Divorce is never easy, but for high net worth individuals, the complexities are amplified. The combination of significant assets, property portfolios, business interests, and a volatile economic backdrop demands a strategic approach.
So what do the parties in a divorce or relationship breakdown need to consider when substantial assets are set to be divided and how is the economic landscape impacting things?
Fast-rising property prices
Australia’s property market has seen unprecedented growth in recent years. While this has created wealth for many, it also introduces challenges during divorce:
- Accurate valuation is critical: Property values can fluctuate rapidly. Obtaining up-to-date valuations is crucial to ensure fair division. Consider using multiple appraisers to get a comprehensive picture.
- Capital Gains Tax (CGT) implications: If properties are sold as part of the settlement, CGT may be payable. Understanding this liability and planning accordingly can prevent unexpected financial burdens.
- Liquidity concerns: Property is not a liquid asset until it’s sold. If one party wants to keep a significant portion of the property portfolio, ensuring the other party receives fair compensation in other assets can be a challenge.
Inflation and volatility
Economic conditions like inflation and volatility can impact the asset division process during a relationship breakdown or divorce:
- Inflation: Rising inflation erodes the value of cash over time. Factor this into asset allocation to ensure a fair division of wealth that retains its value.
- Market volatility: Stock portfolios and investments can fluctuate rapidly. Take this into account when valuing and dividing assets, and consider diversification strategies.
Tougher business conditions
With lower consumer and business sentiment, higher wages, and more volatile conditions in some industries, it can make valuing and dividing business interests in a divorce or relationship breakdown more complex:
- Business valuation volatility: The value of a business can fluctuate significantly based on market conditions. Professional valuations are essential, and multiple valuations may be needed to account for different scenarios.
- Income considerations: If one party relies on the business for income, maintaining that income stream while fairly dividing assets is vital.
- Operational disruptions: Divorce can sometimes lead to distractions or disputes that impact business operations. Minimising these disruptions is crucial to protect the value of the asset.
So what should high net worth individuals consider when separating or divorcing in the current environment?
- Get early legal and financial advice: Seek legal counsel with experience in complex asset division. Involve financial advisors and accountants early to create a comprehensive strategy.
- Provide full and frank disclosure: Transparency is paramount. Hiding assets can lead to legal repercussions. Disclose all financial information accurately and thoroughly.
- Review Binding Financial Agreements (BFAs): Consider creating or updating BFAs to define how assets will be divided in the event of a relationship breakdown. This can provide clarity and potentially streamline the process.
- Undertake mediation: Alternative dispute resolution methods can be less adversarial and costly than traditional litigation. They may be particularly well-suited for complex high-value divorces.
- Conduct tax planning: The tax implications of asset division can be significant. Careful planning can minimise tax burdens and maximise the value retained by both parties.
- Establish asset protection: If one party has a higher risk tolerance or potential future liabilities, consider strategies to protect assets from potential claims.
Every high net worth divorce is unique. There is no one-size-fits-all solution. Working with experienced professionals to develop a personalised strategy that takes into account your specific financial circumstances and the current economic landscape is essential to achieving a fair and equitable outcome.
About Kristy-Lee Burns
Kristy-Lee Burns is a Partner at Owen Hodge Lawyers. Kristy-Lee has headed up the Family Law department since 2018. Kristy-Lee has trial experience in various complex family law matters involving trusts and commercial matters. Kristy-Lee has expanded her knowledge and experience to include Estate Litigation and Testamentary Trust Wills.
Kristy-Lee has completed a specialist post-graduate program of LLM Applied Masters (with a double major in Family Law and Business Law). Many areas of family law and commercial law intersect so it is important to Kristy-Lee that she identify and strategically advise her clients on these matters. Her trial experience in preparing matters with strict deadlines is also a skill that serves her clients well.
Kristy-Lee’s legal knowledge, communication skills and life experience, together with her ability to relate and connect with people in challenging times assists her in building and maintaining excellent client relationships and ongoing referrals. Kristy-Lee also prides herself on mentoring and managing other younger solicitors within the practice.
Whether it is a complex property settlement involving third parties, businesses and trusts, a commercial or estate dispute, Kristy-Lee has the knowledge and expertise to identify the key legal issues whilst advocating in your best interests for a just and equitable result.