High Net Worth Cases
Property division is often the most contentious stage of a family law proceeding. The legislative provisions for how assets should be divided are straightforward, involving just five steps that are applied regardless of the size of the marital asset pool. Although the rules of division are the same regardless of the size of the pool, where the couple has a high net worth there are often complex business interests and unusual asset classes in the pool, which can complicate the process considerably. This article examines some of the unique considerations that arise in high net worth family law cases.
What is Considered a High Net Worth?
In Australia a high net worth is generally seen as a Net Investible Assets (NIA) of a million dollars, or a net worth of over 2.5 million including the family home, earning more than $250,000 a year. The Australian Taxation Office categorises ‘wealthy individuals’ as those with a net worth of over 5 million.
Length of Proceedings
High net worth cases often take much longer to adjudicate than a typical family law case, stretching for months and sometimes years. This is predominantly due to the process of identifying and valuing the asset pool. Given the time scales involved, the court may need to make temporary orders relating to living arrangements, spousal support, legal fees and child custody matters.
The Five-Step Test
The Family Court and Federal Circuit Court assess marital property settlements using a five-step test. The first step in this process is the identification of every asset and liability of the couple, including all property, savings, loans and mortgages. For a high net worth couple, this may well include investments, businesses, stocks, collections, and intellectual property. The second step is to evaluate whether the existing division of assets is appropriate or whether there should be an adjustment of the financial position of the two parties. If the division is deemed appropriate then the process of property division is finished, otherwise, it moves on to the next stage.
If it is determined that the current division of assets is not fair, then the process continues. The third step is to assess the contribution of each spouse to the total asset pool of the marriage, including financial contributions like income, and non-financial contributions such as housekeeping and childrearing. In high net worth cases, a spouse will often claim that they are entitled to most of the assets because it was their unique abilities that increased the fortunes of the couple, but the courts always weigh these claims against the contribution of the other spouse. For example, in the Family Court case, Hoffman v Hoffman the husband appealed a decision that afforded an equal division of assets between the spouses. After a 36-year marriage, the couple had an asset pool of $10,000,000, and the husband argued that it was his “special skills” and entrepreneurial flair that created the asset pool. The court did not find this argument persuasive and the appeal was dismissed.
The fourth step is to estimate the future needs of each party, depending on their respective earning capacity, in combination with other factors such as the age of the spouse, their health and whether they have primary custody of any children. Not surprisingly, people with significant wealth usually expect to continue to live the same high standard of living after their divorce. In a high net worth divorce there will be more complex financial resources to consider, such as executive compensation packages, trust funds and royalties. The final step is for the court to assess whether the proposed distribution of assets is equitable and fair given the particular circumstances.
Property in High Net Worth Divorce Cases
Real property is the main asset in most divorce settlements. In high net worth divorces, couples commonly have several homes both in Australia and around the world. A fair valuation of each property must be made, determined by market value at the time of the valuation, and in the case of international property, complicated by fluctuating currency exchange rates. Armstrong Legal can arrange for expert valuers to assess a range of different assets for their clients.
Business Holdings in High Net Worth Divorce Cases
In high net worth family law cases, there is a greater likelihood that the parties will have at least part ownership in business interests. If a couple owns shares in a business, the court must assign a value to each party’s interest in the company. An expert valuer will look at the annual statements, accounts receivable and the value of the company’s goodwill, as well as the debt profile of the business. The valuer will then submit a written appraisal of the business to the court, and in some cases testify to their assessment. There may be competing valuations of the business that the court will have to assess.
In the case of businesses where the couple shares joint ownership of the company, one spouse will often raise funds to buy out their partner’s share. Another alternative is the sale of a business with the proceeds divided, but the courts are loath to force the closure or sale of a business as it is not in the best interests of either spouse.
High net worth divorce cases are often more public in nature, particularly for celebrities and the very wealthy. In Australia, Section 121 of the Family Law Act 1975 prohibits the publication of divorce proceedings where the parties are identifiable. This covers both journalistic writings and broadcasts, but also social media posts and other methods of disseminating information. It is also advisable in high profile cases for the parties to sign a mutual confidentiality agreement, which is a contract that states that the parties will keep the information that they learn secret and use it only for agreed purposes. Armstrong Legal can help to draw up a confidentiality agreement to protect your interests and take steps to protect your privacy.
For more information on high net worth divorce cases in Australia, or advice on property settlements in general, please call Armstrong Legal on 1300 038 223 or send us an email to make an appointment.