When one or both spouses have a high-net-worth, the divorce process may become more complicated. Issues such as child support, alimony, and division of property are dealt with differently. To help those going through a high-net-worth divorce, New Jersey family lawyer Bari Zell Weinberger provides some of her top secrets to a seamless high-net-worth divorce, as well as answers common questions regarding prenuptial agreements, the division of business interests and stock options, and choosing an experienced attorney.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Bari Zell Weinberger is a renowned family law expert and the founder of Weinberger Divorce & Family Law Group, New Jersey’s largest divorce and family law firm. She is Certified by the Supreme Court of New Jersey as a Matrimonial Law Attorney, a certification achieved by only 2% of the attorneys in New Jersey. Bari is also an experienced family law mediator, a published author, and a frequent media contributor on divorce and family law for both local and national audiences.
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Read the Transcript of this Podcast Below.
What is different about divorce when a couple with considerable assets or a high income decides to part company?
There can be a number of differences both big and small in high-net-worth divorce, including:
1. Child support calculations
In high-net-worth divorce where ability to pay is not an issue, rather than strictly rely on formulas found in the child support guidelines to determine an award, judges use, as a guideline, the reasonable needs of the children addressed in the context of the standard of living of the parties.
This ruling extends back to a case involving former New York Giants player Michael Strahan. It gives judges more leeway to adjust support so the child’s lifestyle more closely matches the high-net-worth parent’s standard of living.
In situations where there is a great disparity in the spouses’ income levels, the lesser earning spouse may need to argue for considerable spousal support to maintain the marital lifestyle. Spousal support may be a main issue in the divorce. On the other hand, if both spouses are high-income earners, alimony might not be an issue at all in the divorce because neither party needs it.
In the typical divorce, the couple’s marital home and any retirement accounts are usually the main assets to be divided. In a high-net-worth divorce, there can be multiple homes, vacation homes, stock accounts, business investments, art collections, and expensive jewelry to distribute. Asset division may become a more multi-layered process that can require outside testimony from appraisers and financial experts.
There can also be different kinds of worries. A lower-earning spouse may be worried about losing their social standing or lifestyle as the result of the divorce. A higher-earning spouse may be worried about protecting their accumulated assets. There can also be fears about privacy, who can gain information about the divorce. Also, will the couple’s finances become a matter of public record, for instance.
What are some mistakes you see people in high-net-worth divorces make?
A big misconception that’s common for those just embarking on divorce is not understanding how assets are divided in New Jersey. People often go into divorce thinking that everything will just be split down the middle unless there’s a prenup that says otherwise, of course. However, New Jersey is an equitable distribution state, which means that marital assets are divided according to certain factors, including length of the marriage and the contribution of each spouse to the asset.
For example, whether your real estate holdings are comprised of a multimillion dollar marital home or a marital home plus a vacation home, commercial property, and/or investment properties, factors taken into consideration include how long you and your spouse have been married, when the property was purchased, and who contributed to the purchase or maintenance of the property. Only then will a decision be made, and it might not be 50/50.
What about prenuptial agreements? Some high-net-worth couples have them and others don’t. What difference do these agreements make in a divorce and how can someone make sure that their prenup is enforceable?
A prenuptial agreement is entered into before the marriage and generally protects your premarital assets and can ensure that certain property is deemed exempt from equitable distribution and address other financial terms. If you are a part owner of a family business, a prenup can specify that this asset is protected from asset division. The prenup can lay out terms for alimony, including the length of the term, or whether alimony will be waived.
Be aware that in 2013 the rules concerning prenuptial agreements changed. Now both parties to the agreement must fully disclose all assets and obtain independent legal counsel. They must also enter into the prenup voluntarily and be afforded sufficient time to consider all of the terms of the prenup prior to the actual wedding.
If your prenup amounts to an agreement scribbled on the back of a napkin or you are relying on a verbal agreement made before marriage, the terms are unlikely to be recognized, barring other factors. If you have a prenup, show your attorney who can ask you pertinent questions about how it was created and under what circumstances.
What about things like business interests? Can these be divided in divorce?
High-net-worth couples frequently are business owners or investors in a business or run a professional practice such as a medical practice together. When divorcing spouses own and operate a business together, then the business will probably require a formal evaluation and report. Professionals such as forensic accountants and actuarial experts are used to determine the fair market value of the business.
A thorough inspection of the business site, records, books, general ledgers, payroll registers, receivables, machinery, inventory, real estate, client lists, partnership interests, enterprise, and goodwill will be done. In New Jersey, the division of business value in divorce is rarely 50/50 unless the business was started after marriage and both spouses are equally involved. It is important to understand that business involvement can take any form. For example, if you were the principle of the business and your spouse did not work in the business at all, you may believe that you’re entitled to virtually all of the business value. But if your spouse took on a lion’s share of responsibilities in the home to permit your heavy involvement in the business, then your spouse was contributing actively to the growth of the business as well, albeit indirectly, and likely has a claim.
In these more complex matters, your attorney can work with your financial advisor or your tax professional to help you develop the right plan with your spouse, such as a buyout, sale, annuitized settlement, or other distributive arrangement.
Let’s discuss another common asset for high-net-worth couples: the stock portfolio. What might happen during divorce asset division to a spouse’s stock options received through his or her job?
People with high-income or high-profile employment frequently receive stock options as part of their compensation from their company. Distributing these assets in a divorce matter can be complex without the correct guidance. For example, the stock options need to be evaluated to identify the grant date investing schedule to determine which assets are subject to equitable distribution.
In your divorce, your settlement agreement may include a constructive trust to address the tax effects of your stock option distribution. The trust can also safeguard all post-judgment options while still protecting your pre-distribution interests and rights. Again, it is recommended that you discuss your options with your financial professional and your divorce professional to ensure fair and accurate evaluation of these assets.
What kind of attorney is the best fit for a high-net-worth divorce? What kind of attorney should a high-net-worth individual avoid?
Unfortunately, there’s a stereotype that a shark or a pit-bull attorney who promises to take your ex to the cleaners in court is the best kind of lawyer for high-net-worth cases. This is a wrongheaded notion. The sad truth is that some shark attorneys will smell that there’s a lot of money at stake in a high-net-worth divorce and will then try to keep as much of it for themselves as they can, usually by insisting on costly litigation, even when an out-of-court settlement would be available and deliver more positive solutions for you.
Your lawyer is your advocate and is hired to represent you zealously to the best of their ability, not to start fights so that they can enrich themselves at your expense. The right lawyer for you is someone who will fight hard for you, but who will not provoke or extend a fight that isn’t in your best interests.
When looking for an attorney, meet with a family attorney and ask about their experience with high-net-worth divorce. Do they extol the virtues of litigation even when you state your interests in mediating or amicably resolving your matter? Consider that a red flag to move on.
Now let’s get to those three secrets. What’s the number one nugget of information you would want someone going through a high-net-worth divorce to know?
Don’t hide assets. However tempting it can be, if you’re caught the penalties you may face and the associated costs of going to court and attorney’s fees may add up to more than what you would have paid had the asset just simply been divided. Truthful financial disclosure in divorce is in your best interests.
If you suspect your spouse is hiding income or assets, let your attorney know right away. Hints that your spouse is hiding assets include taking large cash withdrawals from accounts, setting up separate bank accounts or offshore accounts, giving money to a relative or a friend to hold, or even secretly buying expensive art or jewelry that will be sold later for cash.
If you suspect your spouse is hiding assets, you can request something called a “forensic analysis” or a “lifestyle analysis” that will create a detailed picture of your marital finances that can help reveal anomalies.
What is your second secret?
Carefully consider tax consequences. When you divorce and you receive certain assets, you may be taxed on distributions, so pay close attention to how the asset will affect your taxes. For example, if a tax-deferred retirement account is liquidated and the cash it contained distributed, depending on certain factors you may need to pay taxes on that money when you go to file your taxes. Depending on the amount in your settlement, this can be a tax hike that you were not expecting.
Alimony can also impact your taxes. If you pay it, the support is tax deductible. If you receive it, alimony counts as taxable income. If you’re being offered a high monthly support award, take a look at how much this will require you to pay in taxes. Do you actually require a greater alimony award to offset the tax burden?
Can you reveal your third secret?
Don’t make decisions based on emotions. Agreeing to terms such as alimony or division of assets and liabilities, just to get away from a person or just to be with somebody else, can have devastating effects on you financially. When you let anger take over, suddenly matters that could have been negotiated end up needlessly in court where a judge will decide rather than the parties being able to work it out between themselves.
Ultimately, when divorce is viewed in more of a businesslike way, the process becomes less rocky and is easier to handle in a discreet way. In the end, this will save time, money, and stress. This means that you will be able to walk away from your divorce with more wealth, not less.
Where can high-net-worth spouses go to learn more about divorce in New Jersey?
For more information about the issues involved in high-net-worth divorce, please download our free guide, “High-Net-Worth and High-Income Divorce,”.
What special help does your firm offer to prospective clients dealing with high-net-worth divorce issues?
If you are seeking a trusted family law attorney with experience representing high-net-worth clients, please contact us today to set up your free consultation. We have offices in Bergen, Burlington, Monmouth, Morris, and Somerset counties and serve clients throughout New Jersey. We look forward to hearing from you.