DIVORCE AND ASSET DIVISION
Because maintaining two households is always more expensive than the cost of maintaining one, only the wealthiest of divorcing couples can afford to maintain the same standard of living post-divorce that they were able to enjoy in one household. With this in mind, the cost of the divorce itself and any potential divorce litigation should be carefully analyzed, both over the short-term and the long-term. The attorneys at Greenberg Bryant & Bleier, LLP have the experience necessary for handling divorces where substantial assets are involved and reputations are at stake.
Important Factors to Consider in High Net Worth Divorce Cases
It is imperative in any divorce, especially one in which substantial assets are involved, to have an educated and realistic estimate regarding the costs associated with achieving your legal objectives, both financially and emotionally. For any parent, working well with your co-parent and maximum parenting time with your children is of the utmost importance.
We strongly believe that the first task in the high-asset divorce case is to make sure that cost do not spiral out of control. Just because you or your spouse have maintained a comfortable lifestyle does not mean that your money should be squandered away by endless expert fees, counsel fees, appraisals and court appearances. Your divorce lawyer should not forget that at the end of the day the money that you and your spouse spend on your divorce will not be available for your children's college, your son's bar mitzvah, your daughter's wedding, and your retirement.
We view it as our job to make sure that our client's and their spouse are not pulled off a financial cliff after having become lost in the acute uncertainty and emotion that divorce actions so often invoke. The lawyer you choose should be just as aware. As the client you are entitled to feel a sense of comfort and confidence throughout the divorce process. Yes, it is emotional, and sometimes complicated, but divorce is commonplace in today's world and there is ample case law to guide lawyers and courts in just about any circumstances.
No matter how wealthy you are, it is not necessary to reinvent the wheel, or let your divorce lawyer pretend that a special wheel had to be invented to suit your case. If your divorce lawyer cannot satisfactorily explain to you the financial concepts that your case presents, then you should ask yourself if that divorce lawyer has mastered them sufficiently enough to handle your case.
Some of the financial issues which may arise in these high net worth cases include the valuation and distribution of:
Professional licenses or degrees held (which offer increased earning potential or "enhanced earning capacity")
Professional practices (valuation of the spouse's partnership)
Family businesses, closely held businesses or complicated business transactions
Retirement assets such as stock options, IRAs, 401(k) accounts and pensions
Real estate / real property
Perhaps the most important document submitted to the court in a New York matrimonial proceeding is the sworn Statement of Net Worth, which requires your most recent tax returns. It must be filed with the court on the date of your Preliminary Conference, no matter how much or how little money you have. It has to be sworn to under penalty of perjury, no matter how aggressively you have managed your financial dealings. And it has to be certified as not false by your divorce attorney. If you or your spouse cannot file a sworn Statement of Net Worth, you should settle your divorce case immediately. A judge is an obligated reporter to the IRS. Among other financial information, your sworn Statement of Net Worth provides the court a snapshot as to how your family lived day-to-day.
At Greenberg Bryant & Bleier, LLP, our attorneys have an educated estimate of the client's monthly household budget items such as food, daycare, mortgage and clothing. That enables us to zoom into an adversary's glaring exaggeration like a heat-seeking missile. Your lawyer should have the appropriate experience to do the same.
One of the most important things that a sworn Statement of Net Worth provides the court presiding over a divorce is an estimate of what the client's needs are and/or what the client can afford to pay in maintenance (alimony) or child support. Is the salary fixed, or is there a discretionary bonus? Why are the credit card expenses so high? Is the family living above its means or within its means? How will the cash flow projections be impacted when there are two separate households to maintain? The cost of maintaining two households, especially when considering issues of child support and spousal support, can be exponentially more financially burdensome than the cost of a single-family household. These are all important considerations that should be discussed with your attorney before you sit down at the negotiation table.
It's your first divorce. Not your lawyer's (at least it shouldn't be if you have substantial assets at stake). Your lawyer should fully expect the monied spouse to try to hide resources or minimize the value of the marital assets. Your lawyer should also expect the non-monied spouse to be suspicious and fearful. In the medical profession there is a useful process known as the differential diagnosis, in which various hypotheses are ruled out. The court will likely appoint neutral evaluators and you may also need your lawyer to assemble if necessary a team of investigators and forensic experts..
Each member of your legal team should be knowledgeable and savvy. While no two cases are identical and New York is a big city, it is also a small city in many ways. Most of the experts (such as, forensic accountants or forensic psychologists) that I would recommend in your divorce action are regularly appointed by the courts in other cases. Your lawyer handling your case should have experience working with many of them and suggest the right fit for your circumstances and advocate for the appointment of a neutral whose background and experience is the right fit for your case.
Your divorce lawyer should also be experienced and thorough in obtaining and reviewing financial documents. I have found many a needle in the haystack of bank records and credit card statements. The real estate assets can be a very fertile ground to pursue an advantageous settlement. Like Catch 22, the banks and other lenders are frequently more eager to loan money to the people who appear to need it the least. That phenomenon has been known to tempt real estate investors to make sworn statements on their loan applications that come back to bite them in embarrassing places when they are getting a divorce. In one case, the spouse had not provided the bank with the same tax return that had been filed with the Internal Revenue Service. Here too, experience counts.
In the courtroom, your lawyer should bring to the table experience in reading financial statements, obtaining useful expert reports, and cross examining financial experts. One challenge is to correctly identify and value the assets and cash flow. That requires an understanding of New York divorce law, forensic accounting and tax law. For example, New York is the only jurisdiction that identifies enhanced earning ability -- such as the license to practice medicine -- as an asset in addition to contributing to the earnings stream. Advocacy is then required to connect, or limit the connection, of that asset to the distribution of the marital estate.
The distinction between "separate property" and "marital property" is an important one. Let's say that your spouse has inherited a family business and then spent the last 10 years of your marriage working there. What is the business worth and what is your share? The advocacy required to resolve that issue in your favor requires knowledge of valuation methods and New York law. Your divorce lawyer should be able to explain to you the "build-up method" and when to use it as opposed to the "excess earnings method" of valuation. Again, the quality of your attorney's background and experience makes a difference.
Corporate executives frequently have employee stock options, which are granted before they vest and might be exercised after the divorce action was commenced. The forensic economic experts often use the Black Scholes method to value these assets. The valuation of the unexercised stock option in the divorce case can be a complicated process. Part of the value may be separate property, and the part of the value that is marital property may not have a sufficient nexus to the marital partnership.
An important asset in every marital estate is the marital residence. Your divorce lawyer should be sufficiently conversant in the principles of real property valuation to dissect the real estate expert's report if necessary.
Retirement assets are often a major component of the marital estate. Often it's not rocket science to obtain the information required to decide how to carve up the retirement assets. In general, in marriages in which there are children of the marriage, each spouse will receive half of the retirement assets earned during each year of the marriage.
Although it is your case and your life, you should feel as if your lawyer is in it with you every step of the way. Your divorce lawyer needs to know first where to look, and then what documents to obtain. Important strategic decisions then need to be made on your behalf. Divorce lawyers sometimes mistakenly equate post-tax asset values with retirement asset values, which is like comparing apples to oranges. Or the divorce lawyer might not think to look closely enough at what the tax basis of the retirement assets is, because retirement horizon may be very far off. But taxes, like death, are a certainty, even for retirement assets. Great care and attention to detail should be paid to these issues at all times.