, and may even mistake the sculpture for a piece of scrap metal. If this spouse agrees to let their ex keep the item, they could lose a considerable portion of the family estate. This need for accurate appraisals is especially important if assets increase dramatically in value during the marriage.

Even when both spouses are aware of the monetary value of each of their shared assets, they may still benefit from independent appraisals. The true market value of a family home, after years spent in making improvements, might often be unclear – especially if neither spouse is willing to put the property on the market. When a couple’s combined assets are worth millions of dollars, even a few percentage points could represent a loss or gain in the six figures. Appraisals may be especially important in the context of buyouts. A “buyout” in an Arizona divorce occurs when one spouse provides their ex with a 50% cash settlement in exchange for sole ownership of an asset (such as a house). An Arizona family law attorney experienced in high net worth divorces may be able to recommend an astute independent appraiser who can provide a clear and accurate accounting of a couple’s hard to value assets.

Asset Concealment Is Common in High Net Worth Divorces

Many high-net-worth spouses are quite knowledgeable in the realm of finance, accumulating their wealth thanks to a sound understanding of markets, banking, tax planning, and investing. However, their confidence in this knowledge could also tempt them to circumvent their financial obligations in the event of a divorce, and a high-net-worth spouse may attempt to conceal their true wealth with a variety of questionable strategies. If either spouse has significantly less financial knowledge than their partner, the less-knowledgeable spouse can be especially vulnerable in this scenario. 

A spouse may be aware that their ex earns millions of dollars each year with various high-performing investments over the course of the marriage. As a result, this spouse may expect to receive a divorce settlement somewhere in the seven-figure range. However, they may be shocked to learn that their ex has almost no real tangible or accessible wealth to speak of. Their funds may be locked away by shell corporations held in offshore accounts. Their investments may be obfuscated by a completely untraceable, anonymous blockchain. Even their real estate holdings and vehicles may be held in a dizzying network of trusts and corporate loan schemes. As discouraging as this may seem, in many cases it is still possible to uncover and access these concealed assets with help from qualified divorce attorneys in Arizona, forensic accountants, and other professionals. 

Contact an Experienced High-Net-Worth Divorce Lawyer in Arizona

For those approaching high net worth divorces in Arizona, it makes sense to work alongside attorneys who have specific experience with complex, lucrative assets. While wealthy spouses may encounter unique challenges during the asset distribution process, they can overcome virtually all of these hurdles with effective strategies. Contact the Sullivan Law Office today at (480) 719-2558 to discuss the most appropriate legal steps and plan for your financial security after a divorce.