If you are embroiled in an executive and/or high net worth divorce, you are probably already aware of the added complexities which require more legal attention and experience than a “standard” divorce. There can be added factors such as valuing a business, pre and postnuptial agreements, various trusts, accounts and holdings outside the United States, real estate aside from the primary marital home, tax consequences and complicated investments. In fact, almost all executive divorces have a level of documentation requirements which goes far beyond an average divorce.
Because executive divorces tend to have much higher stakes than normal divorces, they can quickly become antagonistic—the more assets to divide, the greater likelihood of contentiousness between the spouses. It is wise for an executive contemplating divorce to consider alternatives to litigation, such as mediation, early on, in an effort to decrease extended litigation, as well as to avoid public scrutiny.
Maximizing Your Results in an Executive Divorce
You will need to work with your attorney to bring additional “team members” on board, such as forensic accountants, appraisers or valuation experts. You may also require a certified divorce financial planner in order to protect business cash flow and ensure the continued operation of your business. It may also be necessary to obtain injunctions or orders in order to prevent asset liquidations which may not be in your best interests. Some issues you may want to address with your attorney include the following:
• Intellectual property, including patents, trademarks and copyrights which can be difficult to value;
• The tax consequences associated with both business and personal assets;
• Business valuations;
• Licenses or professional practices held by one spouse;
• Multiple state or overseas holdings;
• Collections, including art, antiques, automobiles or others;
• Partnership agreements;
• Postnuptial agreements;
• Prenuptial agreements;
• Inheritances and
• Employee or defined benefit plans.
Case Study of one of the First Executive Divorces
Consider the case of Robert I. Goldman, CEO of Congress Financial Corporation, who filed for divorce in 1996, after thirty-three years of marriage to his wife, Vira. Since Goldman’s wife was the proverbial “housewife,” who gave up her teaching job to take care of Golman, his home and their child, Goldman expected to receive the majority of the couple’s $100 million estate. Similar cases in the past had seen the primary wage earner being award 70 percent or more of the estate. In a shocking court decision, however, Goldman’s wife was awarded 50 percent of the marital assets, becoming the largest courtroom divorce award in the history of New York. This marital settlement soon became the model for the “new executive divorce,” which encompassed high-ranking, well-compensated business men and women.
Divorce Becomes a Business Issue In Addition to a Personal Issue
Divorce, never pleasant to begin with, can turn much uglier during an executive divorce, which, like divorce among all sectors, is on the increase. As the prevalence of divorce increases among executive circles, such divorces are becoming as much a business issue as a personal one. An executive faces the prospect of turning over a significant portion of his or her business, sensitive information and potentially even a seat on the board, to an angry spouse. Judges are being forced to divide stock options during a divorce which can entail dragging the actual company into court in order to come to a fair valuation. Some companies, in response to the much more common executive divorce are attempting to protect their employees by deferring compensation and options until the divorce is complete, while others are forcing spouses to sign contracts which waive all interest in their husband or wife’s business.
While a spouse who forgoes his or her own education and career to take care of a home, spouse and children, may have good reason to expect a fair share of the marital assets, CEOs in general are used to getting what they want when they want it. It can be quite a shock for these executives to find their business achievements valued the same as cooking, cleaning and taking care of children. As recently as 1970, the majority of states awarded assets during a divorce to the spouse who held the title—most often the husband.
The particularly “lucky” women were awarded the family home—without sufficient money to maintain it. By the mid-1980’s every state had adopted laws which called for a more equitable division of assets during a divorce. Courts increasingly see marriage as a shared endeavor, ruling for an “equitable” division of marital assets in states like Florida, or, in the eight remaining community property states, a clear 50/50 split. Up until 1985 or so, stock options were not considered “property,” therefore not considered subject to distribution in the event of a divorce. Courts now consider vested and unvested options marital property, just as any other type of income.
Prenuptial Agreements in an Executive Divorce
As if there were not enough complications when one spouse is the “executive,” consider situations in which both spouses are co-owners of a business or have built a business from ground up, into a lucrative endeavor. One spouse may claim his or her contributions to the business were more important as far as increasing the value of the business, while the other may say the same. With the potential for this level of contentiousness, more and more executives are attempting to protect themselves through prenuptial agreements, although such agreements still remain the exception rather than the rule.
Only about 3 percent of executives who were on their second or third marriage, obtained a prenuptial agreement, perhaps because the intended spouse balked at signing such an agreement. Even if there is a prenuptial agreement, such agreements are not always ironclad as shown in the Florida case of executive hotelier Philip J. McCabe. Two days before he married his wife Gayle, McCabe presented her with a prenuptial agreement—which failed to disclose his net worth. With no time to see counsel, Gayle signed, however during the divorce, six years later, a court disregarded the prenuptial agreement, calling it inequitable and “the product of duress.”
Getting the Legal Help You Need during Your Executive Divorce
The non-executive spouse can also have problems actually locating assets in order to value and divide those assets. More and more executives are shifting assets to the Cayman Islands or Belize, which do not recognize U.S. divorce judgments. This can be a remarkably effective maneuver, however all in all, considering the contentious nature of executive divorces, many attorneys recommend settling out of court. Settling can be cheaper in the long run, and can avoid the publicity associated with a trial. Whatever side of the executive divorce you are on, if you want to ensure you receive an equitable portion of the marital assets, speak to an attorney from The Family Law Place. Our attorneys have the necessary knowledge and experience to handle a complex executive divorce and understand how important the settlement is to your future.