Top 5 Mistakes Made in High-Asset Divorce Cases – And How to Avoid Them

While every divorce is unique, high-asset cases often involve complex financial and legal issues that are frequently misunderstood – not just by your spouse, but sometimes by inexperienced attorneys or even the Court. These complexities may stem from complicated valuations, tax consequences, and legal nuances, that require strategic investigation, planning and expertise.

Below are 5 of the most common (and costly) mistakes seen in high-asset divorces, and why it is critical to work with experienced legal counsel and experts to protect your income and assets.

(1)   Assuming restricted stock units (RSUs) and executive compensation are “property” without considering their vesting schedules.

Compensation packages that include restricted stock, equity/profit units, stock options, deferred compensation and other types of executive compensation may not be considered marital property at the time of your divorce, especially when vesting schedules or employment conditions apply. For instance:

• Are RSUs that vest after the divorce is finalized still divisible by the Court now?
• What happens to unvested stock units or compensation if you are terminated or voluntarily leave your employment?

Understanding whether, and how, these benefits may be considered by the Court in dividing property will be highly dependent on your agreements. Be sure to provide them to your attorney as early as possible in your case, so they can determine potential risks, solutions, and whether any expert analysis is needed.

(2)   Awarding the marital home to your spouse who might not qualify for a refinance.

If you have a high value home or pay a high monthly mortgage, it may not be possible for your spouse to easily qualify to refinance and keep the home. If your spouse cannot refinance, pay off, or otherwise assume the mortgage, you are left financially entangled and at risk. To avoid this, it is important to consider:

• Including a refinance deadline in your Agreement.
• Outlining a contingency plan for the home’s sale if refinance is not possible.
• Determining how the net proceeds and tax liabilities will be shared, or not shared, if the home is sold.

If you want to ensure your spouse keeps the home, knowing a refinance is not possible at this time, there are creative solutions that can be considered, including joint tenants in common agreements, longer refinance permissions, offsetting equity with other assets in the division and more.

(3)   Using “guideline” maintenance and child support, rather than considering individual circumstances.

While Colorado provides guideline formulas for the Court in awarding maintenance and child support, the guideline formulas are not intended for high-income families. The guidelines cap out at certain combined monthly income amounts, and the support recommendations may not reflect your family’s actual lifestyle, demonstrated needs, and higher children’s expenses – such as private school tuition, travel for sports or other extracurriculars, and specific medical care. You can present your individual circumstances to the Court to request a more appropriate support amount after consideration of these other circumstances and factors outlined in the statutes.

Other key considerations for high-income earners for support include:

• Inclusion or exclusion of bonuses in support awards versus percentage shares for maintenance;
• Explaining the tax brackets for the payor spouse’s income above the guidelines, since they are not automatically tax effected at their actual tax rate.
• Customizing agreements in settlement for your child’s unique longer term needs and lifestyle, including travel sports, private school or tutoring, summer camps, and even college.

(4)   Failing to work with experts to assess and value property interests.

Not every asset’s value can be easily identified from a financial statement and may require additional experts and discovery to determine the accurate value. This can include

• Business interests,
• Country club memberships,
• Professional practices (e.g., medical or legal)
• Trust interests,
• Cryptocurrency,
• RSUs and other executive compensation.

Many complicated marital estates require the involvement of legal experts (e.g. trust interests) or forensic accountants, to assess ownership rights, valuation, or tax exposure.

(5)   Not considering creative solutions.

High asset divorces may come with other complicating factors, such as co-owning businesses, shared real estate, and intricate tax consequences associated from asset transfers, that require unique legal strategies instead of “cookie-cutter” solutions. This may include drafting corresponding agreements with business or real estate attorneys, structuring phased buyouts of assets, and more. By thinking beyond basic divorce templates, and having the knowledgeable players on your team, you can protect your financial future and work towards resolution.

In conclusion, high-asset divorces are rarely straightforward. They require a strategic approach, and a team that understands the financial, legal, and tax complexities involved. Working with the right professionals from the outset can make the difference between a fair settlement and costly mistakes that impact you long after the divorce is finalized.

Kellian Coggswell is an Associate Attorney at Griffiths Law. Kellian’s practice is focused exclusively on family law related matters, including divorce, common law marriage, allocation of parental rights, post-decree disputes, and child support. When she is not working, Kellian loves hiking and backpacking around the country, working on her golf game, and trying out new restaurants.