United States: You May Be Wealthy, But It May Be Hard To Pay The Equitable Distribution

Last Updated: May 24 2014
Article by Eric S. Solotoff

You’re wealthy and entitled to a big settlement but does that mean that it will be easy to get your share of equitable distribution?  When all of the assets are valued, you are worth $2,000,000, $10,000,000, $25,000,000, $9 billion.  In many cases. the issue is less about the amount of the award of equitable distribution but how to pay it out.  That issue is in the spotlight today with the story reported in today’s New York Daily News that Russian billionaire Dmitry Rybolovlev allegedly reneged on a deal to settle his divorce case for a relatively modest $1 billion, and then was hit with a record $4.8 billion divorce judgment.  It is reported that despite a net worth approaching $9 billion, he claimed that he was unable to come up with the cash to satisfy the settlement (though both accuse the other of reneging).

In many cases, it matters less about how much you have, but how liquid your are or are able to become.  In the last few years, I had a case that settled reasonably quickly and easily because most of the nearly $60 million net worth was in liquid assets (cash and securities.)  In that case, it was easy to transfer some homes, cash and securities and call it a day.

Most high net worth cases are not that easy, especially where there are business interests and/or commercial real estate.  The business may be profitable and it may be worth a lot of money, but it is not likely to be sold any time soon.  Sometimes the business owns the real estate (in the marital pot and most often valued separately) where it is located making the claim for the share of the business and the property even harder to pay out without disrupting the business.

The business throws off an income stream, but the non-titled spouse is often seeking alimony from that income stream.  If the business or property has to be sold to satisfy the equitable distribution, is it still fair to award alimony.  Not to mention, this could have very real tax ramifications perhaps not contemplated which could make the deal unfair.  Borrowing to pay the settlement out up front is often easier said than done, and moreover, you don’t want the borrowing to impair the business’ ability to continue to operate.

For better or for worse, in these types of cases, the equitable distribution may have to be paid out over time.  What a reasonable amount of time is depends on the facts of the case.  The next fights are (1) should there be interests and if so, how much, and (2) how to provide security for the obligation.  This can get very complicated, often requiring consultation with corporate, tax, real estate and/or trust and estates counsel.

What happens when you can’t resolve it and try the case?  Hopefully the judge will consider all of these things.  That said, I can point to at least two cases that I handled some appellate work on where that was not the case.

In one case, after a more than 20 day trial, most of which was expert testimony, where the values were widely divergent, the trial judge held that it was too complicated to decide and ordered that everything should be sold.  However, given certain unique tax issues related to the assets, the result could have been catastrophic because assets valued between $20 and $40 million would have been rendered valueless or worse, when the tax bill came.  Neither party wanted that and the case was ultimately settled.

In another high profile case, with a valuable business, and valuable real estate used by the business for its operations, the trial judge issued an award of more than $30 million and simply reduced it to judgment.  The trial judge did not order or even suggest how it be paid, even though everyone seemed to want direction, and simply left the parties to their own devices.  That was untenable too and the case was ultimately settled.

The take away is that just because there is great wealth, and just because you agree how much the non-titled spouse is entitled to receive, the hard part may be figuring out how to make that happen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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