Protecting high-value assets during divorce

High-net-worth divorce requires special handling

After eight years, the divorce between Brad Pitt and Angelina Jolie was finally announced at the very end of last year. The proceedings were acrimonious, with the extensive delay apparently caused by a legal dispute over a multi-million-euro wine estate in France. Eight years is a long time for divorce proceedings to drag on. Even the most complex high-net-worth divorces are usually finalised with more speed than that, but inevitably negotiations concerning high-value assets take time and require sensitive legal treatment. What strategies can help you protect high-value assets during divorce?

South Africa recognises various marital regimes, each with its own legal implications for the division of assets. If you are married out of community of property, either with or without accrual, the distribution of assets on the dissolution of the marriage is set out in the antenuptial contract, or ANC. Alternatively, there may be a postnuptial contract in place serving the same purpose. This article deals with marriage in community of property, where all assets acquired before and during the marriage are part of a joint estate which is shared equally between the spouses and divided fifty-fifty on divorce. Marriage in community of property is traditional and still the most common type of marriage in South Africa, and particularly prevalent among older couples – the precise people who are more likely to have extensive asset portfolios.

Defining high net worth

There is no set definition or threshold that determines high net worth. A couple could have a modest lifestyle but have valuable assets to protect, such as a business or inherited asset, e.g., a work of art. Broadly speaking, high net worth involves:

• Substantial assets: The couple may have expensive properties, valuable investments, successful businesses, or trust funds.
• Complex financial structures: The financial situation can be intricate, involving international assets, offshore accounts, or complex business holdings.
• High income: One or both spouses may have significant income from salaries, dividends, or business ventures.

Why is a high-net-worth divorce complex?

Assets such as property, businesses, artwork, etc., do not lend themselves to a fifty-fifty split, unless the asset is sold and the cash divided. Even in the most acrimonious divorce, it is rare for couples to want to sell off precious assets purely for the sake of a mathematically equal division. Therefore, negotiation and compromise become extremely important, and these take time and skill. Furthermore, in a high-net-worth divorce, the emphasis is often on ensuring the financial needs of both spouses are met after the divorce, rather than simply dividing assets. If an expensive lifestyle has been established, both parties can reasonably wish to maintain their lifestyle, and facilitating that in two separate households can be challenging.

To accommodate these complexities, high-net-worth divorces often involve specialist divorce lawyers, forensic accountants, and alternative dispute resolution methods like mediation. Careful consideration must also be given to tax implications of the asset division and spousal support payments, so tax experts may also be involved.

Protecting assets

The means of protecting assets will depend to some extent of whether the couple jointly wants to protect an asset from the legal consequences of divorce, e.g., minimising tax liability on transfer of ownership or ensuring the continuity of a business, or whether one spouse wants to protect an asset from falling into the hands of the other. The former objective is only likely to be achieved if the couple is able to negotiate amicably. The latter is more typical of high-conflict proceedings, which often characterise a high-net-worth divorce.

Prevention is better than cure

The most effective asset protection strategies are those put in place long before divorce looms! An ANC or, failing that, a PNC when wealth starts to accumulate, is the best means of deciding, while the relationship is still a happy one, how the dissolution will be handled if it happens. However, if divorce is already on the horizon, these discussions must take place in a different context. 

Another useful tool is a trust. However, if a trust is set up at the time of relationship breakdown, it may be viewed with suspicion by the courts. Genuine trusts established well before marriage with separate assets are more likely to be upheld, whereas using trusts to hide marital assets or manipulate finances may lead to penalties. When used for fraudulent purposes, courts consider these “alter ego trusts”.

In the case of a business, the partnership or shareholder agreements or the company’s Memorandum of Incorporation (MOI) can include provisions that protect the interests of the other owners in the event of the divorce of one owner. The terms of these contracts must be carefully constructed to be watertight. However, if the shareholder agreement is in place when divorce proceedings commence, it is too late to alter it at this stage.

Accurate valuation is critical

It is essential to have a clear and complete picture of the marital estate (assets and debts), including the marital home. Complex assets like businesses, investments, property and offshore accounts require accurate valuation to ensure each spouse receives their fair share. A forensic accountant or valuation expert is a key resource who will:

• Provide clear evidence of the value of assets
• Investigate financial records to identify hidden assets
• Value complex holdings using specialised expertise
• Prepare reports for use in legal proceedings
• Demonstrate the importance of retaining specific assets (e.g., a business as a going concern) rather than liquidating them

Understand your priorities

What is important? If one spouse owns a business, and the priority is retention of those business interests, they can argue for the business to remain intact and operational by demonstrating that dividing or liquidating the business would harm its value or employees and proposing alternative compensation, such as a structured buyout over time, or transferring other assets to the non-owning spouse to compensate them for their share of the business within the marital estate.

Offshore accounts must be fully disclosed. If they are not joint accounts, the spouse who holds them may argue for the strategic importance of retaining these assets for tax efficiency, currency diversification, or long-term family wealth. However, some element of compromise is likely to be required.

Ultimately, which is more important, the maintenance of lifestyle or capital? This may vary from spouse to spouse. If one spouse is concerned about post-divorce financial stability, negotiated maintenance payments may avoid the need to divide high-value assets, preserving the integrity of capital while ensuring financial support.

Settlement agreement

None of the above outcomes are likely to be satisfactorily achieved by litigation. Only a negotiated settlement will deliver a result that both parties are willing to accept. Neither spouse is likely to achieve everything they want. There will be compromise. But mediation (which is likely to be necessary) can design solutions that preserve assets while ensuring fairness. Mediation will prevent a lengthy court battle and reduce legal costs, which can also erode asset value. It allows for flexibility, such as including the retention of a business interest in exchange for compensatory assets and/or offering a lump sum payment or other arrangements that satisfy both parties.

Seek the guidance of an expert divorce attorney for your high-net-worth divorce

An experienced family law attorney like Simon Dippenaar & Associates Inc, based in Cape Town, Johannesburg and Durban, can provide guidance tailored to your specific high-net-worth divorce, guide you through the legal process, and help you protect your assets. We provide expert legal advice and support you every step of the way. If you are entering into marriage we can advise you on matrimonial regimes and help you draft an antenuptial contract, if appropriate. If you want to have a preliminary discussion in confidence, contact Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za.

Further reading:

• Securing a fair settlement
• Hidden assets in family trusts
• Forensic accountants and divorce
• Alter ego trusts
• Protecting business interests during divorce

Divorce Attorney Cape Town

http://divorceattorneycapetown.co.za/

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