A conversation with an Ultra High-Asset Divorce Attorney
The following is a not unusual history for a typical Laughlin Legal client…
When he was 6, he broke apart his mom’s laptop to see how it worked.
When he was 9, he built his own laptop.
When he was 17, he developed a business concept for a crypto company.
When he was 19, he received a first round of funding.
When he was 22, he married the only other person with the same eccentric sense of humor.
When he was 25, his partner filed for divorce because he worked too much.
Immediately after she left, he received a significant offer to purchase his company.
Now what? His company was founded prior to marriage so technically it is separate property. But his work efforts during marriage (while he “worked too much”) arguably created a community property interest for his wife.
Laughlin Legal Divorce & Family Law Group in Silicon Valley fields questions like this daily. Founder and Managing Partner, Amy Laughlin has developed a team of skilled ultra high asset divorce attorneys who’d be happy to answer all of them. Please read on as Ms. Laughlin weighs in on some of the most common questions they encounter about protecting a business in an ultra high-asset divorce.
Q) In the most basic terms, how does someone protect their business in an ultra high-asset divorce?
“The best time to protect your business is before you get married or form a business because everything you create or contribute to through your work efforts can create a community property interest should you divorce unless there’s some sort of contractual agreement that it doesn’t. If you’re planning to start a company with a few partners, do you think any of those people want to end up business partners with your ex? Would you want to be sitting in the boardroom with their ex?
California is a community property state and you’re opening yourself up to the possibility that your partner’s spouse might own their interest at some point. So you need either a prenuptial agreement or an operating agreement, or ideally both, stating that your entity will remain separate property, or at least control of your entity will remain separate.
A client of mine got married and started a company. Two years later, it’s worth $10s of millions, and the marriage is over. His ex wants 50% of his income and 50% of his interest in the company.
So if there’s one thing you take away from this post, let it be this: Even if you have an idea for a company you’d like to start but haven’t formed it yet, protect it in the prenup. If you’re preparing to form it, also protect it in the corporate documents.”
Q) What is your #1 piece of legal advice for ultra high-asset divorce with a business asset?
“Again, if you have any kind of wealth, always get a prenup. Always. And while you’re at it, make sure it’s a suitably ultra high-asset prenup. Very few of our clients understand when we first meet that even their labor during a marriage toward a business that they founded prior to their marriage can create a community interest.”
Q) Is there such a thing as ultra high-asset divorce planning? How can I do it?
“Yes, there’s a lot you can do to prepare for a divorce regardless of the amount of wealth you’ve accumulated.
First you should map out your assets , and make sure that you have all assets accounted for: bank statements, tax returns, deeds, investment accounts, retirement funds, business records and returns, valuations of collectibles. Know where all your assets are and make sure you have access to them. If you have any separate property interests, find your prior statements showing you came into the marriage with them or inherited them or they were gifted to you.
Think about which assets you want to keep and why. And get advice from a certified divorce financial analyst/CDFA or tax lawyer who can optimize your tax burden and give you a sense of what it would look like if you keep certain things vs releasing them so you can make informed decisions. If you hold real estate, evaluate whether you want to buy out your spouse’s equity or sell it. Look into the tax consequences like capital gains or a 1031 exchange where you can sell it and turn it into something else.
Think about what your liquidity needs are. Where will you live? And what will it cost to live there? You may have children, you may have multiple properties. Do you have access to all the accounts you’ll need to keep it all humming post-divorce?
Plan for child and spousal support. Look into what you’ve put in place in terms of your trust and estate planning. How does that affect your plans now?
With the help of a divorce lawyer and/or forensic accountant, you need to assess any potential exposure to breach of fiduciary agreement claims. Has your spouse violated their fiduciary obligation to you in any way? Are they hiding debt? Hiding assets? Funneling money overseas? I’ve seen it happen.
Think about notifying your bankers, brokers, CPA, and financial advisor just so everybody is aware. They may very well have sage advice for you.”
Q) If you have an ultra high asset estate, does that mean you need to work with ultra high-asset divorce attorneys? Won’t it cost more?
“Absolutely. You should work with someone who has a lot of experience with ultra high net worth divorces and brings an equally experienced team of advisors to your case – CPAs, forensic accountants, connections in the community. Does it cost more? It may actually cost a whole lot less because you’re going to avoid making very costly mistakes if you don’t have highly experienced counsel.”
Q) What is meant by high-asset divorce business protection and is that an area of expertise for the firm? Is protecting business in high asset divorce possible?
“Yes, by doing it before, by signing a prenup and a pre-founding agreement. Once you’re in the middle of a divorce, your spouse has certain rights. You can definitely trade assets – I’ll keep the business, you keep this. You could also show the court that owning and operating the business together would not be possible under the circumstances.”
Q) I’ve read you have financial savvy. Does that mean you have high net worth divorce business strategies?
“I always create a strategy at the beginning of the case and share it with clients, but it’s especially important in ultra complex situations. If your attorney isn’t creating strategy with you and talking about that strategy and that strategic plan daily, I would be concerned. In these high net worth divorce cases with businesses involved, there’s a lot at stake, a lot of balls in the air. My strategy is generally conceived to get my client what they want as soon as I can get it for them. What does my client consider the best outcome? That’s what I’m after and that’s what leads the strategy. My clients are super savvy, super smart, and they generally know what they want. And we have a seasoned team of experts on board to make it happen.”
Q) Is business valuation in high-asset divorce an essential step in high asset divorce?
“It’s absolutely essential. You need to assess the value of a business in order to fairly split the assets. But often the business valuation already exists in the form of a 409-A, so no one needs to recreate the wheel and cause disruption. Law firms don’t do appraisals, we don’t value businesses. But we work with a group of professionals who do. There are all kinds of ways to value a company. Public companies are legally required to do it annually, and private companies generally do it themselves for their investors. Management wants to know.”
Q) I’ve worked hard to build my company from scratch. Can you tell me how to protect my business in a high-asset divorce?
Speak with one of the high-asset divorce attorneys at Laughlin Legal Divorce & Family Law Group. We’ll work hard to protect your business. We’re a collection of highly skilled high net worth and ultra high net worth divorce and property division attorneys and mediators in Silicon Valley. Laughlin Legal is trusted throughout California for their ability to skillfully help divorcing parties achieve a better outcome.
If you or someone you love is headed for a divorce, learn more about how the divorce services we offer can best represent you and your values. Call us now at 650.343.3486 to schedule a consultation with a Laughlin Legal divorce attorney. If you’d prefer, you can email us to set up your appointment. If we miss your call, we will respond promptly and call you back as soon as possible.
Laughlin Legal Family Law Group
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