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Strategies to protect individual wealth during a high-asset divorce

On Behalf of | Oct 30, 2024 | Divorce

Divorces involving high-net-worth individuals can be especially complex and emotionally taxing, given the significant financial stakes at play. Protecting individual wealth requires a strategic approach to minimize financial losses and help ensure fair outcomes.

A high-asset divorce typically entails dividing substantial financial resources, and both parties are likely to pursue favorable settlements. However, without proper preparation, assets can be depleted or reallocated, possibly leaving at least one spouse financially compromised.

Drafting a prenuptial or postnuptial agreement

A prenuptial agreement is one of the most effective ways to protect wealth before marriage. Unfortunately, many couples undergoing a high-asset divorce might not have entered a prenuptial contract before tying the knot. Thankfully, couples whose marriage is hanging by a threat can still enter a postnuptial agreement to reduce potential disputes over individual wealth in the event of divorce. While not foolproof, courts tend to honor these agreements if they are:

  • Fair
  • Fully disclosed
  • Signed without coercion

Luckily, a postnuptial agreement serves a similar purpose but is created after marriage. This contract can allow couples to limit spousal claims to certain properties or businesses.

Using trusts and asset protection vehicles

Unlike standard divorces, high-asset divorces may involve:

  • Luxury properties
  • Investments
  • Business interests
  • Offshore accounts
  • Valuable personal assets

Trusts can shield certain assets from division in divorce by placing them outside personal ownership. For instance, assets held in irrevocable trusts no longer legally belong to their creator, making them harder to access during settlements.

Domestic Asset Protection Trusts (DAPTs) and offshore trusts can also offer a layer of security, provided they were created before divorce proceedings began. However, these tools require careful planning and legal guidance to help ensure compliance with legal requirements.

Avoiding commingling of assets

Many couples may not be aware that when separate assets such as inheritance or premarital savings are mixed with marital funds, they may lose their protected status. Due to their lack of knowledge, some couples may not know how to keep personal and marital finances distinct by using separate bank accounts and avoiding joint investments. Conversely, clear documentation is crucial for those aware of and consciously avoiding the commingling of assets. It helps trace ownership and may prove that certain assets should not be subject to division.

Navigating a high-asset divorce requires foresight, planning and hands-on legal support. Whether through postnuptial agreements or asset protection trusts, a robust strategy is essential to safeguarding what individuals have worked hard to build. With the right legal support, individuals can emerge from a high-asset divorce with their wealth protected and their future secured.

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