Tax Consequences of a High-Asset Divorce
For obvious reasons, the major challenge of a high-asset divorce revolves around the division and allocation of assets. These types of things still present problems for those without vast assets that need to be considered. The first part of the process is determining which assets belong to you and your spouse individually and which assets are property of the marriage. In Ohio, any property that was acquired during the marriage is marital property and thus subject to equitable distribution. Only property acquired before the marriage, money acquired through a personal injury lawsuit, or property acquired via inheritance can be protected.
For instance, let’s say that you own a piece of real estate outright. But, at the time of your marriage, you only had 25% equity on the property. The 25% that you had purchased before the marriage still belongs to you while 75% of the equity is property of the marriage. In addition, the property may have increased value during the marriage and this also factors into the equation.
If you think that’s confusing, imagine how this same process would work when appraising a business. Value and growth that accrued during the marriage are considered property of the marriage. It can get confusing.
High-asset couples end up having to hire independent third parties who are willing to appraise the business or a piece of real estate. There are a number of ways to go about this process, and you need an attorney who can make valuation work to your advantage. Sometimes, each spouse hires their own expert, which can lead to dueling valuations of the same asset.
Offshore Accounts and Out-of-State Trusts
While you were married, you were likely filing together as a married couple. In some cases, high-asset couples may file separately if each owns their own business. Once the divorce has been finalized, you will no longer be able to file as married either jointly or separately. This can change your financial situation and it will certainly change your tax situation.
The attorneys at Lawrence Law Office can explain the tax consequences of your divorce to head off any issues that may arise.
Common Challenges in High-Asset Divorces
In some situations, there may be one spouse who seeks to hide assets from the other spouse by setting up out-of-state trusts or hiding funds in offshore accounts. In this case, you need a legal team that you can trust to conduct a full investigation in order to find the hidden funds.
One of the biggest mistakes that a divorcing spouse can make is to rush through the process of financial disclosure. Obviously, divorce is a difficult time and most people just want it behind them, but you don’t want to jeopardize your financial future either.
On the other side of the equation, if you are the primary breadwinner in your household and you attempt to hide assets during your divorce to prevent your former spouse from getting a larger payout, it can backfire. If your deception is exposed, it will damage your credibility with the court.
With some high net worth couples, both spouses earn equivalent high salaries. However, we have also seen a fair number of marriages where one spouse earns the lion’s share of income. When it comes time to divorce, the lower earning spouse might request alimony, called spousal support in Ohio.
There is no automatic right to spousal support like there is a right to child support. However, judges do have discretion to award it. Many judges might be tempted to give a huge spousal support award to the lower earning spouse out of pity or fear that he or she cannot maintain an equivalent standard of living.
If you are the higher-earning spouse, you will want to reduce any spousal support obligation. Changes to the tax code mean that your payments are no longer tax deductible. So, in addition to paying spousal support, you need to pay income taxes on the amount. This is a huge financial blow.
If you are the lower earning spouse, you will want to maximize the amount of spousal support. Judges can award support for a limited duration, e.g., only long enough to gain work experience or earn a college degree. Increasing the duration of spousal support is an obvious goal of our lower-earning clients.
Why You Need Lawrence Law
Clearly, a high asset divorce will present more challenges and problems than other types of divorce cases that do not involve complicated tax issues, business issues, and more. As such, you need a family lawyer that knows how to handle these complex issues. At Lawrence Law, our knowledgeable attorney is not only well-versed in family law, but also business law and estate planning law, two issues that are often present in high asset divorces. With this knowledge, you can receive all the advice you need regarding every aspect of your divorce case. Without the need to visit different attorneys for different issues, we can sort through the different issues your case presents more quickly and easily.
Not only will you reap the benefits of our vast legal services, but we also have connections with the professionals your high asset divorce will require, too. CPAs are often necessary to value businesses and retirement savings, a tax consultant is often required to minimize the tax impacts of a high asset divorce, and financial planners are also called upon to advise on the earning potential and work opportunities for a lower-earning spouse. These are just a few of the non-legal services you may need as part of your divorce, and we can help with them all.
Attorney Linda Lawrence has an extensive network of professionals that she relies on regularly to help with certain complex matters of divorce. With these resources available right at our fingertips, it saves you time and money, as you do not have to set up meetings and wait for people to call you back, which only drags out the divorce process. When you work with our legal firm at Lawrence Law, our entire team will work hard to take care of the complications your case presents, so you can move forward in your new life as quickly as possible.