Respected Counselors, Litigators and Mediators

High Net Worth Divorces

At Donahue, Hagan, Klein & Weisberg, LLC, we handle many cases that involve significant wealth and assets. We are familiar with the issues that commonly arise in those types of cases. Some of the most common of these issues are: (1) Identification of Assets of Hidden Assets; (2) Deferred Compensation and Stock Options; (3) Valuation of a Professional Practice or Business; and (4) Trusts.

Identification of Hidden Income and Assets

Many spouses think they have a good idea of what his or her spouse earns. However, many more spouses are surprised to learn that their spouses earn significantly more than what they at first believed. Alternatively, the spouse may not be aware of all of the income sources his or her spouse may have available to them. These other income sources can come in the form of business interests or investments, annuities, inheritances or trusts. An analysis of the marital lifestyle can typically show whether unaccounted income is being infused into the marriage. Once these sources are identified, it is usually easy to determine how much a spouse receives from these sources.

In order to reach a fair settlement or a fair result after a trial, all assets that are part of the marital estate must be identified. Often, a spouse will not know all of the assets that have been created during the marriage, especially if it is a lengthy marriage. There can be bank accounts, brokerage accounts, individual retirement accounts, pensions, deferred compensation accounts and stock options, just to name a few types of assets that a spouse may have without his or her spouse knowing. It is important to retain an attorney who can determine whether these assets exist. When all of the assets are identified, they can be valued and a proper or equitable distribution of the assets can be reached.

Handling Deferred Compensation and Stock Options

It is common to find deferred compensation accounts in matters involving wealthy individuals. Employers can provide employees the option of deferring income to a future date. The income is deposited into a deferred compensation account and is eventually provided to the employee who earned it on an agreed upon future date. The benefit to the employee is that he/she will hopefully receive the income at a time when they are earning less income (e.g., after they retire) and thus will lose less of the money to taxes as he/she will be in a lower tax bracket. While deferred compensation accounts are typically easy to value since the employee can get a statement which will indicate the exact value of the account, it often can be difficult to determine how much of the deferred compensation should go to the employee's spouse. As in most cases, how much the employee's spouse receives will depend on when the income was deferred and if a complaint for divorce has been filed, thus effectively ending the marriage from an equitable distribution standpoint.

The use of stock options has become a common way for an employer to award its employees for their loyalty or production. It typically takes a significant amount of time (sometimes years) for these stock options to vest. They may also not be divisible, thus making them difficult to equitably distribute. It is important that you contact an attorney if you have matters involving stock options as the timing of when the options were awarded will determine whether those options are part of the marital estate as well as when and how they can be divided.

Valuation of a Professional Practice or Business

High net worth divorces often involve one or both of the spouses owning a profitable professional practice or business. As with any other asset, it must first be valued before it can be equitably distributed. Most often, the courts will determine an appropriate value for the practice or business, and then award an appropriate monetary amount to the non-owner spouse. In order to value a business, it is usually necessary to retain a valuation expert who will examine every facet of the business, including but not limited to income, assets, employees and debts. It is often a laborious process that takes several months. A court may appoint its own expert, and each party may retain its own expert as well. If the parties cannot agree upon a value of the business after the reports are created, it will be left to a court to determine the value at trial

Handling of Trusts

Many high net worth divorces involve trusts in which a spouse is a beneficiary. In cases involving trusts, it is often common to see that distributions from these trusts played a large role in funding the marital lifestyle. However, there are some cases wherein the trust plays no role at all in the marriage. The value of a trust is normally easy to determine as very specific and detailed records must be kept of the trusts. These records will normally include the monetary value of the trusts and a list of any other assets contained in the trust. The more difficult part is to determine how much of the trust, if any, should be part of the marital estate. How the spouse received his interest in the trust (e.g., was it via inheritance or gift?) and how much control the spouse has over the trust (e.g., is the spouse the trustee or a future beneficiary) are some of the factors that will determine whether the trust will be part of the marital estate and, therefore, subject to equitable distribution.