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Assisting "High Net Worth" Clients: Questions and Answers
| Question 1: |
When are the assets of the husband and wife considered relatively "high value"?
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| Answer: |
Couples often have a far greater net worth than they believe they have. A military retirement can be worth as much or more than $300,000 to $750,000 in itself even though there is no money in the bank. With increased real estate prices, the family home can greatly add to the couple's assets, all of which will be before the court to divide.
Other sources of assets which are easy to evaluate are 401k plans and deferred retirement plans.
However, defined benefit plans such as a state or federal retirement plan often have a value of several hundred thousand dollars even though no monetary value is apparent.
It is important to identify all of the assets so they can be evaluated and assigned by the court. If the assets are not divided by the court at the time of the divorce, a party often has the ability to bring an action to divide the asset years later.
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| Question 2: |
I have a small business or professional practice. Will the court attempt to give part of my business to the other spouse?
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| Answer: |
A small business is like any other asset of the marriage that will be evaluated by the parties and become part of the assets to be divided through settlement or trial.
However, when the owner is a dominant active participant in a business or profession, the business may have little or no monetary value even though it has a significant income and the income after expenses are high.
For instance, consider the situation where an architect works by him or herself with a secretary. If the owner leaves, there will be no income. Therefore, the business may have little or no value as the income from the business was reliant on the wages of the owner.
Of course, a high income from a sole practitioner may be considered for the establishment of maintenance.
On the other hand, if a business is able to make a profit without the involvement of the owner, the business is most likely has a value which can be evaluated through a CPA or forensic accountant.
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| Question 3: |
I am expecting a significant inheritance. Is my spouse entitled to any portion of these funds.
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| Answer: |
As a general principle, all separate and community fund are before the court to divide. Thus, the funds could be reached. However, unless there are unusual circumstances, separate funds typically remain separate. However, if there was a great disparity in the wealth of the parties and great need, the court could conceivably allocate some of the inheritance to the other spouse. Thus, one must be very careful in estate issues and in planning family financial matters so that the best result can be obtained.
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| Question 4: |
Can I limit my exposure to my spouse making a claim on my property if we sign a prenuptial agreement before the marriage?
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| Answer: |
Yes. A prenuptial agreement can be used to guide the court in disbursing the property. However, Washington does not treat the agreements as sacrosanct. If a prenuptial agreement is too one sided, it may not be enforceable. There are other factors which may make the prenuptial agreement unenforceable as well.
However, a prenuptial agreement that is carefully crafted and used properly can certainly be a tool to reduce the assets that are characterized as community property.
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| Question 5: |
I had a considerable net worth before I met my spouse. Will I be forced to split the assets with my spouse now that we are getting a divorce?
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| Answer: |
The answer depends on a number of factors including how the assets were handled. The best practice would to keep the earlier assets separate and not contribute any funds from the marriage into them.
On the other hand, if you placed your spouses name on a house than you re-financed, the court may interpret you actions as gifting half of the equity of the house to your spouse.
Therefore, as a general rule, keep separate assets separate.
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| Question 6: |
I am getting married soon and have children from the first marriage. How do I ensure that my assets go to my children and not to my new wife.
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| Answer: |
The easiest way to accomplish this would be to gift property to the children before the marriage to the new wife. However, this action has some disadvantages as well.
You may want to consider a prenuptial agreement before the marriage as well as a will stating where you wish your assets to go. Handling your assets correctly is also essential so that they are not determined later to be community assets.
In any case, you should seek the advice of an attorney licensed to practice in the state in which you reside.
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