High Asset Divorces
Cases with high assets generally involve high‐profile people. The last thing in the world that these people want during their divorces is publicity about their net worth. Attorneys have a variety of ways these days to avoid publicity for these clients. They can settle cases through mediation or arbitration, which are private proceedings. They can also reach agreements that are referenced in the judgment of divorce but not included in it so that there is no “public record” of the property settlement.
High‐asset divorces generally include tax issues because these estates generally consist of property that appreciates such as stocks, bonds, and real estate. Commercial real estate that has been
depreciated may result in a “recapture” of accelerated depreciation upon sale. Stock options have taxes embedded in them. Retirement accounts are taxable when liquidated. Accountants are necessary to determine the taxes involved and to value assets.
It is important that debt be accurately determined. There may be debt against a retirement account. There is a cost to exercising a stock option. There are mortgages, and sometimes a mortgage
against a marital home may have been used to finance a business, which can complicate the case. Taxes, student loans, and unpaid child or spousal support are not dischargeable in bankruptcy.
Some assets yield current income (like many stocks and commercial buildings). Other assets are good investments because they appreciate over time even though they do not yield current income. On the other hand, some assets have substantial expenses associated with them (like yachts and marital homes). They also appreciate in many cases, but that appreciation may be less than the related expense.
There are three concerns when it comes to asset distribution: (a) inventory; (b) value; and (c) distribution. There may be restrictions on distribution of an asset; for example, it may not be possible to transfer stock options to a spouse. In that situation, the judgment could give the spouse a right to demand that the spouse with the stock options exercise them and split the net proceeds or something to that effect. Retirement accounts can be transferred to the other spouse, but a Qualified Domestic Relations Order is necessary to do this.
Certified Financial Divorce Practitioners and other specialists can be part of your divorce team. The people often have special training in how to divide assets, tax and retirement issues, legal issues, spousal and child support, debt and bankruptcy issues, Social Security and Medicare, and estate planning. They can help clients develop a reasonable demand for settlement and a budget based on anticipated income. These specialists often charge less per hour than an attorney but work in concert with the divorce attorney.
Unfortunately, many family law attorneys took “soft” courses or clinics in law school that did not prepare them to handle high‐asset divorces. Marian Faupel took the highly regarded Business Planning course at Wayne’s Law School, which included substantial course work in federal securities law. She took a post‐graduate course in commercial lending as well as personal and corporate tax and bankruptcy law while in law school. Prior to graduating from law school, Ms. Faupel was Chairman of Saline’s Business & Industrial Development Commission and on Saline’s Tax Board of Review. She was a trustee of the Saline Board of Education for 12 years, which had a multi‐million dollar budget (serving as its President for one term). Ms. Faupel took the real estate appraisal course through the Real Estate Institute that existed years ago at the University of Michigan. After law school, Ms. Faupel successfully represented clients in the U.S. District Court on a federal securities fraud case. All of this training and experience has been invaluable during high‐asset divorce cases. Do not be afraid to ask your attorney about the training and experience he/she has that is relevant to your case.
On a final note, it is important to develop a new estate plan after a divorce. By law, prior designations of a spouse expire with the divorce. Ideally, a client should consider a trust where assets
can be distributed over time to minors or adult children and/or used to support the client in his/her later years.