High Net Worth Divorce Attorney on Long Island

What You Need to Know About High Net Worth Divorces

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Do prenuptial agreements affect high net worth divorces?

Prenuptial agreements may either be followed or challenged in a high net worth divorce.

• The parties agreeing to follow the prenuptial agreement. Many successful people have prenuptial agreements. Very often, both parties agree to let the prenuptial agreement remain in place without challenge, and these cases can proceed as uncontested divorces without the need for a court appearance.
• The prenuptial agreement is challenged by one party. Each party has a right to challenge a prenuptial agreement provided it is asserted correctly. If this challenge is made, the matter will become a contested divorce. Very often challenges will be decided on the law by a motion for summary judgment. If that fails, the parties are then entitled to a trial over the challenge to the prenuptial.

How are high net worth divorces different than other divorces?

• Child Support. Child support in high net worth divorces is common as the income often exceeds the statutory cap, and children of high income families often have additional activities with corresponding expenses. Making sure the children's needs are addressed but avoiding double dipping is often an issue, even when the parties are resolving matter amicably.
• Maintenance. Maintenance in high net worth divorces involves income which often exceeds the statutory cap, plus factoring in any income producing assets awarded under equitable distribution. Whether by trial or agreement, the inclusion or exclusion of income producing assets when they exist will play a role in determining maintenance.
• Complex asset structure. It is very common for high net worth divorces to involve advanced asset structures. Two examples are the following.

 

• • The Crummey Trust

A Crummey Trust is an advanced estate planning trust that can substantially reduce estate taxes. Annual gifts are made through a trust, allowing the benefits of a gift tax exclusion while the trust allows the grantor to retain some degree of control over the assets. The transfer must be irrevocable.

To someone who is unaware of this tax reduction technique, it could be easy to assume the transfers were made to reduce the marital assets held by a spouse as they prepare in advance for a divorce. If the attorney representing a spouse who used the Crummey Trust doesn't recognize it for what it is, the result could be not using an expert to explain the transfers to the Court.

• • Asset based lending

Asset based lending is an advanced revenue generating mechanism used by the very wealthy, which result in tax free revenue.

Typically, a trust is set up which holds appreciating assets. Loans are secured against these high value assets acting as collateral. As a loan is not considered income, no income tax is paid. The loan is repaid for a short period of time, but as the asset appreciates, it allows the asset to be sold for a profit, repaying the loan. The surplus funds are then rolled into a new appreciating asset, and the process repeats itself.

This technique is common for individuals with highly valued asset which are known to appreciate such as art or real estate.

An expert will almost always be needed to explain how this method words.

• Business interests. Business interests in high net worth divorces are common. Valuation issues and the distribution of a business will depend on specific facts of each case. When a party owns a business with third parties, additional complexities are present.
• Increased utility of a distributive award instead of equitable distribution. The greater amount of assets in a high net worth divorce makes distributive awards an easier option than distributing specific assets. Often, this works well when keeping certain assets titled under one spouse is important.

How are old financial records handled in a High net worth divorce?

Very often, high net worth divorces occur after decades of marriage. Due to the time involved, old records can be incomplete or missing. When a separate property credit is at issue, these missing records could easily result in a gross miscarriage of justice if the court misclassifies the separate property as a marital asset.

When this issue is presented, a skilled lawyer will be able to find work arounds to fill in the missing gap, either through discovery, financial analysis, and application of controlling law.

How are hidden assets discovered in a high net worth divorce?

Finding hidden assets will largely depend on the attorney as is a skill acquired by the best divorce attorneys. Some of the fundamental steps are as follows.

• The Statement of Net Worth. The statement of net worth is almost always the best starting point, as it locks a party into a position for their income, expenses, assets and debts. Income that does not match expenses, or expenses that do not have a corresponding debt are two starting points. In addition, by listing all assets in a sworn statement, if another asset is found the credibility of that party is lost with the court and a more aggressive discovery may be needed.
• Personal Tax Returns. Personal tax returns can offer a wealth of information. They can be matched with the actual returns on file with the IRS. Sources of income can be matched with statements of net worth or other known information. Deductions can give clues of hidden assets.
• Business Tax Returns. Business tax returns can show a disparity between business supplies ordered and sales which do not justify the amount of supplies. Business returns are also where personal expenses are improperly shifted to artificially lower reportable income.
• Trust Tax Returns. Trust tax return form 1041 can provide a wealth of information on disbursements and should be compared to the language of the trust itself.
• Bank Statements. Bank statements can be used for deposits and withdrawals, and may contain information about undisclosed accounts.
• Credit Card Statements. Credit card statements can show expenses and can be matched with the claims stated in the statement of net worth.
• Brokerage Statements. Brokerage account statements can show contributions and transfers and may be a source in revealing undisclosed accounts if they are used for transfers.
• Retirement Statements. Retirement account statements can help understand the lifestyle of the account holder by matching contributions to stated income and comparing those figures to annual maximum contributions. Hidden accounts can also be discovered by examining retirement statements.
• Account Tracing. Account tracing can be done through any account and is often used in conjunction with a forensic accountant when warranted. If there is a financial disparity between the spouses a request for expert fees may be necessary.
• Employment Contracts. Employment contracts can provide a wealth of information on compensation packages which can be matched to disclosed assets.
• Court Records. Court records can be obtained to determine if the position taken by the party in the divorce is the same position taken in a different court proceeding. Financial information may also be present in other court proceedings.
• Depositions. Depositions are  an extremely useful tool in obtaining information from the opposing spouse and to lock them into their position. The latter is a very useful technique to deal with a lying party.
• Third Party Discovery. Third party discovery involves obtaining information from parties who are not part of the divorce.

How are assets valued in a high net worth divorce?

If an asset is sold, there is no issue as to its value. But short of liquidating every marital asset, the need to value the assets is apparent. Different valuation methods can result in widely different results, making it critical to use the right method for the right asset.

Types of valuation include:

• Market Capitalization
• Times Revenue Method
• Earnings Multiplier
• Discounted Cash Flow
• Book Value
• Liquidation Value

Contact Our Divorce Attorney Today

At the Law Office of J. Douglas Barics, we have the skills and knowledge to handle any high asset divorce, no matter how challenging. With over 25 years of matrimonial experience, we can bring to you the services of a large firm at a fraction of the cost. When you need a skilled divorce lawyer located in Suffolk County, call The Law Office of J. Douglas Barics.