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Episode 73 - Unique Financial Issues in High Asset Divorces

Episode 73 - Unique Financial Issues in High Asset Divorces Image

11/20/2018 9:23 am

While the laws surrounding divorce apply whether your income is minimum wage or tens of thousands of dollars per month, cases involving high income earners or large assets present their own challenges. In this show, we explore the unique assets that we have seen in some high asset divorces, including cash, collectibles, precious metals, jewelry and Fine Art, crypto-currencies, and businesses. We also discuss how to protect the valuable items that can be easily moved (or 'disappear') and how businesses are valued inside a divorce.

Transcript

Todd Orston:                     Everyone knows about basic assets like bank accounts, investment accounts, retirement accounts. You know what they are, how they're used, and if asked, you can probably explain how to go about determining the value of those assets.

Leh Meriwether:              Like looking at a statement that tells you exactly what the value of the account is?

Todd Orston:                     Exactly, Leh! You're good. Determining the value of those assets is easy. Hiding those assets is hard, although issues do arise when dealing with those types of assets in the context of a divorce. There are even more complex issues that attorneys and parties going through a divorce have to deal with, especially in high net worth cases, and to complicate things even further, recent changes in the federal tax laws are set to make divorce negotiations even more difficult.

Todd Orston:                     Today, we're going to highlight some of these complex financial issues. Issues like the impact of the recent tax code change, locating assets such as cryptocurrencies, or valuing a business. But do not fret!

Leh Meriwether:              Did you just say fret?

Todd Orston:                     Why yes, I did. It was my dictionary word of the day, and I'm proud of it. But that's not the point. Do not fret, because we are going to spend the next hour talking about these issues and more. But before we do, a brief introduction so you know who we are.

Leh Meriwether:              Welcome everyone. I'm Leh Meriwether, and with me is Todd Orston. Todd and I are partners at the law firm of Meriwether & Tharp, and you're listening to Meriwether & Tharp Radio on the new Talk 106.7. Here, you'll learn about divorce, family law, tips on how to save your marriage if it's in the middle of a crisis, and from time to time, even tips on how to take your marriage to the next level.

Leh Meriwether:              If you want to learn more about us, you can always call or visit us online at atlantadivorceteam.com.

Todd Orston:                     All right, so we've talked numerous times, Leh, correct me if I'm wrong, on the show about what we call the four core areas of divorce, and that's custody, child support, alimony, and division of property and debt, and issues relating to custody and child support only apply if ... Leh?

Leh Meriwether:              There are minor children involved.

Todd Orston:                     There you go. You are on it today. All right.

Leh Meriwether:              I had my moment.

Todd Orston:                     So issues relating to alimony sometimes apply, of course, especially when there's a big difference between the spouses' relative, and pardon me, respective incomes, and whether the estate is valued at $10 or it's worth millions, issues relating to division of property and debt almost always apply. So dealing with those issues can always be complicated, but they can be and become especially complex when you're dealing with high net worth clients.

Leh Meriwether:              Probably we should just say, when you say estate, make it clear, we're not talking about when someone dies. We're talking about in a marriage, when looking at the total assets and liabilities of a married couple, we call that the marital estate. So just to make ... We use that term all the time.

Todd Orston:                     I had no idea ... See, I learn something every time I come on this show.

Leh Meriwether:              That's my line.

Todd Orston:                     But you are right, so that is what we're talking about. We're talking about the marital estate in the context of a divorce, okay, and that's what we're here talking about today.

Leh Meriwether:              Yeah, and particularly those cases with high assets, because those can be a lot more complicated. You're dealing with the tax implications of different types of things can be far more complex. Even when you have a couple that are getting along as far as the divorce process, there are so many question marks of how do we divide up this asset or this asset because there's tax implications for each one, that even in cases where the parties are getting along, you might involve experts to help you work through those, "Okay, what is that asset really worth? Yeah, it says it's worth $800,000, but if you sell it, it's going to have this tax implication on it and that taxes at 10% or 20% and if we sell this over here, it's 10%." I mean, it could get quite complicated.

Todd Orston:                     Yeah, and next thing you know, that asset that you thought you were getting that was $800,000, it's not $800,000 of value, and so we have-

Leh Meriwether:              Cash value.

Todd Orston:                     That's right, so what we do, okay, is we are always looking at these things. We're looking ... We're digging deeper, all right, we're going not just to the surface, we're going below the surface to make sure that we are taking into consideration all of those issues to make sure that people are being treated fairly and when they are agreeing, they're actually getting the value that they agreed upon.

Leh Meriwether:              Right.

Todd Orston:                     I'm getting all choked up.

Leh Meriwether:              So, all right, let's start with ... I know we actually had a show where we touched on this before, but the tax code changed, because the advice we gave last year is different than the advice we're giving this year because the tax law has changed, which impacts everything. We haven't even done a full analysis on how it impacts the division of certain assets as far as ... I'm having one of those moments.

Todd Orston:                     It's okay. You're old.

Leh Meriwether:              No, capital gains.

Todd Orston:                     Yeah.

Leh Meriwether:              I was having a brain fart there. So when dealing with capital gains, and it gets complicated.

Todd Orston:                     Absolutely.

Leh Meriwether:              So let's talk about it. What was it, the Tax Cuts and Jobs Act of 2017 enacted some big changes, and so let's dive into what some of those changes are.

Todd Orston:                     Yeah, absolutely, and like you said, it's still new, and in fact, many parts of the tax code change don't even come into effect until 2019, so it's very difficult for us, as attorneys who can't give accounting advice, to even tell you all of the consequences, all of the impact it's going to have on people, but there are experts out there, and that's going to be one of the messages that we are giving and sending during this show, that there are experts who will be able to answer the questions, but talking about the law itself, understand that couples who finalize their divorce agreements in 2018 may have more options since the most significant rules impacting divorce go into effect on January 1, 2019.

Todd Orston:                     One in particular is that agreements executed in 2018 will retain the default of alimony being deductible by the payor and included as taxable income to the recipient, and that's been the case since 1942 is my understanding, but if you wait, then unfortunately, that changes and now if you are the payor alimony, then you don't get to deduct that. In other words, if you're paying $5000 in alimony, in the past, if you dealt with alimony, the issue of alimony in 2018 and before January 1, 2019, then you would be able to get a tax refund, if you will, or a deduction, and so in essence, what you paid was not $5000, because you got that credit back.

Leh Meriwether:              So if your tax bracket, for instance, was you were at 30%, you would get $1500 back for every $5000 payment, so your actual net payment is $3500 because of the tax benefit under the old law.

Todd Orston:                     That's right, and under the old law, the person who would pay those taxes would be the recipient, but usually, especially in a case where a person's receiving alimony because they have a need, then their tax bracket is probably lower, so the amount of taxes that they are paying is far lower, so it really is a win-win. Unfortunately, in '19, it's going to be almost a lose-lose, because the payor doesn't get that break and the recipient is going to probably end up having to take less because that's just reality.

Leh Meriwether:              Yeah, so that's ... and we don't want to dive too much into that, because we talked about it for a whole show-

Todd Orston:                     About.

Leh Meriwether:              ... but we still think it's important to touch on.

Todd Orston:                     Yeah, and so aside from scrapping the deductible alimony, there are other changes that you are going to want to talk to an expert about, things like the personal exemption was reduced to zero for all taxpayers this year. It may return, I believe, in 2026. Again, I'm not an expert in that area. You need to talk to somebody. State and local tax deductions for state income and property taxes above $10,000 combined are gone.

Leh Meriwether:              Which impacts the higher income earners-

Todd Orston:                     That's right.

Leh Meriwether:              ... so the ability of you to pay support, that impacts this because now you suddenly-

Todd Orston:                     There's less available.

Leh Meriwether:              ... there's less available.

Todd Orston:                     Yeah, so moving expenses, unless one of the divorcing spouses is in the armed forces, then expenses incurred separating one marital household into two is no longer deductible. Another thing, legal and professional service fees, so tax preparation, investment advisory fees, your legal fees that are incurred for tax planning or to obtain the taxable alimony, are also gone. So this is something that's going to impact people. It's going to hit the pocketbook and hit the pocket or wallet pretty significantly, which is, there's a trickle down. Right?

Leh Meriwether:              Yeah.

Todd Orston:                     You're getting hit with all these additional costs, there's less money to go around, which means there's less money for alimony. So I'm not telling people race out and file for divorce, but talk to experts, talk to your accountant, talk to an attorney, make sure you understand how it's going to impact you so that you know whether or not you need to move quickly and do something now rather than wait until 2019.

Leh Meriwether:              Right, so basically, if you've decided you're getting a divorce, we hope you haven't, but if you have, don't wait to talk to a lawyer. Get that process started today if you are in a high income bracket and you believe that you may have a case which will require you to pay alimony. So don't wait.

Todd Orston:                     Yeah, don't wait. I mean, we always talk about being proactive versus reactive, but this is one of those situations where it's really beneficial to be proactive, because the impact can be significant, and I'm not the one and you're not the one, Leh, to give advice as to how the tax implications specifically will impact people-

Leh Meriwether:              And I think-

Todd Orston:                     ... but there are people out there than can answer those questions.

Leh Meriwether:              Yeah, and I think one last thing on this point and then we're going to move on, but is that regardless of what you put in the agreement, so even if the husband and wife said, "Well, we're going to agree that this is tax deductible to me and you'll pay taxes on it," it doesn't matter what's in the agreement. The IRS says, "Yeah, that sounds nice that you put that in there, but you're not getting to write it off," so there's no way around this law.

Leh Meriwether:              Hey, up next, we're going to talk about sort of nontraditional assets like cryptocurrencies, how to locate them, value them, and make sure they're included in equitable division of the marital estate.

Leh Meriwether:              Welcome back everyone, I'm Leh Meriwether and with me is Todd Orston. Todd and I are partners at the law firm of Meriwether & Tharp and you're listening to Meriwether & Tharp Radio on the new Talk 106.7. If you want to learn more about us, you can always call or visit us online at atlantadivorceteam.com.

Leh Meriwether:              Now today, we're talking about some of the financial complications or issues that come up in high asset divorces, and in the last segment, we talked about how the issues that come up have been complicated recently by the recent tax law changes, nothing that we can't figure out, but definitely something that creates a situation where the advice we gave last year is not the advice we're giving this year, because when you're dealing with high asset divorces, you're usually dealing with different kinds of assets that have different types of tax implications, especially how you liquidate them or how you deal with them or how you value them, so while I joked at the beginning of the last segment that oh, you can look at a segment to see what it's worth, but what is it really, what's the net worth? So it could say you could have stocks, for example, that say you have $800,000 worth of stocks, but after you deal with capital gains, if they've gone up in value, it may only, once you sell them, they may only be worth $7 or $600,000 because you had to pay $100,000 in taxes on them. So it all depends on, you have to look a little bit deeper into those assets.

Leh Meriwether:              All right, so that's what we touched on last segment, and now we're going to continue to dive into some of the complications that we see dealing with high asset divorces. We know that when you ... The first thing we've got to do is identify the assets, and if you've got a situation where everyone's honest and upfront, it's usually easy to identify the existence of assets, and now you may have to bring in experts to help value those assets, but identifying the existence of them, but there are certain situations where people don't always disclose their assets.

Todd Orston:                     No! I don't believe you.

Leh Meriwether:              You get all the easy cases, Todd.

Todd Orston:                     Sure. But you're right, it comes down to if everybody is engaging in an open and honest way, then it should be a quick, I'm not going to call it easy, because dealing with a divorce is not easy. It's not easy emotionally, it's not easy technically in terms of figuring out values and all that, but it should be relatively easy. Unfortunately, sometimes we deal with situations where people aren't being open. They're not being honest and we have to dig, and we have to do a lot of extra work to try and figure out what assets exist and then we have to turn around and try and fight to figure out what the true value of those assets are.

Leh Meriwether:              And so stocks you can find, there's stock accounts. You can find those and then have an accountant come in, determine the capital gains on them, but you can have interesting cases, like I've had some where there was jewelry. There was $100,000 in jewelry. They had a rider on it on the insurance, it'd been valued, but midway through the divorce when we valued the, had the jewelry appraised, there was only a $20,000 appraisal, so clearly $80,000 in jewelry disappeared.

Todd Orston:                     Can you say cubic zirconia? "Honey, I got you diamond." Sure you did.

Leh Meriwether:              No, it had ... Unless the original appraiser had been fooled, there was a valuation of that jewelry before and they had a rider, they were paying extra on their homeowner's insurance to cover that jewelry, so those things can disappear. Sometimes people think this is a great investment, and it ... I don't know about jewelry, but it's also a great investment that can disappear.

Todd Orston:                     Oh, I've dealt with coin collections, jewelry collections or expensive watches. We've dealt with artwork just going missing. We've dealt with a number of different types of assets.

Leh Meriwether:              And even seen rugs that were worth $10,000.

Todd Orston:                     Absolutely. I mean, I have ... I can say I have friends who have some rugs where when I've talked to them and I figure out the pricing, I'm like, "Really?" I mean, because bare floor is fine for me. I don't need a rug. But so the value, the amounts of these assets can be very difficult to determine, but if someone's not being open and honest, if they've hidden money, if they've taken money out of accounts and put it into offshore accounts, if they've diverted money from accounts, if they've worked with their employer to maybe secretly, quietly divert money to a different account, then we are unfortunately tasked with hunting down those monies, finding that jewelry, and sometimes when you're dealing with ... Sometimes with bank accounts it's a little bit easier. If you're looking for funds, it was here, you can track and trace it through statements-

Leh Meriwether:              Your bank account statements, yup.

Todd Orston:                     Right, but when you're dealing with, going back to your point, jewelry, when you're dealing with precious metals, when you're dealing with those types of things, unfortunately, when they're gone, they're gone, and yes, we do make the argument to the court, "Hey, it should've had a value or did have a value of X and even though it's gone, we want you to almost impute that value to that party because we believe he or she stole it, and we'll take an equal amount from the remaining assets," but you know what-

Leh Meriwether:              That's exactly what we did in that case with the $80,000 in jewelry that went missing.

Todd Orston:                     Yeah, but I've also, like you, seen situations where unfortunately, what is gone far in terms of value exceeds the value of the remainder of the estate.

Leh Meriwether:              Right. Oh, yeah. Yup.

Todd Orston:                     So it's one of those where it's like, "Oh, well, we'll take something from over ... Oh, wait a minute. There's nothing over here," and then it's like, "Well, no we sold it," and it's, "Yes we had it, but then we sold it to pay bills," and this and that, and there's no way to prove or disprove those statements, and oftentimes, the court is just, like you, scratching their head going, "What am I supposed to do with this?"

Leh Meriwether:              Yeah. Now, the good new is, is that most people have one of the best documentation tools in their pocket, and it's a smartphone.

Todd Orston:                     I was going to go with a pencil, because I'm a good sketcher, and it's ... No? Sketching?

Leh Meriwether:              You are good at drawing.

Todd Orston:                     I ... Yeah.

Leh Meriwether:              I think that would take too long.

Todd Orston:                     It would probably take too long. All right, cameras.

Leh Meriwether:              So use your camera, go through the house. If you have valuables on the walls, artwork or collectibles like coin collections, go through the house, either videotape it or take pictures. Definitely you should have done this ... If you haven't done it already, you definitely want to do it, even if you're not getting divorced, do it, catalog it, and make sure your insurance company is aware of it. So this is advice whether you're getting a divorce or not-

Todd Orston:                     And I'm glad you said that, because you're right. Because some people might be like, "Well, great, so I have to live my entire married life preparing for the divorce." No. This is something that is valuable and can assist you if unfortunately your house gets broken into. It's going to help with insurance claims. It's going to help with the police-

Leh Meriwether:              Or you have a fire.

Todd Orston:                     ... or if there's a fire. There are situations where if it's a unique item, like a piece of artwork or a piece of jewelry, then taking a picture or walking around the house taking video, that's something you can give to the police so when they are doing their search ... Now, I'm not saying that the police are like, "Oh, my god, they stole your pendant. Send out the Mounties," okay, but when they're about there and they're doing the work that they're doing, going to pawnshops, doing other things, your item, they have a picture.

Leh Meriwether:              Yeah, and that's an excellent point. I don't know if people know this or not, but pawnshops, when they get items of precious metals, because there's actually a lot of rules governing that, they have to look up to see if these are stolen. So before they melt them down, they have to look them up. I actually have a personal example of this. My wife just happened to have, what was it called, the Pandora pendants? I can't remember, but the value of the gold was about ... She'd been collecting this for years, since she was a teenager, and the gold value was about $6500 because it just, and when she bought it, it wasn't that much and the prices of gold went up. Well, somebody stole it out of our house, and we had a picture of it. We sent it to the police, and they found what happened, but they had already been melted down.

Todd Orston:                     Oh, no.

Leh Meriwether:              Well, we caught the woman that had stolen. It was actually one of those maid services, and apparently hadn't done a good enough job on ...

Todd Orston:                     They cleaned.

Leh Meriwether:              Yeah, they cleaned.

Todd Orston:                     They cleaned you out.

Leh Meriwether:              Yeah. Now, fortunately they had insurance that paid up. We didn't have any problems, but having a picture of that was very, very helpful.

Todd Orston:                     Actually, you probably wouldn't have gotten that same level of assistance had you not had the photos.

Leh Meriwether:              Yeah.

Todd Orston:                     So things, pictures, videos, you can also walk around, and I will also say, you have to update. If the last time you took pictures was 1974, then you probably want to take some newer pictures, and routinely. It doesn't have to be every year, but just to show, "Hey, that picture's still on the wall. Hey, the jewelry is still in my possession," so any arguments of, "No, no, no. We sold that five years ago to pay for whatever," then that's going to help. You can get appraisals of some of your jewelry and artwork and things like that, and precious metals, so that you have documentation showing not just the existence but the value.

Todd Orston:                     If there are safes, safety deposit boxes, maintain access to them. If your spouse is the only one that has access, I would be having a conversation and saying, "Hey, I would like to know what's in there. I'd like to know the combination so I can access," and like I said, routinely go into them, look. I've had cases, I had a case where people had $100,000 in a safe and it was gone, and so we unfortunately were stuck in a very difficult position then trying to convince a judge that there was this $100,000 in cash with absolutely no evidence to support it.

Leh Meriwether:              Wow. You know what I just realized? We said last time we were going to get to cryptocurrencies. We got so far down this path, we never hit cryptocurrencies.

Todd Orston:                     It's your fault.

Leh Meriwether:              Well, I figured it was a good ... I wanted to make sure people think, because I forgot this, I've forgotten this before, take pictures. Send them to your insurance company. Protect yourself.

Todd Orston:                     Let's go into cryptocurrencies next.

Leh Meriwether:              Good idea.

Todd Orston:                     I've got a bunch of them.

Leh Meriwether:              And you know what else we should go into? How we value businesses.

Leh Meriwether:              So up next, we are going to go into cryptocurrencies. We're going to talk about them a little bit, and we're going to talk about how you value a business.

Leh Meriwether:              You know, Todd, this new digital age with the ability to really buy things like Bitcoin, it's amazing. All of a sudden, you have these currency that hasn't been authorized by any national government, and yet, people are trading it online. It's amazing, until you've got to figure out is there any in this divorce that we're dealing with?

Todd Orston:                     Yeah, absolutely, and it's something that's becoming more commonplace, and I believe, fortunately or unfortunately, it's going to continue to become more commonplace, and that means it's going to be an asset more and more of the time in divorces where we have to figure out, okay, what's out there, what's the value, and how are we going to divide it?

Leh Meriwether:              Yup. Hey everyone, I'm Leh Meriwether, and with me is Todd Orston. If you're just tuning in, Todd and I are partners at the law firm of Meriwether & Tharp, and you're listening to Meriwether & Tharp Radio on the new Talk 106.7. If you want to learn more about us, you can always call or visit us online at atlantadivorceteam.com.

Leh Meriwether:              Well, this whole show, we've been talking about some of the challenges that we have in high asset divorces. We've been talking about things that are just unique. Some of them are kind of entertaining. I mean, it's not entertaining for the people going through it, but just for those listening, I'm sure some people are like, "Well, I wish I had that problem of having a $100,000 painting," but for the people that have invested in some piece of artwork and a lot of times, that does go up in value, it's serious.

Todd Orston:                     Absolutely.

Leh Meriwether:              Whenever you're talking about that kind of money, it's serious. Well, let's go into cryptocurrencies, because this really is fascinating, and it could be a fad, I don't know, but for now, it's real.

Todd Orston:                     Right now, it's a pretty popular fad, and people are buying and selling cryptocurrencies, and so educating yourself, understanding what they are and the fact that they could be a part of your estate, okay, or maybe you were the one who was buying them, that they are a part of your estate, it's something you need to be thinking about, because in a divorce, like any other asset, it is going to be subject to division.

Leh Meriwether:              Yeah, so tell me a little bit ... I know you did some research on cryptocurrencies recently.

Todd Orston:                     Yeah, absolutely. So my understanding is cryptocurrencies were basically created in or around 2009, and they're a form of what they call decentralized virtual currency, and they're traded on virtual currency platforms. I think they're also called exchanges. They're often anonymously owned and I know you're already smiling, this word of pseudonymously ... I don't know. Basically-

Leh Meriwether:              I'm glad you had to say that.

Todd Orston:                     You're so happy ... All right. They are under a pseudonym, they are traded. So the laughs aside, what it means is that people can buy them and sell them under a fictitious name, under a pseudonym. In other words, to make things even more complicated ... A stock, you can track and you can trace it and there are statements and it shows that you own this amount of stock, or a bank account or those types of things. Cryptocurrencies, on the other hand, not only are there no statements to get that show that you own it, that you can just easily go to a bank and get, but on top of that, Frank may have bought it under the pseudonym Ballerina123. Okay?

Leh Meriwether:              Isn't yours PrettyBallerina?

Todd Orston:                     It's ... Thank you very much. Now everybody ... that's going to go public. That's right. So PrettyBallerina123, but so what that means and the impact of that is, let's say you believe that your spouse purchased some cryptocurrencies. It is potential, or possible, for an attorney to then, let's say, send a subpoena to the exchange to try and find out whether or not your husband, Frank, purchased any cryptocurrencies. The problem is, if he bought them under a pseudonym, then what you're asking for is, "Hey, did Frank do this?" And they're going to say, "We have no record of Frank doing anything," but Frank was doing it under PrettyBallerina. All right? So unfortunately, tracking it and finding it after the fact may be next to impossible. It may be that proverbial search for a needle in a haystack.

Leh Meriwether:              Mm-hmm (affirmative), so that's where in some instances, it's valuable to bring in a forensic accountant to really break down every single account, and we've seen that happen before where the forensic accountant looks at the credit card statements, maybe for a cash withdrawal, look into things like ... I'm trying to think of all the ones, credit cards is one, obviously bank account statements.

Leh Meriwether:              I've even seen this before where a husband will go to his employer, or wife, go to the employer and say, "Oh, by the way, when you pay my salary, I want you to put $5000 in this bank account and $4000 in this bank account," and that bank account they set up separately, the wife doesn't necessarily know about it, and then they start doing all kinds of things with that bank account. Now, fortunately, there is a paper trail. It shows up in the paycheck stubs, but I've seen people not disclose it and we find out when we sit down and look at the paycheck stub, where is this other money going?

Todd Orston:                     Well, and that's the point. The point is, sometimes it's not as simple to find this asset, something like a cryptocurrency, so unfortunately, you have to back into the problem. What I mean by that is you're not going to be able to just say, "Well, give me a statement for all of your cryptocurrency transactions," so that means you're going to have to look at other assets to see whether or not there is any behavior, if any activity is going on that would lead you to believe that maybe money is disappearing, which would then allow you to ask the right questions and hopefully track and trace the funds back to maybe the purchase of a cryptocurrency.

Todd Orston:                     So very quickly, let's talk about some things that people can think about to try and stay informed and try and determine whether or not cryptocurrencies are a part of their estate.

Leh Meriwether:              Well, I'll say that one of the things that a couple should be doing, period, I mean, this is good advice to stay married, is to basically have a monthly budget meeting. This is advised by a lot of financial advisors out there, to have a budget meeting, you look at the bank statements. You may not have to know every single detail, but look at the bank statements, look at the credit card statements, have an idea, even if your spouse is managing everything, just have an idea of what's going on. And if you talk to any estate planning lawyer, they're going to say this is a good idea because you never know if your spouse is going to get killed in a car wreck tomorrow. You need to have a good handle on what's going on. This advice isn't just for, "Hey, we've got to prep for going through a divorce, I need to know everything." This is-

Todd Orston:                     And we've dealt with those situations where unfortunately, a spouse passes away and the surviving spouse is like, "I have no idea about anything. My spouse paid the mortgage and the bills and the this and the that, and it was the income, he controlled or she in some cases, controlled all of the income and the investments and this and that, I don't even know where to begin." Hopefully nobody ever is in that situation, but you can either wait until unfortunately you are thrust into that situation and you don't know what to do or where to start, or these meetings are a great idea because it's going to keep you abreast of what's going on. It's going to at least, even if you're just scratching the surface, you know there's an investment account. You know there's a whatever kind of retirement account, so that way you know at the end, "Oh, well, I need to look for this. I need to look for that. I need to deal with these things. I know they're out there. Now I need to start digging a little deeper."

Leh Meriwether:              And here's, I mean, this is just good marriage advice, to have these meetings. Even if you don't understand, and it could create ... If all of a sudden you discover that your spouse was spending money on something they shouldn't have, the thing is, you're going to run into that issue sooner or later, so let's deal with it sooner and let's figure out before, like if someone's spending money, maybe they have a bad gambling habit, before you go bankrupt, you want to know this stuff, so I mean this-

Todd Orston:                     That's a great point, because we've seen those cases where unfortunately, years go by and the problems between parties occur because the debt that has been amassed or the wasting of the assets that has occurred is so dramatic, it's really hard to bounce back. You know, looking at someone and going, "Oh, my god. I found out you just spent $3000 and wasted $3000," you can bounce back from that. I've seen people come back and it's like, "Oh, my god. We're broke."

Leh Meriwether:              Right.

Todd Orston:                     Like, "You've burned through $150, $200, $300,000. You mortgaged the house, you did all of these things," and had you stayed abreast of the status of your estate, then maybe you could've avoided that.

Leh Meriwether:              And I've seen that happen to couples where their household income was $3, $4000 a month, all the way up to like $30,000 a month. We've seen people with more than that per month, but they have gotten to a point where they spent so much that they were spending more than they made, even making $30, $40, $50,000 a year. So this is something that would be a helpful marriage tool, anyways.

Todd Orston:                     So very quickly, very quickly, watch bank accounts for big withdrawals. Watch income amounts to make sure income's not being withheld or diverted, in other words, your spouse is working with his employer, like you had said, and putting money into a different account. If you're in the process of a divorce, make sure discovery, like notice to produce, interrogatories, things like that, cover cryptocurrencies. Just talk to your attorney and make sure that the discovery is comprehensive and covers that. Depending on the information that you have, you could send out subpoenas to an exchange, but like I said, it's very difficult, okay, and it may not be foolproof. Then finally, understand that taxing authorities are cracking down on the trade of cryptocurrencies, which may make tracking them in the future, because on tax returns and things like that, easier, but that's not where we are right now, so just be very careful.

Leh Meriwether:              And up next, we're going to continue to dive into some of the challenges we have with high asset divorces, including valuing businesses.

Leh Meriwether:              Welcome back everyone. If you're just tuning in, I'm Leh Meriwether, and with me is Todd Orston. Todd and I are partners at the law firm of Meriwether & Tharp, and you're listening to Meriwether & Tharp Radio on the new Talk 106.7. If you want to learn more about us, you can always call or visit us online at atlantadivorceteam.com.

Leh Meriwether:              Well today, we've been talking about some of the unique challenges we have in the high asset divorces that we deal with, and some of the stuff we deal with show up in a wide range of cases, but we're focusing more on those high asset divorces because they are unique challenges, everything from valuing assets, especially taking into consideration taxes, the recent tax law changes, dealing with things such as fine art and jewelry, things that could have a high value but easily disappear because you don't necessarily have to, the tracing of it's not ... Gold and fine metals, there's actually a lot of regulation governing how that should be liquidated, but things can-

Todd Orston:                     Doesn't mean people always do it.

Leh Meriwether:              Yeah, or doesn't mean that somebody doesn't take the gold and put it in the backyard and bury it.

Todd Orston:                     Or give it to family members to hold. I've seen that, where people had a large amount of precious metals and next thing you know, it's out of the country, it's with family members elsewhere, and figuring out the actual value is very difficult.

Leh Meriwether:              So those were interesting. We talked about cryptocurrencies because that's also something that's fairly new and recent and the challenges associated with that, but now we're going to talk about something that we see more commonly in high asset divorces. It's where one or both of the parties are an owner in a business, either an owner or the sole owner, and so these can create a lot of challenges for multiple reasons, but we're just going to focus today on sort of valuing, and we're going to just give basically a 10, 20,000 foot view. We're not going to dive deep, but just to let people know this is what goes into it, understanding a little bit about the lingo.

Todd Orston:                     Yeah, I mean, it is really a thumbnail sketch. The work that experts do in performing these types of business valuations, I'm not even going to pretend to understand all the ins and outs. It is so complex and there are so many moving parts and so much information that a business valuation expert looks at and considers when dealing with these things that we would need about five shows to really explain, but if you have a business, if your spouse operates a business, you need to understand some of the lingo. You need to know what it looks like when you're looking at valuating or valuing that asset. You need to understand some of the basics, because look, it's the American dream, starting and owning your own business, but there are these complex issues that arise. Okay? Such as one or more of the parties may work in the business, so it's not as simple. Right?

Leh Meriwether:              Right. So you may have a situation where if they're not getting along as a married couple, odds are they're not going to get along as business owners.

Todd Orston:                     Yeah, it's not just an asset. Both parties are showing up to the same workplace to work.

Leh Meriwether:              That's where they get their income.

Todd Orston:                     That's right, and if they're not getting along, that could make the operation of that business very, very difficult.

Leh Meriwether:              Yeah.

Todd Orston:                     Both parties might, or likely do, derive income from the business, so even if only one of them operates the business, the income generated might be the sole income for the family. That's a complication. The value of the asset, rather, not the asset itself, may need to be and would need to be divided in terms of division of property, which brings up all the valuation issues that we're talking about. How much, what is the value? How is it going to be divided? Well, it's not like, this isn't King Solomon. You can't say, "Okay, well, you get half the business and I'll get half the business." Right? It's a business, so for the most part, and I've heard of and seen some situations where a business could be divided, but for the most part, and I mean like 99% of the time, the business is going to go to one party, and all these complicating factors-

Leh Meriwether:              And that one party has to pay, buy out the other party.

Todd Orston:                     That's right. So now not only do they have to, especially if the other party was dependent on them for support, not only are there support issues because the only source of income, excuse me, went to one party, but like you said, if there was a $500,000 value and they are dividing the estate 50/50, that means $250,000 in value has to be given to that other party, and sometimes-

Leh Meriwether:              Yeah, and that can create strains on the business, because they-

Todd Orston:                     Absolutely.

Leh Meriwether:              ... usually get paid out over time.

Todd Orston:                     Yeah, and sometimes you can agree on a value, but oftentimes, one party really controls the business, and so agreeing on a value ... I mean, what we say to people is, if you want to just blindly agree, and we don't say it in a rude way, but if you just want to blindly agree, that's going to be up to you. All right? Our recommendation is going to be take with a grain of salt the information you're getting without any analysis from your spouse as to the value. They may be exaggerating the value, depending on what their desire is, it might be an upwards exaggeration, I've seen downward exaggerations, so-

Leh Meriwether:              And I've seen people genuinely misunderstand their value, so it may not being dishonest, but they think, "Oh, it's only worth X number of dollars," when in fact, it's worth far more.

Todd Orston:                     That's right.

Leh Meriwether:              But it's actually, they said that from an honest perspective. And if you're listening, you have a business and you and your husband or wife, you and your spouse work in the business, depending on the kind of business, it can be divided up, and I've done that a few times. Man, I had a mediation that started at 9 a.m., we went all the way to 2 in the morning.

Todd Orston:                     Well, what kind of assets were divided?

Leh Meriwether:              In that situation?

Todd Orston:                     Yeah.

Leh Meriwether:              Almost the whole mediation, if I'm remembering correctly, because years ago, was focused on a business, and there was a couple components to that business, so the-

Todd Orston:                     Was there like an inventory issue that was being divided?

Leh Meriwether:              No, it was what ... Well, there was inventory, which that actually was easy to divide.

Todd Orston:                     Right, exactly.

Leh Meriwether:              Because there was an itemized list and you take this and you take this, that was easy. The hard part was, you're going to take this kind of work and they're going to take that kind of work, and there was a common phone number, so how do we deal with the calls coming to that common phone number, how do they get routed? That got really complicated.

Todd Orston:                     And that makes sense, because they had different specialties and they could say, "Okay, well, I've been always doing this kind of work in the business, you've been always doing that kind of work."

Leh Meriwether:              Yup.

Todd Orston:                     "We'll just create two separate businesses."

Leh Meriwether:              And that's what they did.

Todd Orston:                     Not always that simple, though.

Leh Meriwether:              Yeah, it's not.

Todd Orston:                     Yeah. And I know that wasn't simple.

Leh Meriwether:              Yeah.

Todd Orston:                     But you understand my point.

Leh Meriwether:              It's possible. So let's talk about, let's give a 20,000 foot view of what the experts do, because that's what we usually want people to do, we actually insist on them hiring an expert to help value it, because I think it's only fair to everyone.

Todd Orston:                     Yeah, so let's talk about some terms. Leh, how about this, what's fair market value?

Leh Meriwether:              So fair market value's the price at which a business would be sold from a buyer to a willing seller. And when the buyer is not under any compulsion to buy, and the seller is not under any compulsion to sell, both parties have the reasonable knowledge of all the relevant facts, so that's a fair market transaction.

Todd Orston:                     Okay.

Leh Meriwether:              So no pressure from a divorce, just someone comes in and says, "I want to buy your business."

Todd Orston:                     All right, so that's fair market value. What about investment value?

Leh Meriwether:              So that's the value of a business in the hands of a particular buyer based on its own specific attributes. This concept assumes that the value follows the buyer. This means that the value of the investment in question, when added to the other businesses and interests owned by the buyer, could have an impact on the value of the business in question.

Todd Orston:                     Yeah, and remember, we are scratching the surface. This and much, much, much more information is available online, but at the end of the day-

Leh Meriwether:              Yeah, we should have a whole show on this.

Todd Orston:                     Yeah, we really should, and the next time, we'll actually bring on somebody that can speak intelligently about it.

Leh Meriwether:              Yeah.

Todd Orston:                     But the bottom line is, this and more is available online, so try to start by educating yourself. So now we understand fair market value, investment value. There are valuation methods, okay, and my understanding is that there are three primary methods, and it's the income approach, the market approach, and the cost approach. Very quickly.

Leh Meriwether:              And so typically, what happens is that the experts are going to come in and they're going to value the business on these three approaches, and then they're going to sort of combine those approaches to come up with a value for the business. So they don't say, "Well, I'm only using the income approach," because that's not fair, and the income approach is really just looking at cash flow, and it projects a stream of future earnings, cash flow or asset values, and then discounts them to a present value.

Leh Meriwether:              And so then you've got the market approach that assumes the relative value of any asset can be estimated by looking how the market prices similar or comparable assets, which can be challenging in some cases. In some cases, like dentist's offices, there's actually a lot of data out there. Veterinarian offices, there's a lot of data-

Todd Orston:                     It's like a house appraisal.

Leh Meriwether:              Right.

Todd Orston:                     I mean, you're going to look at other houses in your neighborhood or in the area, and that's going to help you derive a value.

Leh Meriwether:              Yup, and then the cost approach is a value is estimated by combining the replacement cost of each of the individual assets that comprise the business. So that's actually usually the lowest approach right there.

Leh Meriwether:              So they kind of combine all those things, and again, I'm giving a very, very, very simplified answer to these questions.

Todd Orston:                     Yeah, but as you can see, each one of those approaches is incredibly detailed when it's done by a valuation expert, and so there's a lot to it, but understanding, if you are even thinking about going down the path of a divorce, or if you are married and I'm not saying you're thinking about divorce, but if you're married and you're thinking about starting a business, just understand there are some complexities. There are some issues that you really want to be thinking about, and there are issues that you can maybe even deal with ahead of time, like a prenuptial agreement, things like that, if you know you're about to embark on something like starting a business, so that you are protected, you don't have the big fight later on down the road.

Leh Meriwether:              Right. Hey everyone, well that about wraps up this show. Man, there's so much more to talk about. We are definitely going to need to do another show on this one.

Leh Meriwether:              You can read more about us and find out more information about this topic online at atlantadivorceteam.com, and if there's a topic that you'd really like for us to explore on the air, please email us at [email protected] Thanks so much for listening.

Speaker 3:                           This audio program does not establish an attorney-client relationship with Meriwether & Tharp.