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A divorce is always one of life’s most stressful times. But for high-net-worth individuals, most of whom are business owners, entrepreneurs and successful professionals, a divorce can be a permanently life-altering event. Spouses that never produced a dime of income throughout the duration of a marriage can be handed the keys to businesses, cash flows and real property. Often times, the implications of this can extend far beyond the productive spouse who is being cleaned out of the rightful fruits of their labor. It can also extend to employees of involved businesses, tenants of rental properties and the family, including children from other marriages, of the spouse being sued. It is absolutely crucial, no matter how amicable the proceedings may seem, that any high-net-worth individual who is involved in a divorce seeks the counsel of a highly experienced and talented legal team.
No-fault divorce and equitable distribution create all the wrong incentives
Particularly for those who may have married young, prior to the accumulation of significant wealth, the incentives created by no-fault divorce in the state of New York, along with the so-called equitable distribution method of asset divvying, are perverse enough to be serious cause for concern. For example, if a couple suddenly finds itself sitting on a $10 million net worth, with only one spouse having been responsible for the vast majority of that wealth accumulation, the non-productive spouse will have tremendous incentive to seek a divorce. In fact, this is precisely the type of case that we see taking place every day in the state of New York.
While married, the non-productive spouse may have little actual control over the assets, besides being able to drive a nice car or live in a nice house. They may also have significant perceived restrictions placed on their lifestyle. But with equitable distribution, these spouses know that, at an absolute minimum, they are likely to be awarded a third of the couple’s net worth in a divorce. With New York’s newly enacted no-fault divorce laws, this means that they effectively have an option worth at least $3.3 million, which they can exercise at their discretion. That option is filing for divorce.
And while it may be tempting in the above scenario to think of the non-productive spouse as being a woman and the earner being a man, increasingly, we are seeing high-net-worth women losing everything they’ve spent their lives working for, due to no-fault, frivolous divorces. It cannot be stressed enough. If you are a high-net-worth individual, who is facing a frivolous divorce, it is absolutely crucial that you get in contact with an experienced legal team that can get you results.
The bad news is that, in most cases, divorce will result in non-productive spouses getting something, usually a sizable amount of cash and possibly the house. The good news is that those settlements can be kept in the 10 to 20 percent of net assets range, particularly if the divorce proceedings can be kept out of the courtroom. For many spouses, the temptation of getting a windfall worth more money than they can expect to make in a lifetime of work will prove to be too much. When it does, our experienced and talented lawyers will be there to protect you and your assets.
In 2010, the state of New York went to a no-fault divorce system. While this arrangement sounds benign, in theory, it actually allows for much easier initiation of divorces. This can create hugely perverse incentives, especially in cases where one spouse has a high income or high net worth and the other spouse brought little or no assets to the marriage and has no real earning potential. In cases like these, it is absolutely imperative that the primary breadwinner in the marriage hire the best possible team of divorce attorneys to protect their rights, property and livelihood.
Under a no-fault divorce system, all that is needed to begin proceedings to dissolve the marriage is for one party to claim that there are irreconcilable conflicts present in the relationship. In the state of New York, it is required that these irreconcilable factors persist for at least six months. There are some minimal documentation and filing requirements. But beyond these, a divorce can essentially be initiated at any time by either spouse.
This can create a severe moral hazard for the spouse that does not produce any income or own any assets. Even though New York is a state that follows the equitable distribution concept of asset allocation in divorces, in practice, non-income producing spouses are often able to get half or more of the assets. This often times but not always puts the man at an extreme legal disadvantage. However, increasingly, high-earning women are being victimized by the extreme perverse incentives created by no-fault divorce. Regardless of one’s gender, if they are the high-earning spouse in a high-net-worth couple, it is crucial to hire a competent divorce attorney to avoid being stripped of assets and income.
The typical the non-income-producing spouse walks away with a third of the assets
Even in equitable distribution states, the typical non-productive spouse will walk away with one third of the assets. This becomes extremely problematic when considering the state of high-net-worth marriages. Take, for example, a couple that is worth $10,000,000. Assuming one spouse is essentially responsible for 100 percent of the acquisition of the couple’s wealth, the other spouse stands to make well over $3 million, at a minimum, from initiating a divorce. What’s more, if that spouse has little education or earning potential, the court is likely to view that as a reason to award even more money to the non-productive spouse.
It’s easy to see that in an example such as that above, the non-income-producing spouse now has absolutely tremendous incentive to initiate a divorce, for frivolous reasons or none at all. This is because they will stand to make more money in the simple act of divorce than they could reasonably expect to make over the course of their entire life. In cases like this, it cannot be stressed enough that the income-producing spouse needs to do everything in their power to ensure that their assets and income are protected. A strong legal defense team can ensure that, whatever money, assets and alimony are awarded to the other spouse, they will be on the lowest possible end of the award spectrum.
You probably won’t avoid giving your ex-spouse a big payday in a divorce, but a good legal team can help you keep most of what’s rightfully yours.