Planning a divorce with high value financial assets? Start here.
One of the first questions many divorce clients ask is, “How will we divide our house and money?” The higher the value of your shared assets, the higher the stakes. And for many high-net-worth couples, divorce quickly seems like a financial headache. Because Texas is a community property state (one of only nine), the common advice doesn’t always apply. That’s why it’s crucial to strategize your asset division when planning your divorce.
What does high-net-worth divorce mean?
High net worth is often defined as having liquid assets of more than $1 million and/or a complex portfolio of property and investments. Couples with a high net worth typically own valuable real estate, stock options, and so on. They may also own a business together or hold shares in a company.
Under Texas law, all assets acquired during the marriage are considered community property. Each spouse would then be entitled to half (or some disproportionate amount) in the divorce. However, it’s not always that cut-and-dry. That’s especially true in high-net-worth divorces because the assets usually take many different forms. Divorcing couples aren’t just splitting a house and savings accounts. The goal is to equitably divide an often-complex portfolio of holdings and real estate.
How does high net worth work in a community property state?
Popular wisdom says that divorcing couples always split their assets 50–50. Yet most states deem married couples to have “common law property.” In other words, a husband isn’t entitled to half of the business his wife built on her own. Texas is one of nine states using the concept of “community property.” That means the following is subject to division:
- All income earned by either spouse
- All property purchased with community income
- All funds in retirement and savings accounts
- All investments made by either spouse
- All debts acquired by either spouse
Any assets or debts held by one party before marriage remains theirs. Gifts or inheritances are excluded from community property.
All that said, spouses with high-value property or investments aren’t forced to split everything down the middle. That’s why many high-net-worth couples have prenuptial agreements to guide how community assets are divided. They’ll also work with their legal and financial teams to find a fair and just solution.
How should assets be divided in a high-net-worth divorce?
High-net-worth households often have a complex portfolio: businesses, stock options, real estate, just to name a few. These all have different tax implications, which means splitting or transferring them has a ripple effect on your tax liability. If your divorce settlement isn’t structured well, you may incur unnecessary penalties or capital gains taxes (i.e. when assets are sold instead of transferred).
Your financial advisor can best guide you, but in general, you’ll want to follow these principles:
Balance taxable and non-taxable assets
Think ahead: how will your tax bill change if you become the sole owner of an investment? Will you incur penalties for changing your retirement account?
Remember, assets may seem equal in value on paper but not after taxes:
- Selling stocks or property? Expect capital gains taxes.
- Splitting a retirement account incorrectly? Early withdrawal penalties can apply.
Your financial team can help reduce your tax exposure by using well-structured trusts to transfer and hold your assets post-divorce.
So when considering how to “split” community property in a high-net-worth divorce, look beyond the current balance. Think about the future appreciation, dividends, and tax obligations you may face.
Balance liquid and fixed assets
A $1 million cash settlement sounds nice, but cash loses value over time. Also, a cash settlement won’t account for cost-of-living increases unless you bake that into the agreement.
On the flip side, getting a solid set of fixed assets (a luxurious house and car, fine jewelry and collectibles) may leave you with insufficient cash flow — especially if you end up with new tax obligations.
So, you don’t want to be asset-rich and cash-poor or vice versa. Be sure to keep some liquid assets, or make them liquid. Consider how certain assets (especially vehicles and investments) are expected to appreciate or depreciate in value.
In sum (pun not intended), look at any proposed divorce settlement from every angle: past, present, and future. Equal is not the same as equitable. If one spouse gets high-growth assets while the other gets depreciating ones, that’s not fair — even if the latter is high-value and liquid.
What to ask for in a high-net-worth divorce
First things first: if you’re treating a divorce like a business transaction, you need a legal and financial team of diplomats, not fighters. Being combative and aggressive won’t help you get your fair share. Embrace the negotiation mindset: assertive, equitable, and clear-headed. From there, you can make a confident plan for what you ask for in a high-net-worth divorce.
Begin with a full audit of all shared assets that could be considered community property:
- checking accounts
- savings and CD accounts
- retirement accounts
- businesses
- shares of private companies
- investments
- real estate, including any rental properties
- stock options
- trusts
- offshore accounts
You’ll want all financial records from the past 5+ years (bank statements, investments, tax returns, business valuations).
This will help you find hidden debt and liabilities (which we’ll discuss further in Part 2 of this blog), avoid undervaluing assets or incurring penalties, and ensure your assets are divided in a way that optimizes your tax burden.
Once you have your foundation to begin negotiating a settlement, here’s what to prioritize in a high-net-worth divorce:
Qualified Domestic Relations Orders (QDROs) help you divide retirement accounts. They can distribute part of the benefits or transfer assets to a new account without triggering early withdrawal penalties. QDROs apply to employer-sponsored plans such as 401(k)s where one spouse would have received benefits had they stayed married to the account owner.
Spousal maintenance helps prevent situations where a financially dependent spouse (the one who usually ran the household) is left cash-poor. In high-net-worth divorces, prenuptial agreements may guide the amount of support the breadwinner sends to their ex. No matter your unique situation, be prepared to ask for what you deserve. Consider any financial disparity and how much you contributed to your lifestyle (raising children, supporting your ex’s career, running the family business, etc.). Learn more about spousal maintenance in Texas.
Privacy measures such as sealed divorce records and non-disclosure agreements may be important in high-net-worth divorces. If you and your soon-to-be-ex are well-known in your community, you likely want to preserve your reputation and stop the rumor mill. A private, dignified approach also helps protect any businesses entangled in the divorce. Most importantly, it protects your peace.
Mediation, arbitration, or collaborative law rather than litigation. As mentioned above, a combative approach doesn’t favor an equitable settlement. The more drawn-out your court battle — especially in a high-net-worth divorce — the more you drain the wealth you’re trying to keep. Attorneys’ fees add up. Judges make the call, which means less power to you. If you’re running a business, divorce litigation could seriously disrupt or even halt operations. The divorce also becomes public record, potentially exposing your financial details. Again, privacy is critical in a high-net-worth divorce.
- In divorce mediation, a neutral third party helps you negotiate asset division and create a legally binding agreement without a judge making the final call.
- In a collaborative law divorce, both spouses have an attorney who guides them as they make their requests and compromises for settlement.
Reach out for help navigating a high-net-worth divorce out of the courtroom. Serving the Dallas and Fort Worth area, the team at Alexandra Geczi Family Law partners with CPAs, appraisers, and business valuation experts to promote an equitable divorce agreement.
Explore Our HNW Divorce Services
Keeping your power in a high-net-worth divorce
No matter your net worth, treat divorce like a business transaction. It’s okay to feel emotional about the separation — and the assets you’re trying to divide. But keep emotion out of the equation. Sometimes clients want to fight for a high-value asset even if it doesn’t align with their future goals. Others are so desperate to avoid headaches that they’re inclined to accept an unfavorable settlement offer.
When the stakes are high, focus on your empowerment. It may feel like “winning” to keep the cash or take your ex’s nice car, but how will those assets benefit you in the long run? Don’t let your priorities be determined by spite or fatigue. With a compassionate legal and financial team by your side, you can negotiate a settlement that suits your goals and protects your peace.
Reach out today to request a no-obligation discovery call with Alexandra Geczi Family Law.