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High Net Worth Divorces More Emotionally Taxing Than Average

2 min read
Jon Blau

By Jon Blau
May 24, 2021

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Fusion Family Wealth Ad with text that reads Divorce is one of the most stressful life events and can lead to destructive investment decisions. We are behavioral management experts. Let us help.

Emotions typically run at heightened levels when we confront any major life event change. They are generally among the most heightened during incidence of divorce.

We are often not simply severing ties with someone we spent most of our life loving and trusting the most; but we often cross the line into feelings bordering hatred. While it is okay and natural to experience such feelings and emotions, these should never be reflected in determining which assets one demands and how to split them—or the results could be financially devastating.

For example, if one spouse is experiencing feelings of guilt, he or she may have a tendency to want to give more to compensate. In addition, the same spouse may also agree to give pre-marital assets to compensate for such feelings. While it may sound harsh, financially speaking, divorce is the equivalent of dissolving a business; and a fresh and objective team of a CPA, attorney, and financial advisor often leads to a far better outcome than emotional guidance.

The proper team of professionals will shield the negotiations from being overly influenced by emotions. Just as important, they will ensure proper attention is paid to the tax considerations involved in selecting assets. For example, the spouse receiving a home will have capital gains treatment on a sale and may even avoid up to $250,000 being taxed at all. Conversely, a retirement account may expose one to being taxed at a much higher ordinary tax rate when distributions are taken from it.

Keep your focus on the common good to enhance the odds of a better financial outcome.

While it is compelling to seek out the toughest, most expensive, and most feared matrimonial attorney in order to ensure "victory," that approach will often lead to a sub-par outcome. Many high net worth divorcing couples will share one of their most valued "assets" for the rest of their lives, their children. Every dollar, along with all the time spent fighting over every last asset, will cost those children—who will ultimately inherit both parents' legacy—dearly. In a sense, drawn out, knockout fights may cause lasting damage to generational family wealth. This is counter to what is generally a shared long-term goal of protecting and building such wealth. One way to combat against this is to consider a more benign settlement approach, utilizing mediators instead of aggressive, high profile attorneys.

In sum, high net worth divorces will likely have the best outcomes if one hires an objective team of professionals to guide asset selection with prudent financial considerations instead of emotions. While mediation can be less emotionally rewarding than choosing a tough-as-nails attorney to make things as difficult as possible for your spouse, it can often provide better emotional and financial outcomes for the family as a whole.


Fusion Family Wealth is an independent firm providing investment management services and wealth planning strategies to investors and 401(k) plan sponsors. To learn more, visit their professional listing or their partner page

 

Written by Jon Blau

Jonathan Blau is president and CEO of Fusion Family Wealth, a Woodbury, N.Y.-based independent fee-only wealth management firm providing behavioral-based investment-planning strategies to high-net-worth investors.

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