Understanding Complex Assets and Asset Division in High-net-worth Divorce in New York
High-net-worth divorces involve high financial stakes. Marital property in these cases may include lucrative businesses, trusts, luxury offshore properties, inherited wealth, and valuable artwork. While affluent individuals are adept at structuring their wealth for tax efficiency, they are not always prepared for the potential consequences of a contentious divorce.
Sometimes, one spouse has assets held in obscure offshore trusts, hidden crypto assets, or businesses that can suffer if the ownership structure changes.
In order to understand the unique complexities of high-net-worth divorce, it is key to know about all the different types of assets it may involve. For example, when Princess Haya bint al-Hussein divorced Sheik Mohammed bin Rashid Al Maktoum, the courts awarded her approximately $ 6.4 million for racehorses and over $2.5 million for a kitchen renovation. Meanwhile, the couple had to settle on the division of a $114-million art collection.
If you are the less affluent spouse, you must ensure you are not missing anything. Your estranged husband/wife may have been managing the family wealth, and perhaps you have little information about the marital assets you may be entitled to. On the other hand, the more affluent spouse needs to ensure they are protecting any assets they consider separate property and safeguarding the wealth with which they entered the marriage.
The matter of jurisdiction can add an extra layer of complexity as wealthy people often have multiple homes in different countries. Sometimes, they don’t have a single permanent home, and the issue of who gets to keep which home poses unique challenges to courts.
In New York, in particular, because it is an equitable distribution state, courts have the power to determine what is a fair way to distribute assets rather than splitting the property acquired through the marriage equally, which is the case in community property states like California.
Your divorce lawyer can help you design the best strategy to get what is rightfully yours in your divorce settlement, maintain your standard of living, protect your family wealth and the health of your businesses, and shield any assets that are your separate property.
Below is a list of some of the most complex types of assets our divorce attorneys have encountered over the years while helping the Manhattan elite navigate intricate divorce cases.
Physical assets in high-net-worth divorce may include luxury homes, commercial real estate, vacation homes on various continents, vehicles, yachts, artwork, and collectibles.
Affluent couples often accumulate homes and properties in different states and countries. Over the years, they may acquire various vacation homes, rental properties, farmland, and commercial real estate.
Generally, all properties purchased during the marriage are considered marital property and subject to an equitable division process.
When dividing these types of assets, it is vital to consider aspects like tax implications and potential for income generation. With the current market fluctuations, valuation can also pose problems as each party will want the courts to settle on the value that most benefits their interests.
High-net-worth divorces do not always require asset liquidation. When both partners can afford a new home following divorce, the issue of who gets to keep the marital home becomes much more complex than simply selling it off and dividing the proceeds between the parties.
For example, if you are the primary caregiver for your children, your lawyer may argue that it would be an unwelcome disruption for them to have to move to a new home in the middle of the school year as they are trying to emotionally process the divorce.
Where permanent homes may have emotional value for the spouses, other types of real estate can generate substantial income, leading to numerous complexities for asset division. With the help of a seasoned high-net-worth divorce attorney, you can ensure the divorce causes minimal disruptions to this type of income generation.
This category may include anything from a private jet to a vintage Rolls Royce, a jet ski, or a yacht. Each type of vehicle may present innumerable complexities from the point of view of valuation and potential for liquidation.
High-end and collectible motor cars are in a class of their own. Any luxury vehicles purchased during the marriage are subject to equitable and fair division in New York. As with any other property, if one of the spouses bought the vehicle using their separate property (for example, an inheritance), this would mean that the vehicle would also be considered separate property and thus not subject to division.
One important aspect some people may ignore is that even if the car is in your name, if it was purchased during the marriage, it can be considered marital property, typically if the funds that paid for it came from the marital pot (not your separate property).
As opposed to the value of modern cars, that of vintage vehicles may significantly increase over time. If you own a famous model and only a few remain, the price may rise astronomically over a very short period of time. But, since the market for cars worth hundreds of thousands of dollars is rather limited, it may be challenging to liquidate this type of asset conveniently at a specific time.
Lately, there has been a media frenzy over highly contested divorces between millionaires and billionaires, many involving luxury yachts.
When a yacht is considered marital property, the parties can simply sell it and divide the proceeds. Alternatively, one of them can trade another asset to secure full ownership of the yacht, or the former spouses may reach a co-owning agreement.
Billionaires will be comfortable maintaining a yacht following divorce, but successful professionals with only a few million in the bank may struggle to pay child support and alimony and maintain a yacht simultaneously. In these types of scenarios, selling the yacht and splitting the cash can be the most sensible solution.
The most famous divorce involving a luxury yacht was that of Russian oligarch Farkhad Akhmedov from Tatiana Akhmedov. The Luna, a superyacht valued at $460 million, has been frozen for years, first in Dubai, then in Germany, while a nasty legal battle and then a geopolitical conflict progressed. The billionaire had purchased the yacht for $256 million in 2014.
In 2018, after Tatiana filed for divorce, a court awarded her $484 million (close to half her spouse's assets), and she succeeded in having the superyacht seized after Akhmedov refused to pay. Later, in April 2022, the European Union sanctioned Akhmedov for his business dealings with Russia following the invasion of Ukraine, and the yacht, complete with the largest swimming pool on any yacht and a mini-
submarine, ended up frozen in a German port.
Naturally, not all vehicles will cause this level of drama at the time of asset division. Nevertheless, structuring a convenient deal involving luxury vehicles requires assistance from an experienced high-net-worth divorce attorney with access to the best luxury vehicle appraisers, forensic accountants, and tax specialists.
Wine may not be the first thing that comes to mind when considering good investments, but amassing an extensive collection of coveted bottles of Bordeaux and Brunello can be very financially convenient. According to one study, certain premium wines experienced a 125% value increase in merely a decade, more than any other asset class, except for shares and stocks.
Disputes over how wine collections should be split are becoming more and more common in millionaire and billionaire divorces. When people have worked for years to build their wine collections, these disputes are not just about money; there is also an emotional component and the value of the effort that has been put into finding and acquiring the wines.
Appraisal of these types of specialized assets can be difficult, often highly subjective, and very time-consuming.
If your wine collection is subject to asset division during divorce, you may face one of three possible scenarios:
- Your spouse is not interested in the collection, and you can just offer them a similarly valued item to obtain full ownership.
- Both of you are interested in the collection and will try to agree on who gets each bottle, ensuring the split makes sense value-wise.
- Neither spouse wants to maintain the collection, so you can sell it and split the proceeds.
In 2021, an acrimonious divorce led to the largest Sotheby's auction to date, fetching over $676 million. Harry and Linda Macklowe amassed the Macklowe collection over half a century of marriage. It included famous works by Andy Warhol, Jackson Pollock, Gerhard Richter, and Mark Rothko, among other highly valued contemporary artists.
After filing for divorce, the Macklowes couldn't agree on the collection's value. A judge then decided that only the market could tell and ordered it to be auctioned.
Some of the paintings that made the biggest sales were Andy Warhol’s iconic Nine Marilyns, which sold for $47.4 million, and Rothko’s Number 7, which went for $82.5 million. Alberto Giacometti’s Le Nez sold for $78.4 million, while a sculpture by Picasso reached $26.3 million.
The Macklowe case shows us just how complex valuing and dividing art collections can be. The price of valuable artworks constantly fluctuates, and it can take diligent work and extended negotiations to reach an agreement over the division of these types of assets. Your lawyer should have experience and connections with some of the top appraisers in the art world.
An important aspect to consider is whether the artwork increased in value during the marriage, as this may also impact the division of assets.
Aside from establishing valuation and deciding on division, other issues may add to the complexity. For example, if one of the spouses is a famous artist and the other spouse supports them while they create valuable works of art, the art may be considered marital property. In this scenario, it may be decided that the spouses own the art 50-50, while the artist retains the copyright for it.
Finally, one must not forget digital art assets when considering artwork division. NFTs have been selling for substantial sums lately. While valuing them may be even more elusive than valuing a Picasso or a Warhol, they should definitely be included in your list of high-net-worth divorce assets.
Wealthy couples can accumulate millions of dollars worth of jewelry over the years. One of the problems with jewelry is how easy it is to hide. If there is no documentation relating to its purchase, one of the spouses can simply claim the jewelry never existed, or they may state that it was lost.
When it comes to pricey engagement and wedding rings (think Jennifer Lopez's $5 million bling, courtesy of her reunion with Ben Affleck), most jurisdictions consider a wedding ring as a gift, so, it is never subject to division. But an engagement ring may have to be returned if the wedding is canceled or if it was a family heirloom.
Aside from the particular engagement/wedding ring category, jewelry given as a gift is normally considered personal property and never subject to division. So, if you received a $1-million Cartier bracelet for your anniversary, you will likely get to keep it after the love is gone.
There is another category of jewelry: that which was acquired during the marriage but not given as a gift. This will be considered marital property and subject to division. On the other hand, jewelry not given as a gift and purchased with separate property or acquired prior to the marriage will typically be considered separate property.
Valuing jewelry, especially antique jewelry, can be challenging. If you and your spouse disagree about value, you may end up like the Macklowes, being ordered by the courts to sell it. It is more sensible to reach an agreement, especially if you are very keen on keeping certain pieces, but, of course, negotiations can get tough. Seasoned high-net-worth attorneys are skilled negotiators who work with jewelry specialists who can provide accurate appraisals.
Wealthy people can have complex asset portfolios that include anything from business interests in global corporations to hedge fund investments.
As long as you remain married, your spouse may be entitled to funds coming your way. For this reason, it is vital to seek legal separation as soon as possible. Finalizing a divorce can take a long time. Legal separation requires signing an agreement that states that you and your spouse have decided to separate. Though the implication is that you are no longer living together, courts won't always establish residency requirements.
Regardless of whose name is on a bank account, it may be considered marital property. If you open a bank account after getting married, it will typically be regarded as marital property.
If you had a bank account with a certain amount of money before the marriage and never merged it with your spouse's money or added their name to the account, the account may be considered your separate property during divorce.
One problem that may arise has to do with combining separate property with marital property. If you pour your originally separate funds into a joint account, for example, they may now be considered marital property and subject to division.
Even if you don't add your spouse's name to the account, if you both start using it to deposit paychecks and pay bills, courts may still treat it as marital property, and you will likely lose half of your original property. It is important to note that these general rules have many nuances and exceptions.
If, at any time, you deposited property considered marital into your separate account, for example, any income earned during the marriage or a gift given to both spouses, your account may automatically become marital property. This type of transformation is known as commingling. To be on the safe side, if you want to keep your separate property to yourself, you shouldn't allow it to become contaminated with any property acquired during the marriage or considered marital.
Investments, Retirement Funds, and Pensions
Calculating marital property when it comes to investments can be complex. Often, an investment or fund can have both marital and separate property components. For example, if one spouse earned a pension during 16 years and was married during 8 of those years, the other spouse may be entitled to half the benefits generated during the 8 years of marriage, so a quarter of the total benefits earned during the 16 years.
Investments can be considered separate property if they were acquired before the marriage and were held in separate accounts throughout the marriage.
Courts will determine how much interest was earned or lost throughout the marriage to ensure investments are divided equitably.
Any retirement funds you earn before getting married are your separate property. But IRA, 401K, pension, and other retirement funds earned during the marriage are marital property subject to division. Unless you and your spouse agree to keep your personal retirement funds and relinquish any rights over the other party's, retirement account administrators will typically set up partial payments from the divided funds for each one of you following retirement. This arrangement, known as a Qualified Domestic Relations Order, will prevent facing the tax burden of withdrawing the funds early.
One year after Jeff Bezos married Mackenzie Scott, he created Amazon. When the couple divorced, his incalculable wealth was considered marital property by the courts. Scott obtained the largest divorce settlement to date at $38 billion. In a smart move to preserve the company's value, Scott, who was not interested in running Amazon, gave Bezos the voting rights that came with her company shares.
Though Bezos lost a significant portion of his wealth, this was a very civilized divorce. Both parties did their best to act in the business's best interests and future income. Unfortunately, this is not always the case. Often, spouses will fight over business interests with disastrous results for the business.
As a rule, if you started a business during your marriage and your spouse participated or supported you through the process, they may be entitled to a significant share of the business investments and assets. Many factors can impact this type of division, and your high-net-worth divorce attorney can help you navigate all the complexities that may arise.
There are hundreds of categories of assets we could list here. But as we focus on high-net-worth divorce, some of them become insignificant in the face of more significant categories that can reach millions and even billions of dollars. Such is the case of two unique categories: inheritances and intellectual property.
Inheritances are considered separate property. But if you commingle your inheritance, for example, by depositing it into a joint bank account, the inheritance can become a marital asset.
If you use your inheritance to renovate the marital home, it will also likely lose its separate property status, and the price increase of the renovated property will be subject to asset division during divorce.
If you received an inheritance before you got married, you hopefully signed a prenup. If you didn't but kept the inheritance in a separate, non-commingled account, you should still be able to keep it after divorce.
Famous authors, screenwriters, musicians, and other artists may derive significant income from their intellectual property. Film adaptation rights for a popular novel can surpass seven figures; the same can happen with life stories. Actors and directors may have back-end deals that mean they keep getting paid for many years following a movie's release. Likewise, inventors and scientists can receive millions forthe use of their creations over lengthy time periods.
Unlike retirement funds and stocks, intellectual property doesn't have a set value. Sometimes, much of what it has is future earnings potential.
There are two different scenarios for the acquisition of intellectual property during a marriage: either at least one of the spouses is a creator who created the IP, or one of the spouses acquired the IP from a third party.
Typically, courts will award control of intellectual property to the spouse who created it, but if that IP was created during the marriage, the other spouse may be entitled to any royalties and economic benefits it may yield.
The valuation of intellectual property and derivative works (such as a movie based on a book) can pose enormous challenges in divorce courts. Sometimes, courts will attribute some of the IP's value to the marital estate and another portion to the creator spouse. In some cases, IP may increase in value after the divorce, but if the court understands the value increase results from work carried out during the marriage, then that value increase may also be subject to equitable division between the spouses.
Another situation that can add complexity to IP division during divorce is when the spouses acquire IP together to develop a derivative work—for example, a couple of movie producers who jointly optioned a book for a TV show. After the marriage is dissolved, the couple may no longer want to work together on the project, and they may fight in court over who controls it. Without assistance from an experienced intellectual property negotiator, this could potentially result in a loss for both spouses. This is another reason to work with a team of attorneys specializing in complex, high-net-worth divorces with access to top-tier intellectual property specialists.
Dividing Assets in High-net-worth Divorce in New York
High net-worth couples enjoy high living standards. Courts take this into account and typically calculate the financial needs of these types of spouses more generously than in the case of lower-income people. Dividing marital property to satisfy these needs in the case of wealthy individuals with diverse asset portfolios can be challenging.
Courts have to look at bank accounts, often in multiple countries; equity funds; international real estate at home and abroad; art collections, complex trust fund structures; crypto assets; businesses; and highly diversified investments.
In many cases, a successful business was developed during the marriage, and regardless of which spouse started it, it has become a marital asset. Now the courts have to establish a valuation and develop a fair distribution plan that is not detrimental to the business itself. This type of negotiation can sometimes take years.
Wealthy individuals entering into marriage with a less affluent spouse often sign prenuptial agreements. But courts have been known to overthrow certain agreements that they considered unfair. In August 2023, an Appeals Court ruled that a prenuptial agreement that stripped a party of all marital interests was unconscionable and would not be enforced. The case, Rudnick v. Rudnick, involved a wealthy man whose wife filed for divorce after a 27-year marriage. The prenuptial agreement in place provided that there would be no alimony and the husband’s assets would remain his separate property, including any real estate he purchased during the marriage. If the agreement had been enforced, the former Mrs. Rudnick would have been left with no assets and no way to provide for herself at age 85. After looking at the history of the marriage, including real estate purchases the husband had hidden from his wife, the court deemed the prenup unconscionable.
Mr. Rudnick is only one of many spouses who go to great lengths to hide assets both throughout a marriage and during divorce. Prenup or no prenup, your divorce attorney may have to work diligently with the help of experienced forensic accountants and investigators to unearth any hidden crypto, complex shell company structures used to hide assets in tax havens, and concealed real estate purchases or investments.
From disclosure to valuation, tax structuring, and asset distribution, high-net-worth divorce presents constant challenges for attorneys. For this reason, you need to rely on someone with experience with complex financial instruments, crypto investments, art valuation, business structures, trust funds, and the like.