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The tricky economics of high-asset divorces

On Behalf of | Jan 12, 2024 | Divorce |

Inflation has been bouncing up and down, cryptocurrency values have fallen dramatically, real estate holdings may have skyrocketed in value – or be sitting half-empty because there aren’t enough commercial tenants around. The stock market, too, has been capricious in the last few years.

For many divorcing couples, the rapid economic fluctuations that have been occurring may not matter so much, especially if they have no real estate and little to no investments. However, high-asset divorces are already more complicated than the norm, and the tricky economic situation of the last few years has made property division for affluent couples even more challenging. 

Understanding these dynamics is crucial for couples navigating a divorce in an ever-changing financial landscape. Here are some of the things to keep in mind:

Market volatility and asset valuation

Economic downturns or stock market fluctuations can significantly affect the value of investment portfolios, real estate and business holdings. High-asset divorces involve the equitable distribution of these assets, and valuations made during an economic downturn can have a lasting impact on each party’s final settlement. 

Business valuation challenges

Economic uncertainties can be highly problematic when valuing businesses in a divorce. A business that was worth billions a few years ago may only be worth millions today. Sudden downturns may affect a company’s cash flow, market demand and overall business value, leading to disputes over the fair division of the marital assets.

Interest rates and asset division

Changes in interest rates can influence the cost of borrowing and impact other financial aspects of divorce settlements. Those fluctuations might significantly affect the allocation of debt and the ability of each party to refinance their debts, leading to more restricted cash flow. Ultimately, that can play into how the marital debts must be divided.

The tax implications of asset sales

Economic downturns may force the sale of certain assets to generate liquid funds, but this can trigger capital gains taxes. Couples going through high-asset divorces need to consider the tax implications of every move carefully, particularly when selling assets during economically challenging times.

The effect on income streams

Economic downturns can impact businesses and investment returns, affecting the income streams of both parties involved in a divorce. Those fluctuations in income may influence alimony or child support calculations and the strategies individuals have available to address these changes.

Retirement and investment accounts

Fluctuations in the economy can directly impact the value of retirement and investment accounts. The division of retirement assets, pensions and other investment accounts during divorce proceedings becomes more complicated when account balances keep changing.

Liquidity issues

Real estate is a significant component of many high-asset divorces. Various economic factors can affect property values, mortgage rates and the ability to buy or sell real estate holdings. That can make it much harder to liquidate holdings so that the equity can be divided or used to “even out” the finances in a divorce.

The intersection of economic factors, stock market fluctuations and interest rate changes add an extra layer of complexity to all high-asset divorces. It pays to be adaptable and well-informed about all your legal options, as well as conscious of the risks of long negotiations. Informed legal guidance can also make it easier to understand the choices you have in your divorce.