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High Net Worth Divorce & Complex Property Division
In representing high net worth clients, two big issues are taxes and estate planning. High net worth families with high income are taxed at the highest rate so any tax benefits created are more valuable. Also, high net worth clients usually have wealth which will not be exhausted during the lifetime of the client and, thus, can anticipate it will be distributed to children or grandchildren.
Highly complex tax questions which commonly arise for the high net worth family include qualified versus non-qualified stock options and their different tax rates, and capital gains and losses which should be considered as liabilities or assets respectively and, in the case of losses, may be carried forward and seen as an asset to be distributed and counted for the purposes of equitable distribution. Family limited partnerships, investment real estate, and second homes all need to be analyzed. Any recapture of deductions must be anticipated as it will create extra tax liability attached to that property and thus reduce its potential value.
Alimony, of course, is deductible. The higher income spouse may wish to negotiate more alimony, relatively speaking, than equitable distribution, but in doing so they must avoid what is called front-end loading or high payments of alimony in the first three years after a settlement.
The more expensive the family's principal residence, the more likely that the capital gain will exceed the $500,000 capital gain exclusion for the jointly owned marital primary residence. Depending on each party's life plan and expectations, there may be good reason to perform an after-tax present discounted value calculation of a prospective alimony over a term of years. This calculation can result in a non-taxable lump sum payment yet it includes consideration of the tax benefit.
Estate planning may provide good opportunities to both parties. Estate planning, including the creation of trusts during their lifetime (inter vivos trusts), provides the opportunity to give a stream of income to one party while they are alive while preserving both parties' intent as to the distribution of principal after their death.
Many high net worth families have created trusts for their children's college education or have parents who have provided for their grandchildren. Although the law does not create an obligation to pay for college, most responsible parents include some kind of college planning in their final settlement. Negotiations should form an acknowledgment of a grandparent's trust or the creation of funds or commitment to pay for college.
High net worth families present a number of very difficult discovery issues. The first issue, if it is a multi generational wealthy family with trusts, is the problem of getting the grandparents' trust information. Grandparents naturally want confidentiality and do not normally volunteer this information.
Also, individuals who work in closely held corporations can easily hide money from their dependent spouse in the form of retained earnings, ratcheting up capital expenditures in advance of a divorce thereby decreasing their income, or creating an offshore corporation with offshore accounts, in which case the accounts may not even be visible to the opposing party, not to mention the IRS. Offshoring is an enormous problem which has not adequately been dealt with by the courts and bar.
Contact Elizabeth Bennett to schedule a consultation.
I conveniently represent clients in the Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties, the towns of Wayne, Radnor, Philadelphia, King of Prussia, Paoli, Devon, Berwyn, Newtown Square, Villanova, Bryn Mawr, Haverford, Ardmore, Lower Merion, Media, Wallingford, and Swarthmore, and throughout Pennsylvania.
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