Issues to Consider in Maine High Net Worth Divorce Cases
High net worth divorce cases present particular complexities. Divorce is always hard on the divorcing parties. It can also be financially complex and intricate. A careful and financially sound approach is essential if a fair settlement is to be achieved.
Do I Fall Into the Category of a High Net Worth or High Asset Divorce Case?
You may wonder if you fall into this class of the high net worth person. There is no perfect line of demarcation for this class of divorcing couples. It does not require that you drive a Lamborghini. In Maine, our millionaires often drive Subarus.
When I mean "high net worth" clients, I am assuming that you have at least one of the following:
- A high household income well into at least six figures;
- Significant real estate assets;
- A financially successful or long running business;
- Significant assets in financial or retirement accounts;
- An inheritance, trust or expectancy of significance; or
- Significant cash or precious metals.
If you fall into one of the above categories, you likely have significant assets or net worth that must be protected and planned for.
Income for support purposes
You or your spouse's income may fall into a few categories especially if you are self-employed or your income comes from several sources:
- “Base” income of most high net worth individuals
Most high net worth individuals have a base income (either through periodic draws or an actual salary). This comes in different forms. This base income is likely the most predictable part of the person's income and, regardless of fluctuations in profits, is paid monthly and often bi-monthly similar to a paycheck.
- Profit distribution versus bonuses
If the high net worth individual is self employed, additional income is typically paid out through a profit distribution. This can be throughout the year or at specific intervals.
If the high net worth individual is not self-employed, but is rather a CEO, CFO or in another executive position, the additional income is typically in the form of a bonus. This bonus is typically tied to individual and/or company performance.
You may be asking, “what about commissions?” Commissions are treated like bonuses in that they are not always predictable and may be tied to performance.
- Company Perks and their role in a divorce high net worth individuals
Car allowances, expense allowance, and other company perks may also be part of a high net worth individual's income. The term income here is tricky. These can sometimes be untaxed income (which fall into a different group for support purposes), taxed income or a combination of the two. One of the challenges a divorce causes is that what was normal and accepted during the marriage can become challenged in divorce litigation. The issue of perks and their status as untaxed or taxed income becomes an issue in many high net worth divorce cases.
- Stock Options
Another issues to consider are stock options. An option may or may not be “in the money” depending on the performance of the stock. An evaluation of the options is critical.
- Interest or passive income
Interest income can come from investment accounts, stocks and bonds. Passive income comes from many sources, including rental income. Their taxability and consideration for support purposes can get complicated because the gross income is not always a fair game.
- The sudden pre-divorce spending spree
One piece of advice we have for high net worth individuals who are about to got through divorce is watch out for the sudden pre-divorce spending spree. We have seen it happen and we have cautioned the high net worth spouse about it. Husbands sometimes wonder why their Wife is suddenly spending more than she ever did or causing unnecessary expenses on lavish items that are even beyond an upper income marital lifestyle. Of course, Husbands do the same thing to their Wives pre-divorce.
- Property and asset division issues during a divorce for high net worth individual
The typical high net worth and high asset divorce case includes:
- A valuable residence
- Rental property, residential or commercial properties or land
- Vacation or ski homes (the Summer lake or ocean house or ski house at one of our great mountains)
- Vehicles including cars, watercraft, etc.
- Traditional bank accounts, stocks or brokerage accounts
- A business or businesses, some of which may be actively operated while others are operated as a passive investment
- 401K, IRA or pensions
- Intellectual property
- Substantial inheritance
Please feel free to contact us regarding your divorce division needs.
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