No two divorces are alike. Each one has its on set of unique challenges and nuances. However, most of these challenges and nuances involve the same time of issues. These include spousal support, division of marital assets, child support, and child custody. When the divorce proceedings involve couples with high net worth, these issues can become even more complex. Below, we discuss a few of these challenges: Child Support and Custody; Pre-Nuptial Agreements; Division of Property; Business Evaluations and Forensic Accounting; Property and Investments; Alimony and Spousal Support.
Child Support and Custody
North Carolina law outlines structured guidelines for judges and lawyers to use when calculating child support. However, if parents earn over $300,000 a year, the guidelines are not mandatory like they are for lower-income families. In these situations, the cases are reviewed based on the reasonable needs of the children and the abilities of each parent to provide support. These needs typically include private school tuition, expensive hobbies, college tuition, and the employment of a nanny. Couples should consider addressing college costs in a separation agreement since judges cannot mandate a parent to pay tuition since child support obligations typically end when the child turns 18.
This is also an opportunity for parents to consider estate-planning opportunities. Parents may want to establish a trust fund for the benefit of their children and grandchildren. They should also consider life insurance as a method of protecting their children financially.
When dealing with child custody, it is a common myth that the wealthier parent will get custody of the child. While this may have been historically true, the trend is to split time between both parents. This may limit each parent’s geographical options to maintain school districts and schedules. Regardless of wealth and income, courts must award custody based upon the best interest of the child and the best welfare of the child. Electronic visitation is common for non-custodial parents; and should be expected in high-income cases.
Many high-asset divorce cases involve prenuptial agreements. This is especially true if the money was present at the time of the marriage. However, just because an agreement is present, doesn’t mean it is valid. A prenuptial agreement will be held invalid if a spouse was forced or coerced into signing it. It may also not be binding if the spouse with the larger assets fails to full disclosure all assets in an attempt to hide them.
An important part of the divorce proceedings is equitable distribution; that is, classifying and dividing assets and liabilities between the spouses. Property must be classified as marital or separate property.
Marital property is all property acquired by either spouse or both spouses during the marriage and before separation. This means all property received individually or jointly, as well as all property earned during that time. It accrues from the date of marriage to the date of formal separation.
Separate property is all property acquired by a spouse before the marriage or acquired by the spouse through inheritance or gift during the marriage. When determining if a gift received during marriage is separate property, the court looks at the intent of the gift giver. Interest gained during the marriage of separate property is still considered separate property. Also any professional licenses that would terminate upon transfer are considered separate property. While seemingly simple, couples also comingle these assets with marital property, which can add to the challenge.
Business Evaluation and Forensic Accounting
Many times, high-asset divorces involve a business. That business may be large, small, or closely held. In order to accurately divide assets and liabilities, a business evaluator will be needed to evaluate the company.
Additionally, a forensic accountant will likely be employed. The forensic accountant must closely review income tax returns and other financial documents. The accountant will also ensure that all assets are disclosed. This includes non-traditional compensation for employees such as automobiles and other valuables. He or she will also evaluate stock options, bonuses, and commission compensation plans to evaluate a true income.
Property and Investment
Wealthier couples typically have more complex real estate holdings. They may have a primary residence that triggers a deduction, but may also have one or more vacation homes. These holdings may have various values and geographic benefits. This makes splitting the homes slightly more complicated than giving each spouse their own home from the options.
While there may not be much arguing over personal property in the typical divorce, wealthier people typically have high-value assets such as boats, antiques, airplanes, and artwork. To divide these assets, expert appraisers must be used to determine the value of each asset. There will also likely be investments and retirement plans to analyze.
The first step for dividing these assets is to ensure full and thorough disclosure of all assets. Once assets have been disclosed, the court will divide property equally unless doing so would not be equitable. The court will consider factors such as the income of each party, pre-marital obligations, expected retirement income, liquidity of assets, difficult in valuation, and wasteful conduct among other factors.
Alimony and Spousal Support
If both spouses are independently wealthy, this subject may be moot. However, if the wealth favors one spouse over the other, it may be awarded. Alimony is payments made from one spouse to the other when the receiving spouse is dependent upon the supporting spouse. The dependent spouse must be “actually substantially dependent” or “substantially in need of maintenance and support from the other spouse.” Alimony occurs once a divorce decree is entered.
If a spouse needs support after separation, but before the divorce is finalized, a court may order post-separation support. In high-net-worth divorces, this is common if one spouse earns less than is required for household expenses. The court will consider factors such as accustomed standards of living, financial need, income, and marital misconduct among other factors.
The court also has discretion in establishing the amount, duration, and manner of alimony payments. The duration could be for a set period of time or indefinitely. When making this decision, the court will consider marital misconduct, earning capacities, age, physical and emotional conditions, earned and unearned income, the length of the marriage, property brought into the marriage, educational backgrounds, tax consequences, and standards of living.