Creative Spousal Support Options for High Net Worth Divorce
Spousal support is typically awarded when there is a remarkable disparity of income between the parties that cannot be bridged in the near future. Although it happens at time, if one spouse was a stay-at-home parent working inside the home because children are young, they typically cannot immediately secure a high enough paying job that equates to sometime resembling the family’s marital lifestyle.
In California, it is not simply the payment of support to cover the living expenses of the other spouse. Instead, another one of the thirteen 4320 Family Code factors is entitlement of BOTH spouses to be able to live according to the marital standard of living.
Yes, this is often an ethereal goal, since when you split homes and have duplicate expenses, on the SAME income, it is difficult to achieve this. However, another requirement is for the supported spouse to become self-sufficient and thus return to work in some capacity to offset the support income.
If spousal support is still needed, often in high net worth families, the significance of assets allows for a relatively liveable income through the (rental) income dividends, trust distributions, interest and capital gains that may be generating.
In wealthy families, more so than in middle-class or working-class families, one person’s income, inheritance, and assets is often relied upon because both spouses do not need to generate income during the marriage. Support becomes necessary for temporary (during the divorce proceedings), rehabilitative (transition period, i.e., until they finish education, training, certification, find a job, or enter an occupation or career level that pays sufficiently), or long-term (usually in Gray Divorce or if there is an impediment to returning to work at a level that would generate higher levels of income).
Courts may look at many factors when considering whether to award spousal support in high asset divorce cases. In Michigan and California, the following factors are considered:
· Disparity of income (in MI this is ‘general principles of equity’)
· Parties’ health
· Parties’ age
· Party’s ability to pay spousal support
· Source and amount of assets (property) awarded to each party
· Parties’ ability to work
· Supported party’s living expenses
· Length of the marriage
· Impediments to working (documented physical, mental disability, caring for a special needs offspring)
· Supported party’s education (CA)
· Supported party’s career/work experience (CA)
· Parties’ contribution to the joint estate (MI)
· How cohabitation affects a party’s financial status (MI) (In CA cohabitation may be cause for reducing or eliminating support)
· A party’s fault in causing the divorce (MI only and keep in mind that this factor typically is not given much weight)
Generally, the court in both states has broad discretion over the order for support and the extent and duration of support. It has the discretion to award as much or as little as they deem to be equitable. The court may disappoint one or both parties in the award.
In high asset divorce cases, it can often be decided upon the assets that the supported spouse will own post-divorce and the cost to maintain those assets. Sometimes, prospective budgets and projections are calculated to identify when each party will run out of money given their respective earnings, savings, and reasonable expenses. The concern is whether each party will be financially solvent post-divorce.
Family Business
Sometimes in high net worth cases, there is a family business from which the dependent spouse may receive an income only until the divorce is finalized. This loss of income would be considered in the spousal support award. Going forward a share in the profits of the business and potential upside may be negotiated as an alternative to some or all of the spousal support.
Lump Sum Buyout
Another option would be a lump sum buyout of support in cash upfront. This may need to be valued at present value (discounted with an appropriate discount rate). The amount considered would be the amount of support that MAY have been paid over a period of years because of the time value of money and risk of the loss of the supporting spouse’s job due to layoffs, health, business or economic conditions, etc.
Asset Producing Income
Other times, a consideration of realized interest in the form of dividends, interest or capital gains is used in the calculation of the support award once the property is divided. If there is insufficient return on the assets, the court may impute income since the assets could be better deployed in a manner that generates income (e.g. CDs, Treasuries, Municipal Bond Income) versus having the assets in ETFs which minimize the income generated for tax-savings purposes. The court would then impute income at a certain percentage rate (4%-5% in 2025) as the assets could generate a greater return for the supported spouse. Spousal support would be reduced accordingly at some ratio even if not dollar for dollar.
Income-producing Real Estate
Other considerations would be the division and award of income-producing investment real estate to the spouse who may be the supported spouse to offset the living expenses. This allows for a reduction or even the possibility of elimination of support in some cases depending upon the income that the real estate generates.
Annuity
Similarly, a transfer of another investment asset or annuity or the transfer of cash to establish an annuity would be another alternative to the payment of support. While it may seem like an inequitable division of assets, the end result may be more favorable than the continued payment and receipt of support.
If Supported Spouse is a Trust Beneficiary
A comprehensive review of any trusts set to benefit the support spouse may also be an avenue for generating income. If the supported spouse has access and is not limited or confined to the discretion of a third party trustee, the trust may be an option for offsetting the amount of support awarded.
Inheritance
Potential inheritance typically cannot be considered by the court. However, any inheritance that has been realized can be considered as a source of income.
Payment of Discreet Expenses
Finally, sometimes the supporting spouse will pay specific expenses in lieu of support such as mortgage and property taxes or educational costs. Beware that both the mortgage and property taxes would need to be paid directly to the lender if the payor would like to claim a deduction on income taxes for the interest and taxes.
This article does NOT constitute legal advice and is for general information purposes ONLY. Prior to making any decisions, seek legal counsel from a licensed attorney.
