Every divorce is different; no two cases are ever the same even though divorcing couples may face similar issues. The similar issues involve children; child support and custody; property division; and spousal support. But, high assets divorce cases necessitate even more careful review and representation for both parties. This article addresses an overview of some of the issues that should not be overlooked in a contested or uncontested case.
Special Concerns:
- Child Support and Custody
- Pre-Nup
- Property Division
- Business Evaluations
- Forensic Accounting
- Property and Investment
- Alimony/Spousal Support
Child Support-The Guidelines Might Not Apply
The North Carolina General Statutes Section 50-13.4 detail the uniform, mandatory statewide guidelines that judges and lawyers must use when calculating child support. Currently, when parents earn over $300,000 a year or more than $25,000 a month, the guidelines are not mandatorily followed like they are in other lower-income cases. Rather the case should be reviewed and considerations placed on the reasonable needs of the children and the relative abilities of each parent to provide support.
The guidelines may be of assistance to the court in determining a minimal level of child support. The reasonable needs in high income cases may include:
- Private school tuition
- Expensive hobbies, lessons, or camp
- Employment of a nanny or au pair
- College tuition
Children of wealthy parents often consider enrollment at private and higher-priced colleges and universities, so their college tuition can be another issue that requires special consideration. In North Carolina, a judge cannot order a parent to pay for college, since a parent’s obligation typically ends at 18 or high school graduation, whichever is the last to occur. Thus, payment for college tuition, studying aboard, and college visits should be addressed in a comprehensive separation agreement.
Preserving funds for children may also necessitate some simultaneous estate planning. Parents may want to see that trust funds are established and funded for children and grandchildren as part of a global settlement in a separation agreement. Requiring parents to obtain and maintain life insurance is another way parents can protect their children financially.
And, just to dispel any myths, the “richer” parent is not guaranteed custody. There is a current trend in some areas to move towards a truly equal 50/50 time schedule, joint legal and physical custody, for both parents. This typically means that the divorcing couple will need to live somewhat close for school, scheduling, and activity purposes. But the court will award child custody using the mandated standard of what is in the best interest of the child and to the parent who will promote the best welfare of the child. The polar star by which the court is always guided is what is in the best welfare of the child or children. Courts are awarding electronic visitations to the non-custodial parent, if such equipment is available and affordable to the parents. In high income cases, electronic visitation should be expected and considered a standard provision in an agreement.
Pre-Nups-Is there one? Is it valid?
Another concern in a high asset divorce case: Is there is a pre-nuptial agreement? Pre-nuptial agreements are common when “money marries money” or when “one with money marries one with very little”.
Just because there is an agreement does not mean it is a valid, legally binding agreement. The pre-nuptial needs to be reviewed. Common grounds for setting aside or invalidating a pre-nuptial agreement may include if one party forced the other to sign it or made signing it a condition of getting married. Another reason for invalidating a pre-nuptial may be because the party with the larger assets did not fully disclose all assets in an attempt to be secretive or protective. If a party signed the pre-nuptial because of duress or fraud or some other similar reason, there will likely be grounds that the pre-nuptial agreement is unenforceable.
Property Division
Another important step in every divorce case is classify and divide the assets and liabilities: equitable distribution. Property needs to be identified as marital or separate. As North Carolina General Statute Section 50-20 explains:
1. “Marital property” means all real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property. Marital property includes all vested and nonvested pension, retirement, and other deferred compensation rights, and vested and nonvested military pensions eligible under the federal Uniformed Services Former Spouses’ Protection Act. It is presumed that all property acquired after the date of marriage and before the date of separation is marital property except property which is separate property as defined below.
2. “Separate property” means all real and personal property acquired by a spouse before marriage or acquired by a spouse by devise, descent, or gift during the course of the marriage. However, property acquired by gift from the other spouse during the course of the marriage shall be considered separate property only if such an intention is stated in the conveyance. Property acquired in exchange for separate property shall remain separate property regardless of whether the title is in the name of the husband or wife or both and shall not be considered to be marital property unless a contrary intention is expressly stated in the conveyance. The increase in value of separate property and the income derived from separate property shall be considered separate property. All professional licenses and business licenses which would terminate on transfer shall be considered separate property.
The concept of separate property is very straightforward at first glance, but an issue arises when a party has taken separate property and co-mingled it with marital assets. For example, inherited monies were used to make improvements on the marital home. Truly separate property should remain with the party to whom it belongs, but co-mingling requires a careful review, typically performed by an expert, as to the actual value added through the co-mingling and proportional appreciation the co-mingling may have added to the asset’s value.
Business Issues and Forensic Accounting
High asset divorce cases may involve a business, a small family business, or a closely held business. An experienced, local business evaluator will need to perform an evaluation. Typically a forensic accountant’s services will also be needed. Close review of income tax returns is mandatory. Discovery of all assets is a must. Many small businesses may compensate their employees in ways other than just writing a pay check once or twice a month. Automobiles, electronics, and other valuable items may be purchased and used in the business, but they are really forms of compensation. Many high earning employees may have stock options, bonuses, and commission pay schemes that will need to be evaluated and reviewed for calculating true income. Careful review will be needed to determine the proper and appropriate level of gross income available to the parent/spouse to satisfy all support obligations.
Property and Investments
Real estate holdings need to be analyzed. Wealthier couples will have a home that is the primary marital residence; they are also likely to have a mountain retreat or a beach or lake house. It is not as simple to just agree or grant one spouse one house and the other home to the other spouse. Often the locations are impractical for work and/or for school purposes for their children.
Wealthier couples may also have more invested in personal property. In many divorce cases there is not a lot of wrangling over bric-a-brac and pots and pans. However, couples with money may have valuable antiques, airplanes, expensive watches and jewelry, boats, yachts, horses, classic cars, and fine art. Expert appraisers need to be hired to perform evaluations. And, there will likely be extensive stock and investment portfolios. The parties may own annuities, IRA’s, CD’s, and high death benefit insurance policies. A careful inventory and appraisal of all assets will be needed. Full disclosure of assets will be required. Pension evaluations will be needed; current face value is not the proper way to start a division of future monies.
With equitable distribution, the court will divide the property equally, unless an equal division is not equitable. Pursuant to North Carolina General Statute, Section 50-20, the court will consider factors that include:
- Income, property, and liabilities of each party.
- Prior obligations from previous marriages
- Length of marriage, ages and health of the parties
- A spouse’s need for the home
- Expected retirement monies
- Contributions made to the education/career of the spouse
- Liquidity of assets
- Difficulty in asset valuation
- Wasteful conduct
Alimony/Spousal Support
Lastly, there is the issue of spousal support/alimony. There may be no need to address alimony if both parties in a high income case make substantial incomes.
Alimony is proper to consider when one spouse is a dependent spouse and the other spouse is the supporting spouse. A dependent spouse is defined in the North Carolina General Statutes Section 50-16.1A as “a spouse, whether husband or wife, who is actually substantially dependent upon the other spouse for his or her maintenance and support or is substantially in need of maintenance and support from the other spouse.”
The supporting spouse is defined as “a spouse whether husband or wife, upon whom the other spouse is actually substantially dependent for maintenance and support or from whom such spouse is substantially in need of maintenance and support.”
For example, a stay at home parent who earns no salary while the other parent works as surgeon making over $600,000 a year would be a clear example. The stay at home parent is dependent and the surgeon is the supporting spouse. However, a dependent spouse can still be a wage-earner. A spouse making $75,000 a year would still be considered dependent if the other spouse was making $750,000 a year. Spousal support can be temporary or set for a certain number of months or years. Unlike child support, there are no mandatory guidelines or worksheets to complete to calculate alimony amounts.
A party may request post separation support or temporary alimony until there is a full resolution of all issues between the parties. Post separation support is important when there is an extreme difference in the funds being earned between the spouses and the household expenses are considered high. The court will consider the following: the financial needs of the parties; the accustomed standard of living of the parties; the present employment income and other reoccurring earnings of the parties; the separate and martial debts; and those expenses reasonably necessary to support each party and each party’s legal obligations to support. If the resources of the dependent spouse are not adequate to meet reasonable needs and the supporting spouse has the resource to pay, there should be an award of post separation support. Martial misconduct will be considered by the judge as well in determining how much, if any, post separation support.
In high asset cases, long term alimony may be an issue as well. The court shall exercise its discretion in determining the amount, duration, and manner of payment of alimony. The duration of the award may be for a specified or for an indefinite term. In determining the amount, duration, and manner of payment of alimony, the court shall consider all relevant factors, including:
- marital misconduct of the spouses;
- earnings and earning capacities
- age and physical, emotional and mental conditions of the spouses
- earned and unearned income
- length of the marriage
- property brought into the marriage
- educational backgrounds
- tax consequences
- standard of living
The consequences of divorce are numerous and serious, especially in high asset cases. Be sure to give careful consideration to the issues: child support and custody; pre-nuptial agreements; equitable distribution; and alimony.
