Divorcing High Net Worth Couples
How apropos is the expression, “Increased possessions, increased worries” or the lyrics to the song, “Mo’ Money Mo’ Problems” to high net worth divorces?
In short, these are first world problems, but problems, nonetheless.
The bigger and more intricate or complex the pie, the more moving parts there are to account for. The asset portfolio and sources of income streams and investments are multilayered and the “mandatory” “nondiscretionary” expenses and the definition of necessities have a significantly broader scope.
The difference between income and assets must also be differentiated, although, high net worth couples are typically well-endowed in both areas and may have income producing assets as well as their business and professional incomes.
When a high net worth couple divorces, the letter of the law, foremost the statutory caps for maintenance and child support, most often goes out the window, with there being significant latitude for judicial discretion. It’s a different ball game. The statutes are mere guidelines, meant for the average couple, and are inappropriate for ones that fall significantly above the median wealth. Many times, when working on monthly budgets with this caliber of client, their monthly expenditures are higher than what the average American makes per year or what the statutory cap may be.
The present statutory caps are set at $184,000 of the payor’s income for maintenance and $148,000 of the combined parental income for basic child support payments. It is the burden of the payee who is requesting support above the cap to prove the need. This burden is, obviously, swiftly and effortlessly met in high net worth cases.
The caps are periodically adjusted to account for inflation according to the Consumer Price Index (CPI). The $148,000 child support cap was increased to this figure on March 1, 2018. Immediately prior to this, the cap was $136,000. At that time, a client whose monthly budget was in that approximate amount wanted to know what his total support payments would be after an 18-year marriage within the first 2 hours of meeting him; this was unrealistic with the level of complexity of his portfolio and standard of living analysis that would need to be conducted.
The guiding light in these cases is the standard of living analysis, which is an in-depth, thorough analysis of the money and resources needed to maintain the payee’s standard of living, balance out the parties, and ensure that the childrens’ needs will be appropriately met in both households.
These clients still pose off-the-cuff queries at inception regarding how much they’ll have to pay in support, as they often have significant anxiety about it. It is important to be very judicious and careful with this answer, since when clients hear support figures, especially at the beginning of a case, they often become psychologically married to these figures and it gets harder for them to mentally adjust it later.
High net worth spouses whose wealth is tied up in non-liquid assets often have to figure out how to most readily convert the assets to cash in the most tax savvy way. Sometimes they intentionally try to stretch out and prolong the divorce towards this end. These types of case can also be extremely expensive, because of all the required valuations of the assets; moreover, if the parties cannot readily agree on the values and need to hire separate valuators.
There are also different levels of high net worth.
Chances are if you’re living in select neighborhoods in New York City or Manhattan, you’re likely considered as having a high net worth. A family with 3 children enrolled in private school could be running on at least a million dollars a year, but they’re not necessarily feeling so well-off when divorce happens, and they have to liquidate assets and clear out savings.
These different levels of wealth can also be treated differently.
A client wrote in the subject line of one of his e-mails, “I earn 500k, have assets totaling 1.5 million, and am middle- class.” While others might view him as delusional or an ingrate, he wore the middle-class sentiment like a halo and as part of his self-identity. He was very concerned how he would be able to live post-divorce.
Moderately wealthy people often get hit hard. Someone can make $750,000 a year, have assets of $5 million and three children in premier private schools and camps, and divorce can wipe them out.
As of late, in New York County, where there is a high constituency of high net worth divorces, we are commonly seeing judges capping the very high net worth spouses at an income level of approximately $400,000 and setting the child support and maintenance amounts accordingly. As an attorney, it’s important to be aware of this, in terms of setting up the case, counseling your clients, and effectively negotiating towards favorable results.
Cheryl Stein, Esq.
The Law and Mediation Offices of Cheryl Stein
745 Fifth Avenue, Suite 500
New York, NY 10151
Phone: (646) 884-2324
E-mail: cheryl@cherylsteinesq.com
