High-net-worth divorces are often more complex and require a more sophisticated legal and financial strategy than do divorces with less assets. When large sums of money and property are at stake, it is critical to have the right team of professionals in place to guide you through your divorce.
One of the most common issues in high-net-worth divorces is spousal support (both temporary and permanent), also known as alimony. California law defines spousal support as a court-ordered payment from one spouse to help cover the other’s monthly expenses. If spousal support cannot be agreed upon by the parties, the Court will use a multitude of factors to determine the amount of long-term support including, but not limited to, the income of each spouse, the length of the marriage, and the marital standard of living.
Calculating spousal support is not an exact science and the amount a party may expect to receive or owe is a common source of confusion for many divorcing couples. If you are considering or beginning a high-net-worth divorce and are wondering about spousal support, here are some tips to help you become informed.
Spousal Support in High-Net-Worth Divorce Tip #1: Temporary Support Is Temporary
Once a divorce is filed in the state of California, temporary spousal support may be ordered. Typically, temporary spousal support is calculated through a program called DissoMaster™. In this formula, which is a guideline, spousal support may be in an estimated range of 40% of the payor spouse’s income, reduced by 50% of the payee spouse’s income.
Calculating temporary spousal support can be more complicated when one party (or both parties) are not traditional W-2 employees, as is the case in many high-net-worth divorces. In high-asset divorces, in may be necessary to utilize financial professionals such as forensic accountants and business experts to determine income available for support. Equally as important is working with a family law attorney who has experience in high-net-worth divorce and understands the potential complications that may arise.
In all cases, temporary support is indeed temporary, and the calculation often produces an amount that is higher than what long-term support will be.
Spousal Support in High-Net-Worth Divorce Tip #2: Permanent Support Is Not Necessarily Permanent
Many divorcing couples are under the impression that if a marriage lasts longer than 10 years, spousal support will be paid as long as the payor spouse is alive. This is a common misinterpretation of what’s known as the “10-Year Rule.”
While it is true that spousal support payments in marriages which last less than 10 years will likely last for ½ of the length of the marriage, having a marriage which is 10 years or longer by no means ensures the parties will pay/receive spousal support for the rest of their lives.
Typically, “permanent” support is modifiable. If the payor spouse loses their job, reaches full retirement age, or faces serious financial hardships, support may be modified by the court. Likewise, if the payee spouse becomes self-supporting, the payor spouse may seek a modification of orders. In most cases, divorce settlement agreements include a provision that permanent spousal support will be terminated if the payee spouse remarries or cohabitates with another person.
If the parties cannot agree on the amount of spousal support, the court will review approximately 13 factors – including those listed above – when deciding how much to award. Many couples find it beneficial to negotiate the spousal support award outside of a courtroom, as they retain greater control over the outcome.
Spousal Support in High-Net-Worth Divorce Tip #3: Vocation Evaluations Are a Real Thing
If the payor spouse believes the payee spouse could be gainfully employed (or is underemployed), he or she may request the court to order a vocation evaluation. The court may then grant this request and use the assessment to impute income to the payee spouse.
Once the vocation evaluation is ordered, both parties and their attorneys will select an evaluator who is a vocation expert. The expert will assess the payee spouse’s ability to achieve gainful employment based on a variety of factors including age, education, health, and skills.
The evaluation is then entered into evidence in the case and the judge may utilize it to determine the amount and duration of spousal support awarded.
If the spouse refuses to cooperate with a vocation evaluation or the court denies the appointment of a vocational expert, a party may seek to retain his or her own “hired gun” to prepare a report setting forth the underemployed/unemployed spouse’s earning capacity.
Spousal Support in High-Net-Worth Divorce Tip #4: Disclose All Income
As discussed in our article, “5 Mistakes to Avoid in a High-Asset Divorce,” attempting to hide or depreciate income available for support is an all-too-common tactic. Under California law, attempting to hide assets during a divorce could result in a judge imposing sanctions in the form of legal fees and/or higher support payments, among other penalties.
In high-net-worth divorces, we often see business owner spouses claim the business is worth “nothing” or that it is doing poorly to reduce the amount of support they have to pay. While less common, it is not unheard of for one spouse to divert income to a business associate, relative, or friend in an attempt to show less income available for support.
An experienced high-asset family law attorney, often in conjunction with skilled financial experts such as forensic accountants and business valuators, can uncover these discrepancies and help you to achieve a fairer settlement.
Spousal Support in High-Net-Worth Divorce Tip #5: A Lump Sum Settlement May Be an Option
Lump sum spousal support, also known as a spousal support buyout, may be a settlement to consider, especially when there is a large amount of liquid assets available.
Generally, the payor spouse enjoys the being “done” with payments and not having to worry about repeating payments. It can also be beneficial to the payor if they have an increase in income following the divorce. Typically, they cannot be brought back into court for a modification of orders (unless there has been fraud or a failure to disclose material facts during negotiations).
The payee spouse is also free to remarry (or cohabitate) or achieve gainful employment without losing out on spousal support. Likewise, the payee spouse does not have to worry if the payor loses their job, retires, or passes away.
In determining a lump sum settlement amount, extreme care should be taken. Your family law attorney should discuss what you could expect to pay/receive with spousal support payments and calculate how present value will discount that amount when agreeing to a lump sum settlement. The payee spouse also needs to have good money management skills so as not to spend down the lump sum too quickly. In many cases, an experienced forensic accountant and financial planner (especially one who also holds a Certified Divorce Financial Analyst®) should be enlisted.
Contact a High-Net-Worth Family Law Attorney Today
If you would like to learn how our office can provide guidance on any California family law issues you are facing in Los Angeles, Ventura, and Santa Barbara Counties, contact the Zonder Family Law Group today. Don’t wait to start the next chapter of your life.
Our attorneys are licensed in the State of California. We do not handle any matter outside of California. Testimonials or case results do not guarantee you will get the same or similar result. None of the information, testimonials, case results, or information is a guarantee, warranty, prediction, or assurance regarding the results that may be obtained in your case. Every case is dependent on its own facts. These materials have been prepared for general informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.