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Five Things Every High Net Worth Couple Should Know When Navigating Divorce

  1. A Fair Child Support Order May Require More Than Just Crunching the Numbers

    Wisconsin law provides guideline calculations for determining child support in a typical case. However, when one party is a business owner, has variable income, or receives a substantial share of his or her annual income in the form of bonuses, allowances, or passive income, the support analysis will not be as simple as taking each party’s W-2 and inserting those numbers into the guideline calculation. In these cases, there is often a preliminary question as to the appropriate gross income to use for the purpose of calculating the monthly child support payment.

    Pass-through income can add another layer of complexity to the support analysis, as the amount of income passing through to a party for tax purposes may be very different from the amount of income the party actually receives from the business in a given year. In these situations, it is important to have an attorney who understands pass-through income and can explain its application in your case to opposing counsel and, if necessary, to the Court.

    In cases involving variable or bonus income, it may be fairer to the parties to structure the support order to include a base monthly support amount and a percentage of additional income as it is received.

    With very high earners, the support amount provided by the guidelines may far exceed the amount needed to support the child. In appropriate circumstances, the law provides the opportunity for the Court to deviate from the guideline support amount if the Court finds the use of the guidelines to be unfair to the child or either parent. Likewise, in appropriate circumstances, the law allows the Court to set aside a portion of the ordered child support into a separate fund or trust for the benefit of the child.

  2. Taxes are a Key Factor in a Fair Financial Settlement

    While spousal support is no longer deductible for payors under Judgments of Divorce entered after December 31, 2018, it remains important to factor taxes into your financial settlement. In order to fairly divide post-divorce income between the parties, it is important to understand and account for the income taxes that each party will pay.

    Taxes are also an important factor in property division. While transfers between spouses under a Judgment of Divorce are not subject to tax, achieving a fair outcome requires consideration of the taxes that each party will ultimately pay on the assets that he or she receives. Fairness requires that the Court be in a position to compare apples to apples as it relates to asset values. For this reason, it is customary to apply discounts to certain pre-tax assets in recognition that a spouse that receives pre-tax assets in the property settlement is not receiving the same value as a spouse receiving the same dollar balance in post-tax assets.

    Similarly, if parties have substantial investment assets, consideration should be given to unrealized gains and losses to avoid having one spouse bear an unfair share of the tax burden associated with those investment assets.

  3. A Good Expert Can Make All the Difference

    Smart use of qualified experts can save time and money in the overall resolution of your case. The Court will rely on fair market values in order to divide the assets of the marital estate. When business interests are involved, it is often necessary to engage an expert to place a value on the business.

    One of the first inquiries that an expert may be called upon to address is the question of whether there is transferrable value. In other words, could your business sustain itself under new ownership if you were no longer involved? The use of “fair market value” relies on the understanding that the value placed on the business is what a willing third-party would pay for the business or for your ownership interest in a business if you do not own 100%. This is true even if one spouse intends to continue his or her ownership of the business. It is crucial to understand these concepts. For example, if a business overall is worth $1,000,000 and the party is only a 25% owner of that business, then the fair market value of the ownership interest is likely substantially lower than $250,000.

    If there is transferrable value, a good expert will work with you and your attorney to obtain the information and documentation that he or she needs to competently value the business, while limiting the disruption to the operations of the business caused by the valuation process.

    If you are a spouse who has not been involved in the business, an expert may assist you and your attorney to identify potential issues or additional areas of inquiry that will be necessary in order to place a reliable value on the business.

    If an agreement as to value cannot be reached, a good expert will be able to explain the basis of his or her valuation to the Court, understanding that your assigned Judge may or may not have past experience with your particular industry. Your expert’s ability to clearly explain his or her work may make the difference between the Court accepting your expert’s business value or that of your spouse’s expert.

  4. There Are Tools Available to Preserve the Privacy of the Parties

    In Wisconsin, divorce filings are public, as are the majority of the documents filed with the Court in a divorce action. While the financial disclosure forms that parties complete as a part of the divorce action are kept confidential by the Court, accessible only to the parties and their counsel, the Marital Settlement Agreement is not a confidential document. Practically speaking, this means that a third party with no involvement in your case could review the entire settlement agreement. However, experienced counsel can provide guidance as to the tools available to protect the parties’ financial privacy in the preparation and filing of the settlement agreement.

    There are other aspects of divorce for which privacy and/or protection of confidential information should be a consideration. For example, if you are a business owner being asked to provide documents and information to your spouse’s attorney or expert for valuation purposes, a protective order may be appropriate. Protective orders are used to prevent the dissemination of information beyond the parties and professionals who are involved in your divorce case. This allows the owner spouse to comply with required disclosures without concern that information may be shared with competitors or others who might use that information in a manner that could be harmful to the business.

  5. A Good Attorney Can Make All the Difference

    In complex cases, reaching a fair result requires experience and creativity.

    In cases that can be resolved through settlement, parties have the flexibility to agree to terms that the Court would be unable to order in its own. A good attorney will help you to craft a settlement that is tailored to the specific needs of your family and your business, thinking beyond what the Court might order if the case were to proceed to trial.

    In cases that go to trial, a good attorney will work closely with you and any experts to present a strong case to the Court, including a clear presentation of the income sources and asset values and any other issues or factors unique to your case. Complex financial matters present complex legal issues, and it is important to have an attorney who can effectively argue these complex legal issues before the Court.

The Family Law team of DeWitt LLP has experience handling a wide range of financially complex divorce matters. Given this experience, we practice in courts across the State of Wisconsin.

The information in this article is not intended as legal advice. You should speak with your attorney about how any these issues apply in your specific case.

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