High-Net Worth Divorce

Few people plan for divorce the way they create and execute a business plan. In fact, spouses are often valued partners in successful community enterprises. If you find yourself contemplating a separation from your husband or wife and you live in Ascension or East Baton Rouge, the Cosenza Law Firm attorneys practice in those courts and have experience in high net worth divorce.

For most people, the accumulation of wealth is a slow process. It takes time and perseverance. The end result may take the form of:

• One or more businesses
• Multiple homes
• Boats
• Luxury vehicles
• Commercial real estate
• Investments in mutual funds, stocks, bonds
• Life insurance
• Art
• Antiques
• Jewelry

A lawyer can help you protect your interest in these assets.

Upon separation, questions may arise concerning the management of some if not all of a couple’s marital property. If both spouses have run a business together, decisions must be made and implemented regarding continued participation in management. Organizational documents may prescribe how ownership interests may be transferred or otherwise divided. It may be necessary to review employment contracts for their termination clauses. In all these efforts, the advance of an attorney can be invaluable.

Spouses who manage community businesses after a divorce petition is filed are obliged to do so in a manner that does not jeopardize the business’s continued success. In a bitter divorce proceeding, it may be tempting to gut and abandon the community business and start a new one. Louisiana law prohibits this. A spouse who wants to begin a new enterprise must do so in a manner that does not unduly injure the old one. He or she cannot turn the community’s high net worth into an empty shell.

The Cosenza Law Firm can help you determine what you can and cannot do in the way of creating new businesses in which your spouse has no interest.

Spouses who possess community property must account for it to the other spouse. Neither the co-management principles of the community property regime nor the articles in the Civil Code dealing with the authority of co-owners permit a spouse to hide, transfer, or damage marital property to the other spouse’s prejudice. Keeping track of large community estates so than an accounting can be provided can be a complicated endeavor. As with the interpretation of organization and operational documents, your attorney’s advice is critical to success.

Unless spouses want to continue to jointly own their former community property, it must be equitably divided. In order to reach a fair division of their wealth, the parties must know the worth of their assets and the amount of their liabilities.

There are different ways to value high net worth business enterprises. For example, an appraiser may estimate the value of a business based on what it might bring if privately sold. Alternatively, the appraiser may calculate estimated worth based upon future profits over a period of time. Businesses that lack “good will” and depend upon the personality and efforts of their owners to make money may be valued based on accounts receivable, inventory or simple net worth calculations.

The valuation of real estate is, in most cases, straightforward. Real estate appraisal is generally based upon comparable sales. Real estate value depends on location. Property in Ascension Parish may be more or less valuable than similar property in East Baton Rouge Parish. Real estate that generates income may have different types of value. Like the valuation of businesses, commercial real estate may be valued based on its most likely sale price with or without an income component.

Fine art and collections (stamps, porcelain, sculpture) require another type of appraiser for valuation. Jewelry should be separately appraised. Luxury vehicles may or may not need an appraiser.

Your attorney will counsel you that values may change. What was worth $1 million yesterday may be worth only $750,000 next month. Since partitions should be based on the value of an item at the time it is divided and delivered, it is important to keep the timing of the appraisals in mind. If the appraisal is near in time to the actual partition of the property, it is easier to assess the fairness of the property division. You might think of appraisals in this context like preparing a big meal. If you want to get all the food to the table at one time, you have to know how long it takes to barbecue ribs compared to throwing a salad together.

It is not uncommon for spouses who are contemplating divorce to secretly put some things away for that rainy day. Usually those things are community property. Although it is possible for a spouse to leave no trace of pilfering of community income and assets, it is difficult. In many cases, a close review of a party’s personal bank and credit card accounts will lead to other undisclosed accounts. If a spouse suspects the other of raiding the community in preparation for divorce, it may be appropriate to hire a forensic accountant to conduct a thorough review of all transactions from a particular date.

Part of the partition process in a high net worth divorce is determining what part of the mass of the couple’s assets is separate property versus what is community property. Sometimes, this is easy. A spouse who has inherited $1 million from her parents and invested it in a single mutual fund can easily prove that it was and still is all her separate money. However, if she used part of those funds to buy her husband a Rolex watch for Christmas or a Mercedes Benz titled in both their names, her cash may have been converted into his separate property or into community property. Tracing the use of funds in the context of a large, complicated marital estate may also require a forensic accountant.

A successful business owner has probably consulted at one time or another with a business lawyer. Such lawyers are knowledgeable in the formation and dissolution of business enterprises. One may have assisted in the creation of a community business or in its merger with another business. It may not be possible to return to this lawyer for advice if his or her representation is subject to a conflict of interest. Whether it is or not, a fair partition of a community enterprise may require the advice of a business attorney.

In conclusion, high net worth divorce is high stakes divorce. If you live in the greater Baton Rouge metropolitan area, consult with an attorney. It is in your best interest to plan an exit strategy with the benefit of expert advice well in advance of the day you inform your spouse that it is about to be over. You should hope for the best but be prepared for the worst. The Cosenza Law Firm is available to consult with you and direct you to experts in taxation, business valuation, business law, and property appraisals.