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I’ve seen a lot of celebrity and CEO couples who have been married for a long time go through a divorce. Because the assets involved are very complex, divorce is more difficult when the spouses have a high-net worth. The usual norm is that marital assets, or the goods and property acquired by the parties during their marriage, are subject to division.
But where do financial investments fit into this equation?
How the division of assets between high-net-worth partners can go wrong
When two people decide to get married, they rarely think about their relationship ending in a divorce. However, the disheartening truth is that up to 50% of marriages fail. The fates of celebrities and other high-net-worth people, such as prominent business owners, chief executive officers, or chief financial officers, are no different.
The marriages of famous people are even more unstable than the merely wealthy, and the divorce rate among this demographic is even higher. This happens because high-net-worth people have busy and hectic schedules that prevent them from spending a healthy amount of quality time with their spouses and from communicating openly with each other.
Celebrities and other wealthy people often surround themselves with advisors and advocates to benefit from permanent assistance in navigating personal and professional endeavors, including marriage.
Nevertheless, some famous people fail to take the necessary precautions and end up with serious financial setbacks following a divorce. This was the case for one of the greatest movie directors, Steven Spielberg, who drafted a prenuptial agreement on a napkin before marrying actress Amy Irving. The judge ruled the document was not legally valid and, as a consequence, Spielberg had to pay Irving a whopping $100 million. Their marriage lasted four years.
When it comes to asset division, the court uses two basic schemes to divide a couple’s property during a divorce in the United States: community property and equitable distribution. In the former, all the property of a person has been deemed community property owned by both partners, or one partner’s separate property.
Marital property generally concerns what was acquired by either or both partners during the marriage. In contrast, separate property refers to any property the couple purchased separately before marriage or after separation.
In Florida, however, the courts use the equitable distribution approach. This means that the assets and earnings acquired throughout the marriage are divided fairly, but not necessarily equally, between partners. For instance, the judge can order one party to use separate property to make the settlement just for both spouses.
The assets of high-net-worth couples can include businesses, stock, equity compensation, residences, vacation properties, other types of real estate, pensions, valuable high-fashion or art collections, vehicles, or boats. Spouses from the Sunshine State often go to great lengths to protect their business, financial investments, and other assets, as their ex-partners are usually entitled to 50%.
One radical and illegal measure a high-net-worth individual on the brink of divorce can take to protect their assets is to hide a significant part of their financial property. This action can have serious legal consequences, such as being in blatant contempt of the court, regardless of whether the divorce is finalized. In such cases, the judge can order the payment of the ex-spouse’s attorney fees and corresponding fines. Another way someone who is about to get a divorce can unlawfully protect their assets is by selling some of their property just before the divorce without their spouse’s approval.
As a high-net-worth celebrity and business owner, making sure that your ex doesn’t become your business partner overnight can be accomplished with the help of an expert in complex financial and legal matters. There is, of course, one measure you can take to protect your business just before the wedding, and that is signing a prenuptial agreement with your future partner.
This is how John Cena, the famous professional wrestler, made sure that his first wife, Elizabeth Huberdeau, would not become the owner of some of his assets. The wrestler asked his future wife to sign a 75-page long prenup as a “failsafe in case something happens.”
Still, some celebrities overlook this document, which can take a heavy toll on their finances in a divorce. For instance, after his divorce, actor Harrison Ford not only had to pay film and television screenwriter Melissa Mathison $85 million, but he also had to give her a significant percentage of all future royalty earnings from films made during their marriage.
Resembling a prenup, a postnuptial agreement is also a viable option to protect your assets. It contains the same elements as a prenup and can be signed anytime during the separation period, but not after you decide to get a divorce. A postnup can be a way to save the marriage or speed the divorce but, in the long run, it might end up saving a ton of money. However, certain states don’t recognize postnuptial agreements as valid or may challenge these types of documents. Such is the case with Ohio, Minnesota, New Jersey, and Tennessee.
What happens to the financial investments of a high-net-worth couple?
The spouses may have a vast investment portfolio that includes stocks, bonds, and other financial instruments. They may also have funds in multiple types of financial accounts. In the event of a divorce, the partners need to have a complete picture of all the financial assets they own and determine how they can be divided to benefit both parties.
To simplify their situation, some high-net-worth individuals with investment accounts that have been entertaining the idea of divorce for some time contact their financial experts and remove the spouse’s name as a beneficiary.
Take, for example, the divorce between former Miami Dolphins cheerleader Lynn Aronberg and Palm Beach County State Attorney Dave Aronberg in 2019 after only two years of marriage. Since the beginning, the attorney had successfully protected his financial investments. His ex-wife got a modest $100,000 settlement, including a new BMW and $40,000 in cash.
Another interesting example of a high-net-worth celebrity who lost their financial investments because of divorce is Jocelyn Wildenstein. The former American socialite alleges she eventually had to file for bankruptcy over her faulty divorce settlement. Despite spending the $2.5 billion she received from Alec Wildenstein, she claimed that she had been promised much more. She received two paintings in the settlement, one by Diego Velázquez that ended up being a forgery, and another by Paul Cézanne, that sold for a fraction of its initial estimation. The couple was married for one year.
A study in the Journal of Financial Economics found that marriages and divorces involving high-net-worth business people are associated with considerably lower earnings from investments during the first six months surrounding the event and up to two years following the event. Moreover, busy individuals who manage multiple investment funds on their own are more affected by marital transitions. As a result, inattentive investment managers place fewer active bets than their peers and load more on index funds.
Sean M. Cleary has been a prominent lawyer for over 20 years, focusing a portion of his practice on high-net-worth divorce proceedings and complex family disputes. The Law Offices of Sean M. Cleary is located in Miami, Florida.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.