There are many issues that may spring up with a high-net-worth situation during the divorce process. From dealing with one spouse who supported the other spouse while that spouse built a lucrative career, to dealing with the issue of hidden assets, Sean Sullivan, Illinois Family lawyer, discuss the intricacies of high-net-worth divorces.
Press PLAY to listen to podcast. (Allow a few seconds for loading.)
Divorce Magazine Podcast: Elmhurst, Illinois family lawyer Sean Sullivan discusses issues that arise during high-net-worth divorces Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine Guest speaker: Sean Sullivan is a family lawyer practicing in the Elmhurst, Illinois area at the law offices of Laura M Urbik Kern, specializing in child custody and dissolution in divorce. With a degree in psychology as well as a Juris Doctor, Sean is able to help his clients with the most difficult family law issues. Visit his website, www.laurakern.com to learn more.
Divorce Magazine's Podcasts are available on itunes. Click here to subscribe.
What happens if someone puts his or her own education or career on hold in order to worked to put a spouse through law school or med school for instance? Is the party entitled to some sort of financial recognition for his or her sacrifice if the marriage ends in divorce? Yes the person absolutely is. The spouse who supported the spouse who pursued the professional degree would then be entitled to ask for maintenance. And if I was the lawyer representing the party and handling the case, I would obviously argue for maintenance. Presumably the spouse who has earned the professional degree has a higher income level actually, or at least has the potential to earn a higher income. What the judge will then do is then take into consideration the sacrifices that the one spouse made so that the one can obtain a higher degree. Then the judge would use that to take all factors into consideration when he's deciding how to handle the marital assets, determine the maintenance and what is appropriate.
What if one spouse never worked outside the home, but did the lion share of the child rearing and running the home to enable the other spouse to concentrate on a career? Will the stay at home spouse's contributions be rewarded during property division or when assessing spousal support? Yes. Again, this fact pattern is very similar to the previous fact pattern. What would have to be put into place is the issue of maintenance, (maintenance is now what people traditionally know of as alimony) which is the one spouse who has the greater income, greater property value, or greater income earning potential would be entitled to pay maintenance to the other spouse. So, the spouse who did the lion's share of the work staying home and taking care of the children in that sense, obviously that person has not obtained the education or doesn’t have the income potential of the other spouse, so this will be taken into account. Then the spouse with the higher income and the higher income potential will usually be assigned the responsibility of paying maintenance to the spouse who stayed home with the kids.
What are career assets and how are they divided on divorce? Career assets are assets that are acquired during the course of a career, such as when you have a doctor who has a medical office or a dentist who has a dentist office. Obviously they have tools and equipment; those would be considered career assets because those machines or those tools have assets and value themselves. If the medical practice owns its own building, then that might be an asset. Those are all assets that will be acquired during the course of a career.
And how would those be divided when it comes time for divorce? Again that would go under the equity and the judge would take into account that. You would have to decide and ascertain the value of those things. So in that situation, the fair market value of the real estate where the medical practice is on would be accounted for. And you would look at the value of all the equipment in that. And then that whole value would be assigned a net worth, and that would be assigned to one spouse over the other. So, then you would have to account for the differences between the values that the spouse who has the medical practice has, versus the spouse who does not have the medical practice.
How can a financially inexperienced person know if a spouse is being completely truthful in his or her financial disclosure? The best way for a financially inexperienced person to know if the other spouse is being completely truthful in his or her financial discovery is to work with his or her lawyer when the lawyer sends discovery requests and other questions to the other side. Discovery is the formal process by which the lawyer can use the legal means to send subpoenas, questions, or requests for documents from the other side. Work with your lawyer and your lawyer can look and see. You can keep in mind if you know there are accounts or things that show up on the disclosure statement, or for that matter that don’t show up on the disclosure statement. Ultimately, discovery is usually the best vehicle for your lawyer to help you address the shortfalls that you think that are there on the representations.
If the moneyed spouse was having an affair and spent large sums on items, such as a condo, car, vacations or expensive jewelery for his or her extramarital love interest, can the legal spouse reclaim any of this money during divorce? Yes the person can. This is considered what is called dissipation; dissipation occurs when one party uses marital funds for non marital purposes, and in this case, to fund an affair or any gifts that are given to the person he or she is having the affair with. So, in this sense the spouse who is disproportionately giving away money or used marital funds for non marital purposes would then have to account for the other spouse, or would be entitled to reimburse the other spouse for this amount of money for what we would consider dissipated during that time. But this a very fact specific case and if you suspect that there is dissipation, then you should probably discuss this with your lawyer who again, has experience in dealing with litigation matters and is very comfortable with sending out discovery requests and dealing with litigation to try to find these assets.
How does someone hide assets during divorce and more importantly, how do you find them? If you suspect your spouse is hiding assets, the first thing you need to do is tell your lawyer about your suspicions. Then if your spouse is truly hiding assets, it is likely your lawyer will recommend hiring a financial expert to assist the lawyer in discovering the assets that the spouse has hidden. As previously mentioned, discovery is the process by which your lawyer can help you go about gathering information on the state of your spouse's finances. They can send out subpoenas, requests for documents, and subpoena banks for information. There are various other means they can use and that is the best way to discover where the assets have been hidden.
How common is financial misbehavior during high-net-worth divorce cases, from hiding money on offshore accounts, to stealing marital assets to cover gambling debts? It depends on the situation and it depends I guess on the level of high-net-worth. It also depends on how liquid the assets are or whether the net worth is tied up into real estate as that's a little bit more difficult to hide. If the money or the net worth is tied up in more stocks, bonds or other type of investment accounts, those might be a little bit easier to hide because you can transfer them. They're not as present. It depends on the situation. It's not necessarily a general rule that things are hidden, so you would just have to look at it from a specific standpoint of each case.
With the Panama Papers being front page news for the last several weeks, it seems that there are companies who are setup to help very wealthy individual incorporations keep their money. How concerned should a divorcing person be in the light of revelations like this if he or she is divorcing someone with a very high-net-worth? It is a concern, especially if your spouse does have a very high-net-worth. Obviously the the higher net worth you have, then the more potential there is for someone to hide it, as well as be able to afford the different means to hide it. So again, if you're in a situation in which you have extremely high-net-worth and you suspect or are fearful that your spouse might be hiding it, then by all means you should address these concerns with your lawyer. Then, you should listen to your lawyer and follow your lawyer's advice. This way you and your lawyer can work together through the discovery process, and know at the beginning of the case that you want to try to go after this and find it out. Do it as soon as you can as early as you can in the case.
How can a financially naive spouse ensure that he or she gets a property settlement that is both fair and that will meet his or her needs? The first thing a financially naive spouse needs to do is hire a family law lawyer, such as myself or Laura that's experienced in high-net-worth divorces. Then the person needs to communicate openly and honestly with his or her lawyer regarding his or her needs and expectations. And then heed the lawyer's advice when it comes to discovery and/or settlement negotiations.
If someone signed a prenuptial agreement, is there any way of getting it set aside during divorce? There can be. Prenuptial agreements can be set aside if the party seeking to do so can prove that the prenuptial agreement is invalid for some reason. Again, this is a very fact specific driven case and circumstance. Facts that can invalidate a prenuptial agreement are as follows: that it was signed under duress, one of the parties committed fraud or intentionally misrepresented his or her assets, or it was not signed or properly executed by both of the parties. If you've signed a prenuptial agreement but you suspect that it wasn’t valid for some reason, you should explain that to your lawyer and allow your lawyer to analyze and address the specific situation.
What is a postnuptial agreement and when is it too late to get one? Postnuptial agreements are very similar to prenuptial agreements but the key difference is that the parties are agreeing to enter into a postnuptial agreement and (agree and set them out) after they have already been married. The time when a postnuptial agreement would be too late is once the divorce has already been finalized. Postnuptial agreements can only be entered into after the parties are married, but before they are divorced.
Where there are multiple properties, some owned by one spouse before marriage, some income properties or some family residences and vacation homes, how will these be divided on divorce? Are they all subject to division or are some exempt? This one again is a complex question and I don’t know if I can completely and accurately answer it today given just this specific fact pattern. But the short answer is first, you'd have to look at the rules governing property division under the statute, which again in this case is the Illinois Marriage and Dissolution of Marriage Statute. And then the long answer is you have to look at each specific asset, how it's been transferred and maintained. Also, do you suspect that there are funds that have been mixed in, such as co-mingling or marital funds being used or non-marital funds being used? If so, then you should consult an experienced family lawyer and have him address all those separate issues and then work with you together to decide what is the best answer.
If a stay at home spouse signed joint tax returns during the marriage and it turned out the moneyed spouse was under reporting income or making fraudulent claims, can the innocent spouse be protected from prosecution? Possibly. There are some protections for so called innocent spouses who are truly ignorant of the other spouse's fraudulent tax filings, but to some degree these are subject to the federal tax laws and the discretion of the IRS. In my practice as a divorce attorney, I make a standard practice when I draft a marital settlement agreement that I build in some type of tax protection for the innocent spouse if this occurs and is discovered after they've been divorced. This way the person has some type of protection already built into the marital settlement agreement that would inflate him or her from liability. And the other spouse would have agreed that any implications or any tax penalties that would be levied against the spouse who was guilty against the fraud would not be held against the spouse who was unknowing or innocent of this.
If one spouse owns a business, how can he or she protect the company during divorce both financially and from unnecessary disruption from the other side's attorney? This is a two part question and so I'll take it as a two pronged answer. And first I'll look as it pertains to protecting the business financially, this again depends on the facts specific to the case. As you can see, family law is a very fact specific driven type of law. Everything needs to be approached on a case by case basis as you look at the facts. But in this situation you would have to understand businesses could be protected or could be excluded by entering into pre-marital agreements or post-marital agreements. That's one way to exclude property. There are other ways to set it up depending on if it's a corporation or how that's done. If something like this is not done, then it's possible you may not be able to exclude the value of this business from the marital estate. Another way to approach this is to have the business valued and then offset the value of that spouse with the other assets to the spouse who is the non business owner. When it comes to the question of protecting the business or business assets from your other party's lawyer, then the best way to address this is what is called a protective order, which is a court order that is signed by the judge. The protective order sets out the restrictions and limitations in regards to how the confidential business may be collected or who it may be disclosed to.
Will private business records become public records during the divorce? Not if a protective order's been entered. Usually this is one of the prime reasons the protective order is entered. And the protective order would set out the ground rules and lay out that what is to be kept private shall be kept private, and only disclosed to the parties for the purpose of that specific litigation case.
If both spouses co-own a business together, how will it be divided on divorce? It would depend on how they choose to divide it. You'd have to value it and see what it is. It would depend on the other factors of the situation. The judge would have to apply what are the other assets that the parties own? Do they both have the same income potential? Do they both want to stay in the business? This one will be very much a fact specific case and you'd have to approach this on a case by case basis.
If a couple's children had company cell phones, drove company cars and perhaps even quote/unquote worked at the company, will those expenses be taken into account when determining child support? No. They won't, not upfront unless if the parties want to come to some type of agreement and parties are always free to come to their own agreement as long as the judge thinks it's fair and reasonable. So, as a general rule under law, no they wouldn’t be accounted but if the parties wanted to keep them going and to keep running them through the business, the parties would be free to come up with that agreement on their own.
Is spousal support meant to guarantee that the recipient's lifestyle will remain the same after divorce as it was during the marriage? In high-net-worth cases, you know, this could include regular shopping trips to Paris, vacations abroad, charity galas, there are a lot of expenses. True. And again, I know it's been a constant refrain, but it is a fact specific case. You'd have to look at what the high-net-worth is and what's the reasonable standard of living? It is one of the factors to consider. The judges will try to strive as best they can to allow the parties to remain in the same sort of lifestyle that they lived during the marriage; however, we do come up to that if there is a finite amount of money or assets, particularly if one spouse was incredibly high-net-worth and the other spouse wasn’t. There's only so much income or so much wealth to go around, that all has to be considered. Judges will strive to put those together but it's only one of many factors.
Does child support cover all the expenses the children had during the marriage such as private schools, tennis, horseback riding lessons or the annual ski trips to Switzerland? No, generally child support covers the basic expenses, such as the food, lodging and basic necessary life expenses for the child. Things such as horseback riding lessons or private school will not be considered. The court can never award a party or force a party to pay for private school. This would have to be done pursuant to a separate agreement party. Things like ski trips to Switzerland, horseback riding or shopping trips to Paris, these would fall under extracurricular expenses and again, they would be subject to the marital settlement agreement and it would be up to the parties to determine amongst themselves how they would approach these.
If the moneyed spouse has been divorced more than once, will payments to previous spouses and/or children reduce the amount of spousal or child support that a third spouse for instance is likely to receive? Yes it will. Because in a sense what happens is it's considered first in time, first in right. So, the first child will be given the amount of money you would look at the calculation based on that. And then the subsequent cases the spouse who has to pay will be given a credit for the other ones. So, it will ultimately reduce the income that then the second family is looked at. So, when he is paying his income out to the second family, if it is calculated at 20% or 28%, the amount of income that that 28 or 20% is calculated on will be reduced because he will already be deducted from the first amount he paid to the first family.
Have you seen cases where the high wage earner's income suddenly and maybe suspiciously plummets just before divorce, perhaps because they've quit their high level job to take on one in which the person earns much less? If so, would spousal or child support be based on what the payer used to earn or what the person earns now? It's not uncommon. It has happened and is not always necessarily common as it's a very fact specific case. But in the situations you described if there was a voluntary action on the part of one spouse to try to become gainfully, what I would consider gainfully unemployed, such as to avoid paying child support, then the judges would not look favorably upon this and they would take this into account. It is likely that they would look at an average of all the higher earning years that he had previously and they would instruct him to try to find employment again as soon as he could.
What about in a Tony Soprano kind of situation in which the family home is worth millions and there are 10 cars in the driveway and garages, but somehow only $20,000 worth of income is being declared every year. How would you actually find out what the true income and value everything is, both for the property division, spousal support and child support? In that situation - well, the one thing I would look at and the one thing I often address with my client, is the common sense argument. And most judges are aware and open to the common sense argument. Clearly if they live in a million dollar house and they have boats, cars, horses and other things but they are reporting income levels as only $20,000, clearly there's something off and there's some income elsewhere. Then that's when you would rely on your experienced lawyer who would try and engage in discovery and use the tools he can use in discovery such as subpoenas, taking depositions, sending out requests for documents. You would have to do a lot of work just to try to find and makeup the difference as to what they're actually reporting and actually earning.
Have you ever seen circumstances that are similar to what I just described but where the - what might have been called the innocent spouse, but really the one who knew all along what was going on, is willing to sort of burn it all down, in order to get back at his or her spouse? Sure, I have seen that situation. It can happen and that again is a very fact specific situation. And if that's what you want to do, then you need to discuss that with your lawyer so you can understand the implications of what that will do in terms for you long-term. But if it's the sense of, if I can't have it then he can't and that's what you want to do and live with the circumstances, then you're clear to do that. You just need to be on the same page and clearly communicate that with your lawyer so he can adequately advise you about all the outcomes, liabilities and potential pitfalls that that would entail.Back To Top
Certified Divorce Financial Analyst
Business Valuators / CPAs