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According to the Securities & Exchange Commission, a high net worth person is someone who’s individual or joint net worth exceeds $1 million. This excludes the value of the person’s primary residence.
High net worth could also mean an income that exceeds $200,000 during the two most recent years. Joint income with a spouse for the same time period exceeds $300,000. Furthermore, there is reasonable expectation that the person will have the same income level for the current year.
A person who does not fit this definition based on their income level may still qualify as a high net worth individual when they have:
• Real estate holding
• Multiple valuable assets
• Stock portfolio
• Holds professional licenses
• Maintains an expensive lifestyle
Time Factor for the Divorce Process
When substantial assets are involved with a divorce, you should be prepared for a lengthy process. It is not as simple as stating what you are willing to surrender in the divorce. Rather, a high net worth divorce requires a financial audit and evaluation of all assets. This process can take a significant amount of time.
Included are depositions and several court appearances to attend. Having realistic expectations of the process and timeline will help you develop the right strategy with a lawyer who is qualified to handle high net worth cases.
Financial Issues in a High Net Worth Divorce
Some of the financial issues that will need to be audited and valuated for equitable distribution include:
• Complicated business transactions, closely held businesses or family businesses
• Valuation of a spouse’s partnership in a professional practice
• Retirement assets such as 401ks, pensions, IRAs and stock options
• Professional licenses or degrees that offer increased earning potential; also referred to as enhanced earning capacity
• Real estate property
Statement of Net Worth is Important for Divorce Proceedings
The Statement of Net Worth is one of the most important documents that needs to be submitted during a divorce proceeding. This statement requires the inclusion of your most recent tax returns and pay stubs. This full financial disclosure must be filed with the court that handles your divorce.
In addition, the statement has to be sworn under penalty of perjury. Your divorce lawyer will also need to certify that everything included is accurate and complete. The Statement of Net Worth is a snapshot of your current financial circumstance. This provides an estimate of your lifestyle, needs and what you should be able to pay in child support and/or alimony.
Division of Stock Options and Retirement Plans
It is common for corporate executives to have employee stock options. Typically, these are granted before they vest, which can be exercised after the divorce is finalized. A method known as Black Scholes is often used by forensic economic experts to value these types of assets. The method also determines how much your spouse may be entitled to receive in the divorce settlement.
Valuating and dividing stock options can be a very complicated process. Working with a lawyer will help you formulate a good strategy that protects your current and future assets.
Retirement plans are also calculated in the marital estate. Sometimes considered a major component of the marital estate, information for this asset is often gathered through a pension plan evaluation. Doing this determines how retirement assets will be divided.
If you have children, you and your spouse are entitled to receive 50% of money earned from the retirement plan. This is calculated based on each year during the marriage that money was earned. Any money accumulated before the marriage, however, does not become part of the division.
Hire a Knowledgeable High Net Worth Lawyer in NYC
The laws are pretty straightforward on how a marriage dissolution is handled when one or both spouses are in the high net worth income range. To ensure your assets are valuated and shred properly, you need a financially savvy divorce lawyer on your side.
The same is true of your spouse was the sole earner in the family and you want to make sure the divorce proceedings are transparent and honest. For this, you need guidance from a high net worth lawyer from the Spodek Law Group. We will thoroughly review all financial documents to achieve a favorable outcome for you.