If you are a high-net-worth individual there are certain considerations that you should know when getting divorced. Some of those considerations are as follow:
For many high-net-worth individuals, their income may consist of a base income plus yearly bonuses. In other situations, the individual may be self-employed and their income is paid through profit distributions from the company or corporation. Yet, other individuals may earn some of their income via commissions. The bottom line is that however you earn your income, for child support purposes it is all considered income.
Some high-net-worth individuals will receive company perquisites, such as: (i) a car or a car allowance; (ii) meals or food allowance; or (iii) expense allowances. The Court can include the value of these perquisites as “income” and they can be considered income when computing child support obligations. It does not matter if such allowances are taxable or non-taxable when calculating your taxable income.
Another income consideration for high-net-worth individuals is interest income and passive income. Interest income usually comes from investment accounts, stocks and bonds. Passive income is usually from rental income. Regardless, of how the income is classified, all the income you receive will be considered as income, except, a court will consider legitimate expenses as a deduction from rental income.
As you can determine, for child support purposes, the Court will consider virtually all income sources as “income.” The New York child support calculations do have a “cap” whereby, the first child support calculation will be up to the cap number (as of 2021, the cap is $154,000.00, this increases every two years, and it is scheduled to increase in 2022).
Once the Court calculates the basic child support calculation it can then calculate child support above the cap number based on many factors. In New York City and the surrounding suburbs, most courts will calculate child support up to a combined income of at least $250,000.00. However, for very high net worth individuals, some Judges will consider a combined income of $400,000. Although, there is no database of the highest combined income that was used, there are reported cases where the Court calculated child support using a combined income of $800,000.00.
If you are the high net worth individual, then it is important to explain why a lower cap is sufficient for child support purposes. Of course, if you are the spouse who is going to obtain child support, then you want to demonstrate that a higher cap is warranted. In either of these situations, it is important to demonstrate the actual costs and lifestyle that the child and the parties had prior to the divorce.
Spousal Maintenance (Alimony):
Similar to child support, in determining the amount of spousal maintenance (alimony), the Court must first determine your income. The same rules for determining your income for child support apply in determining income for maintenance.
However, the combined income cap for spousal maintenance is currently $192,000.00. Also, in general terms, a Court doesn’t exceed the spousal maintenance cap as easily or in as great of amount as it does for child support.
In addition, to the amount of spousal maintenance, there is the issue of how long maintenance will last. Here, the court generally adheres to a range of years, depending on how long you were married.
In many high-net-worth cases, in addition to a primary residence, there will be one or more vacation homes. In addition, high net worth individuals often have art collections and other collections that are very valuable. Other typical assets include: (i) cars; (ii) boats; (iii) bank accounts; (iv) stock or brokerage accounts; (v) businesses; (vi) IRAs, 401Ks and other pensions; (vii) life insurance policies; and (viii) patents, trademarks and copyrights.
Each of these assets may need to be valued and either sold to a third-party or distributed to each of the spouses as part of the divorce. Regardless, it is important to know what each asset’s gross value is, and if there is a lien or expense associated with the asset, what its net value is. An expert may need to be obtained to do the valuation. In many instances, the Court will appoint the expert to perform the valuation, however, the Court will consider your suggestion on which expert to appoint. Accordingly, it is important that the high-net-worth individual knows which experts are respected in a particular field.
If the asset was purchased during the marriage, it is most likely a “marital asset” and each spouse owns 50% of the asset. In contrast, if the asset was obtained prior to the marriage, then it may be considered that spouse’s separate property. However, the burden is on the spouse to demonstrate, with documentation or other evidence, that the property is their separate property.
Sudden Debt or Spending Binge
Most individuals know that they are going to get divorced months before actually filing for divorce. Likewise, although you might not be the individual who will file for the divorce, you probably have a good belief that your spouse might file for divorce in the near future.
In high-net-worth cases, it is common that prior to the actual filing for a divorce, one person will go on a spending binge or accumulate lots of debt. This is because all debts, while married are considered marital debt. By accumulate lots of debt, essentially you are making the other spouse responsible for 50% of “your” debt.
However, it is possible to demonstrate that the debt, although incurred before the filing of the divorce, should be considered the person who accumulated such debt as their sole debt and not marital debt.
If you are the high net worth individual, then it is very likely you will have to pay a significant amount of your spouse’s attorney’s fees in the divorce litigation. Here, there is no formula or guideline to assist the Court in determining the amount of attorney fees to award. Instead, the Court determines the amount to award based on these factors, as well as other ones: (i) complexity of the case; (ii) if the party has acted improperly; and (iii) each party’s retainer and how much has been already expended on attorney’s fees.
It is common to see attorney fee awards of $5,000.00 to $50,000.00, depending on each case’s factors.
David Badanes and the Badanes Law Office, P.C. have represented several high-net-worth individuals or spouses married to high-net-worth individuals. If you need an experienced divorce attorney, then call David Badanes and the Badanes Law Office at 631-239-1702, email at firstname.lastname@example.org or visit our web site: www.dbnylaw.com. The Badanes Law Office has offices in Northport and Garden City.
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