Equitable Distribution in High Net Worth Divorce
In a Florida divorce proceeding, the Court is generally required to divide any and all assets that were acquired by the parties during their marriage in equal shares. In a high net worth divorce proceeding, it may be difficult for the Court to ascertain what constitutes “equal” shares due to the fact that the marital estate may include assets that are difficult to value, such as a closely-held, family-owned business.
Valuation of Closely Held Corporations (i.e., Family-Owned Businesses)
Family-owned businesses are typically one of a kind. Substantially comparable entities are therefore unlikely to exist. Furthermore, there is generally no established market for such an entity. Valuation of a family owned business is therefore quite a difficult task.
The complexity in valuing a family business, however, cannot be overshadowed by its importance. A closely-held business is frequently the largest marital asset. Accordingly, a fair and equitable division of the marital estate will not be achieved without an accurate valuation of the entity. The use of a broker and valuation expert is therefore imperative in a high net worth divorce.
The importance of obtaining an accurate value for a closely-held business is not limited to achieving an equitable division of the marital assets. The value of a family business may also impact the amount of child support and/or spousal support that a party receives. This is because closely held businesses are frequently used to hide income and the amount of child and/or spousal support that a party receives is largely based on the other party’s income.
Valuation of Professional Practices
The value of a professional practice, such as a medical, accounting, or legal practice includes the value of the real estate or leasehold, furniture, equipment, supplies, and may include goodwill in certain circumstances. In order to ascertain the value of a professional practice, a party may request copies of documentation such as tax returns, financial statements, buy-sell agreements, leases, notes receivable, pension and profit-sharing documents, and documents evidencing work that is in progress. In addition to conducting discovery, experts such as certified public accountants are frequently hired to conduct an appraisal of the professional practice and to present expert testimony regarding same to the Court in a high net worth divorce.
Hidden Income and/or Assets
In a high net worth divorce, it is not uncommon for a spouse to engage in divorce planning in order to conceal income and assets from the other spouse. In these cases, forensic accountants have frequently used hidden income and/or assets in order to determine the accurate value of the marital estate.
Dissipation of Marital Assets
The value of the marital estate will be divided between the parties in equal shares unless the Court finds that an unequal distribution is justified based on “all relevant factors”. One of the factors that the Court will consider in determining whether there is justification for an unequal distribution is the intentional dissipation, waste, depletion, or destruction of marital assets by one spouse after the filing of a Petition for Dissolution of Marriage or within the 2 years preceding the filing of a Petition for Dissolution of Marriage. See Fla. Stat. 61.075(1)(i). In other words, grounds for an unequal distribution may exist where one spouse engages in divorce planning by selling and/or transferring marital assets to third parties within two years of filing for divorce. The dissipation, however, must occur while the marriage is “undergoing an irreconcilable breakdown.” Gentile v. Gentile, 565 So. 2d 820, 823 (Fla. 4th DCA 1990).
It is important to note that there are grounds for an unequal distribution will not be deemed to exist where marital assets are liquidated and/or marital funds are expended in order to maintain the status quo. For example, in Roth v. Roth, 973 So.2d 580 (Fla. 2d DCA 2008), the husband liquidated various bank accounts and retirement accounts in order to provide support to his wife and children, as well as to maintain the marital home and his living accommodations during the parties’ separation. In this case, the Court found that the husband did not act in bad faith by expending marital funds to maintain the status quo, and held that there was no basis for an unequal distribution of the marital estate.