Divorce is rarely simple, but when high-value assets are involved, proceedings can become significantly more intricate. This blog explores why this is and why you need to navigate them with caution.
Asset transfers create deferred tax liabilities
When you and your spouse divide property during a divorce, the Internal Revenue Service (IRS) does not recognize gains or losses when assets are transferred between spouses, meaning no immediate tax liability is triggered.
The complication arises later. The spouse who receives the property retains the adjusted cost basis. While the basis starts with the original cost, it may have changed over time due to reinvested dividends, capital improvements or other adjustments.
For example: Your spouse transfers a stock portfolio to you with an adjusted cost basis of $100,000. That portfolio is now worth $400,000.You owe no taxes upon receiving the shares, but if you sell them later for $400,000, you will be responsible for capital gains tax on the $300,000 of appreciation.
Business ownership may cause partnership problems
Florida courts must first determine whether the business constitutes marital property subject to division. Businesses started during the marriage are generally marital assets. However, even for entities established before the marriage, any increase in value resulting from marital funds or your active efforts throughout the marriage may be subject to division.
Business partners who are not involved in the divorce may have legitimate concerns about an ex-spouse gaining ownership or influence over company operations. Well-drafted shareholder agreements typically include provisions that prevent unauthorized transfers of ownership.
Other critical factors to weigh
Beyond the above-mentioned challenges, your privacy can become an issue as well. Court filings are public records, which means anyone can access details about your finances. Due to this, many high-net-worth couples often choose mediation or collaborative divorce to keep sensitive information out of the public eye.
If you have a prenuptial or postnuptial agreement in place, the terms are not ironclad. Disputes can still arise when one party challenges the contract based on validity or enforceability issues.
In these high-stakes cases, legal counsel often works alongside financial specialists to trace the history of your wealth, determine the value of the business and help prevent future accusations of hiding assets.