Divorce presents a number of emotional as well as legal challenges. There is so much for both sides to consider, such as what to do with the family home, how to divide assets and how to handle shared custody of the children. These factors can become even more complicated when high income and high assets are involved.
Following are five of the more common, but preventable, divorce mistakes made in high net worth divorces.
- Allowing your emotions to influence decisions: Divorce is like being on an emotional rollercoaster. It is not uncommon to experience a wide range of emotions including fear, uncertainty, sadness, guilt, anger and frustration. These feelings may come and go in waves, but if you allow them to drive your decisions, the results can be disastrous.For example, some people are so anxious to divorce their spouse that they will agree to almost anything just to get it over with. But hastily agreeing to terms regarding such critical issues as alimony or division of assets rarely results in a fair outcome. Moreover, once the divorce is finalized, the damage has been done and there is no going back. Divorce decisions should be made with the assistance of a qualified divorce lawyer and only after a thorough review.Conversely, some spouses may be stuck on wanting to get revenge on their spouse for the hurt they have caused, so they hire the toughest divorce lawyer they can find. This only serves to complicate and lengthen the process. Acting out your anger may feel good initially, but in the end it is rarely worth the added time and stress. More importantly, the added legal fees are likely to quickly deplete the money you are fighting so hard to win. It is much more prudent to find a reputable divorce lawyer who will advocate for your best interests – not line their own pockets at your expense.
- Hiding assets: Some spouses think they can outwit the system and avoid having to share certain assets by hiding money in overseas accounts or transferring them to a third party, such as a business or a child from a former marriage. Not only is this a dirty tactic, it can cause the guilty party to lose valuable credibility in front of a judge. An experienced high asset divorce lawyer is familiar with these and other tricks.
- Failing to get a proper valuation of your assets: High net worth divorces often involve numerous large and complex assets. One mistake an underrepresented spouse can make is confusing asset value with asset worth. Many assets such as pensions, stocks, real estate properties and business interests are likely to depreciate greatly over the course of time. It is important to get the input of qualified appraisers who can determine the true value of your assets. It is also advisable to make sure you have mix of liquid assets (meaning those that can be quickly converted to cash) and illiquid assets. The value of illiquid assets tends to fluctuate based on various economic factors, and they can sometimes be very difficult and costly to sell. Often in a divorce settlement, one party will receive mostly illiquid assets, including the home and high-value antiques, while the other party receives liquid assets such as retirement plans and brokerage accounts. Though the divorce settlement may appear equitable on the date that it is finalized, if one party later finds that they lack adequate cash flow to maintain their living expenses, they may be forced to sell off one or more of their major assets at a substantial loss.
- Disregarding taxes: Taxes can have a powerful impact on your divorce settlement. If not addressed properly, the effect can be financially crippling. Too often, an unsuspecting spouse will agree to a seemingly generous offer too quickly, only to find out later that the settlement comes with an enormous tax burden. Before you agree to a settlement offer, make sure that it is thoroughly examined by a skilled divorce lawyer who is familiar with federal and state tax law.
- Failing to hire the right lawyer: One of the most important steps you can take is to hire the right divorce lawyer. The decisions you make before and during your divorce will set the tone for your future and mistakes can be financially devastating. The right divorce lawyer will help you think clearly and strategically, providing support and guidance that will help you achieve your goal of a bright and financially secure future.
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