They say that money cannot buy happiness, and the thousands of failed celebrity and CEO marriages seem to bear this out. While much may be the same across the board for divorcing couples, millionaire couples face several unique issues when separating.
The amount of money you walk away with to secure your financial future will depend on several factors, the most important being whether the family wealth was earned during the marriage or if the breadwinner made it before they walked down the aisle. State laws are relatively consistent, holding that marital property is subject to division in a divorce, and includes all money earned during the marriage, even if it is in an account solely titled in your spouse’s name.
What Is Considered Marital Property?
Specifically, any salary, bonus or earnings, retirement contributions, homes, businesses or cars purchased during the marriage by either spouse are considered marital property subject to division in a divorce. Marital property is typically divided equally (50/50) or equitably, depending on your state’s rules and whether you live in an equitable division or community property state.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What Is Separate Property?
Separate property includes all property that was owned or acquired by either spouse before the marriage. If your soon-to-be-ex had oodles of money before you got married, most likely you will not get a penny of it. You are also out of luck if your spouse received money from an inheritance or a gift from another person. A personal injury award to compensate for pain and suffering also falls in the bucket of separate property.
Wealthy individuals are also much more likely to have a prenuptial agreement. This legal document typically spells out what is separate property if the two of you split and often ensures that the lesser moneyed spouse walks away with less.
Where Things Get Complicated …
It is all relatively straightforward until it is not. In high-net-worth divorces, the distinction between marital and separate property is rarely black and white. With more wealth, lines get blurred. Commingling of assets does not happen on purpose, and usually occurs while you are living your life, not realizing that you are inadvertently creating issues.
Separate assets can quickly get so commingled with marital property so that it is virtually impossible to identify what should be subject to division and not. For instance, if income earned during your marriage is used to pay off a home originally purchased by your spouse before the wedding, a portion of its value can be considered marital property. The waters also get muddied if money from the marriage was spent to renovate this separate-asset property or to pay ongoing upkeep and maintenance costs.
Then there is the question of appreciation. As housing prices have skyrocketed recently in many parts of the country, real estate gains can be substantial. You now must grapple with calculating what percentage of the increase in the home value is marital and what is separate, also considering the amount of money that was funneled from your marriage into the property. Your head can hurt just picturing the calculation.
The same issue arises if your spouse received a gift from his parents and used the proceeds to purchase a vacation home titled in both of your names. The "what's mine is yours" outlook can cause some big financial mistakes. Was the weekend get-away in the Hamptons a gift to you by your mate … or was it a mistake? Is the beach house marital now or separate?
Commingling assets is not relegated only to the realm of real estate. If you and your spouse share a bank account that was in his sole account before your marriage, you have another commingled mess. This is also true of investment and retirement accounts that you brought to the marriage and added to after saying your “I do’s.”
Time Magnifies the Issues
The longer the marriage, the more likely commingling occurred, and the more documentation will be needed to support the separate property claim. A general rule of thumb is that the longer the time period, the greater the number of statements that must be produced and analyzed. The person making the separate property claim will have to verify what the account balance was when you got married and detail how much money was contributed to it during the marriage.
Each separate property tracing analysis is unique, based on the couple's assets, number of years married, the amount of time the assets have been owned, and many other factors. However, what all millionaire divorces do have in common is the need for a crack team of legal and financial professionals who must unravel the complicated finances and ensure that you get the assets you are entitled to.
-
What Wall Street's CEOs Are Saying About Trump's TariffsWe're in the thick of earnings season and corporate America has plenty to say about the Trump administration's trade policy.
-
The Role of the U.S. Dollar in Retirement: Is It Secure?Protect your retirement from de-dollarization, because “capital always goes where it is treated best."
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
-
Before You Invest Like a Politician, Consider This DilemmaAs apps that track congressional stock trading become more popular, investors need to take into consideration some caveats.
-
How to Put Together Your Personal Net Worth StatementNow that tax season is over for most of us, it's the perfect time to organize your assets and liabilities to assess your financial wellness.
