Planning for dissolution of the marriage raises a number of complicated issues. Marilyn Chintz states: “It is more than just signing a document to dissolve a marriage. Critical issues arise when attorneys do not turn over every stone to understand their client’s case.
“One example, is the net after tax value of an asset. The basis of assets transferred as a result of divorce should be an important part of the divorce negotiating process. However, courts are often reluctant to get embroiled in speculative tax consequences of the divorce. Indeed, several courts have held that regardless of the certainty that the tax liability will be incurred in the future if an asset is sold, liquidated or otherwise reduced to cash, the trial court is not required to speculate on or consider such tax consequences in the absence of proof that a taxable event has occurred during the marriage or will occur in connection with the division of the asset. It is really important for clients to understand the tax implications regarding distribution of assets.
“Assume a spouse has a choice between taking $1 million in cash or $1.2 million in stock which has a zero basis. For tax purposes (assuming an immediate stock sale) the $1 million cash maybe a better choice. Why? Assuming a combined state and federal capital gains tax rate of 30%, the $1.2 million in stock carries an inherent tax cost of roughly $360,000, meaning the stock has a true after tax value of only $840,000. Your attorney has to understand all the nuances and should make certain to have all the necessary documents available to properly advise the client.
“The bottom line is make sure that your attorney is knowledgeable, has excellent credentials, is reliable, demonstrates that they are available to you at all times and that they have an excellent reputation amongst their peers and the Judges whom they appear before. Make sure that you are in the best hands.”
In couple disputes, what are the challenges of tracking assets that are held internationally – in an offshore trust for example? Does this come up often?
Individuals look to protect their assets hopefully before they even marry. There are numerous ways to protect assets, including, but not limited to, self-settled trusts, which are distinct in that they are funded by a grantor who retains the benefit of the trust assets. Only legal title is conveyed to a third-party trustee to put trust assets often outside the reach of creditors. Those trusts are often referred as Asset Protection Trusts. The best time to take action to protect yourself is before you walk down the aisle. After that, transferring assets could be considered fraudulent if challenged in a divorce case. As a matrimonial practitioner, I have seen litigants make serious mistakes, particularly when they do not have the protection of a prenuptial agreement or never established an asset protection trust prior to marriage. In some cases we have seen litigants attempt to reduce the potential claims of a divorcing spouse. These techniques can include hiding assets to minimise the allocation of marital assets upon divorce. This approach is extremely dangerous because the divorcing spouse will, as part of the discovery process, obtain financial documents about those assets and be asked question under penalties of perjury. Other litigants attempt to move assets off-shore. Some have questioned whether this provides better divorce protection than a US based spendthrift trust. The Court looks at whether or not establishing certain trusts are red flags or proper estate planning. If justifiable for other purposes, some people move assets into vehicles which restrict the ability of the spouse to access the underlying assets. For example, it might be possible to transfer assets into a family limited partnership that has both estate planning and asset protection benefits however, if moving such assets into a Family Limited Partnership or Trust is designed to remove the asset out of the marital estate in contemplation of divorce in order to defraud the soon to be ex-spouse, the transfer may be rescinded by the court as being a fraudulent conveyance. Any ethical practitioner knows that you must be careful that your client does not engage in fraudulent conveyances. If transfers occur long before the actual divorce, courts are not inclined to disturb the estate or tax plans implemented. However, if done in contemplation of divorce, the courts may take action adverse to the party who engaged in tactics designed to minimise the marital estate.
Is it possible for a financially weak/weaker party to gain a fair and just outcome in separation cases, for example in the distribution of assets? What financial challenges are faced by those involved?
If you are financially disadvantaged and do not have funds to engage in litigation or even retain counsel to handle your matter or to uncover hidden assets and obtain information concerning the marital assets, you will be severely disadvantaged. Litigation and divorce is a costly proposition. You need to hire a top-rated attorney; hire forensic accountants, tax experts and other professionals needed to obtain all the necessary information and evidence to properly prepare your matrimonial matter to ensure that you receive your equal and fair share of the assets acquired during your marriage. Financially disadvantaged litigants do not have the resources and oftentimes, have to settle compromising significant rights.
How does your family law expertise help you avoid litigation proceedings for your clients? In what situations is litigation completely unavoidable?
Soon after my client comes to my office, I spend a lot of time going through the parties’ assets to understand the extent of the marital estate. Because of my intimate knowledge of the law and experience as to how judges decide cases, I can advise clients on how best to resolve their matter in the hopes of avoiding years of litigation. If you are knowledgeable about the law, how courts decide matters, you can advise your client how best to settle their case, if possible. If your client’s expectations are unrealistic, you need to manage their expectations so that they don’t fight a losing battle. Providing your client with sage advice enables them to avoid unnecessary litigation.
Marilyn B. Chinitz | Partner | Blank Rome LLP
The Chrysler Building 405 Lexington Avenue | New York, NY 10174-0208
Phone: 212.885.5564 | Fax: 212.885.5002 | Email: MChinitz@blankrome.com
Ms. Chinitz concentrates her practice almost exclusively in family law, with particular emphasis on high-net-worth divorce actions. She has been involved in numerous high-profile celebrity cases that have received national and international attention. Ms. Chinitz has more than 35 years of experience in every facet of family law, including diverse transactional matters. Her client representation is characterized by responsive, creative, direct, and efficient communication, whether within the context of litigation or settlement negotiations.
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