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WORKING WITH A DIVORCE ATTORNEY WITH A FINANCIAL BACKGROUND IS CRITICAL IN TODAY’S WORLD
As a divorce attorney, people come see me daily to discuss the issues that are most important to them. Many people lose sight of the big picture and tend to focus on just a handful of issues. Even when a person focuses on a few issues, that person can easily be distracted and lose sight of what is best for them. Working with an attorney that understands both child custody and financial issues is essential in today’s economy. When I say, understand financial issues, I do not mean that the attorney can calculate the assets and that he or she can handle basic math. What I do mean is if the attorney truly understands the financial markets and the economy, the attorney can work closely with your other allies (your financial advisor, your accountant, your broker). The days are over where it was acceptable to simply know what a marital asset is and what is not, a divorce lawyer today must be able to understand the difference in asset classes, risk tolerance, tax ramifications and market liquidity.
EQUALLY VALUED ASSETS ARE NOT CREATED EQUAL
While your attorney must know the applicable laws of your state, the divorce attorney who is well versed in financial matters can help guide you to create a settlement agreement or strategy to obtain the most liquid and promising assets in your portfolio as those of us in finance or who understand asset diversification, assets equal in value or not created equal. For example, if you have a home in Jersey City, New Jersey that has a value of $900,000 or you can keep $900,000 in your brokerage account, which one would you advise your client to keep? While I know which one I would advise my client to keep in most situations, each case is fact specific and many factors need to be reviewed before an adequate determination can be made. The variations in asset classes and liquidity require a financial analysis as to which assets your client should seek to keep, divide, sell or buy-out. The tax ramifications are also very important. For more information about divorce and taxes, visit my page concerning New Jersey Divorce Lawyer and Taxes.
FACTORS TO CONSIDER IN ASSET DIVISION IN DIVORCE CASES
As indicated above, each client has different needs and different goals. Some of the factors a person should consider when determining which assets to sell, seek, keep, buy-out and/or divide are:
How liquid is the asset?
How difficult would it be to accurately appraise the value of the asset?
What are the upsides to keeping a certain asset or selling a certain asset?
What are the tax ramifications of selling an asset?
Do any of the assets hold sentimental value to you?
What are the transaction costs in liquidating the asset?
What are the annual carrying costs/expenses to keep the asset? Can you afford it?
How fast can the asset be sold?
How fast do you need the asset to be sold?
Can the asset appreciate each year without affecting your taxes? (Typical in a 401k, IRA)
Can you use depreciation to help your tax planning?
How much time and energy does it take to manage the asset?
Is the asset linked to another underlying asset?
Is the asset’s value dependent on a small group of potential buyers? (Liquidity and Market Manipulation Concerns)
If real estate is involved, determine which properties are investments, which are marital homes (primary marital home, vacation homes, etc.)
If a property is an investment, how much are the annual out of pocket costs to maintain that property?
How much are the rent rolls and vacancies on the investment properties?
Who manages the property(s)?
How much is the mortgage (if any)?
Is the property located in an up and coming area or has the area’s estate values remained relatively steady in the past five years?
If the property is not an investment, was the home the first home purchased by the client?
If the property is sold, what are the tax ramifications?
If you have assets linked to a family business or partnership, what effect would a forced sale have on the company’s survival and/or reputation?
How would the asset be evaluated effectively?
How much can you pay your spouse now and/or in the future without having to sell your interest in the business?
How much damage could be caused by conducting extensive discovery into the business’ operations and financials? Remember, in the business world, information is power. If your competition can gain access to court documents that were used in the divorce, this may hurt your business.
Obviously there are endless amounts of situations we can use for our examples but we will never be able to cover all of them in this article. What remains static is the importance of knowing your goals, your needs and how your attorney and support staff will help you get there. The divorce attorney you choose is very important for your current well-being and more importantly the future you worked so hard far. Choosing the wrong assets to keep in a divorce can set you back years if not decades.
EXAMPLE OF A "GOOD DEAL GONE BAD"
In one case, a potential client came in because she signed a divorce agreement that gave her $8500 per month in alimony for 12 years. Aside from the alimony, both parties split assets valued at approximately $2 million (her keeping the illiquid marital home and the husband keeping liquid assets such as stocks, options, mutual funds, a 401k and an investment property with rental income). 3 years after the divorce, the husband was unemployed, unable to pay the $8500 per month and she sought an attorney to try and decipher where his remaining assets are and if a malpractice suit can be filed against her former divorce attorney. While I do not work on malpractice cases, I did advise her that language should have been in the agreement that the alimony was non-modifiable, that the amount should have taken into account cost of living increases, that she should have taken a larger share of equitable distribution in exchange for a lower monthly alimony amount or for a shorter period of time. So while i did not fault the attorney as attorneys are trying to settle cases while trying to appease judges and manage their calendars, had she worked with an attorney who understands the time value of money, interest rates and insurance, her husband could have been forced to maintain insurance to secure his alimony obligations, could have been required to pay cash now instead of relying on the hope of future alimony payments and many other considerations. Aside from the fact that equitable distribution payments are tax-free and alimony payments are taxable and unknown, I always try to negotiate a deal that will give my client a larger share of the marital assets in exchange for a shorter alimony period or lesser alimony amount per month. Remember how you go to this place in the first place. There may have been a lack of trust and candor between you and your former spouse that partially led to the divorce. So now that you are in settlement negotiations, why give your spouse credit when he or she lied to you in the past or has withheld important information from you when you were still on “good terms” (still living together as husband and wife).
A great divorce lawyer will help you prepare for the worst case scenario and help you choose the right financial map to follow. Your divorce attorney should know how hard it is to enforce an agreement when assets are sold, assets are transferred into different names and when assets “vanish.” With this in mind, your lawyer should help you pick the best assets and strategy to avoid future litigation and the squandering of attachable assets.
For more information about my practice, please visit my firm webpage on www.topjerseycitydivorcelawyers.com Our headquarters are located at 35 Journal Square, Suite 825, Jersey City, NJ 07306.