Louisville Bar Association, Barbriefs, July 2014
Authored by Brittany Blackburn Koch
High-asset divorce matters are easily distinguishable from other cases. Such matters typically involve valuable and illiquid assets, which may include houses, cars, antiques, or private business interests. Unlike liquid assets, which usually can be quickly converted into cash, illiquid assets are typically sold to generate cash flow. Absent the availability of ready, willing, and able purchasers, a spouse holding illiquid assets could be left without a steady stream of income under certain circumstances.
Illiquid assets may carry sentimental value, which can further complicate property division. It is common, for instance, that one party may seek to retain the family home due solely to his/her emotional ties to the property; however, he/she may have given no thought to how he/she will actually pay for the financial obligations associated with such an asset. It is imperative that before a party insists on retaining property, he/she seriously considers the resulting financial obligations, which may include a mortgage, utilities, taxes, insurance, maintenance, and general upkeep expenses.
Another common illiquid asset in high-asset divorces is interest or ownership in a closely held business. For most business owners, splitting the business with a soon-to-be ex-spouse simply is not feasible or practical. A business valuation is often worthwhile to assess the value of a party's interest and determine which, if any, portion is marital. Further, an attorney should discuss what assets the party seeking to retain the business is willing to forego as a set-off for the other spouse's equitable portion of the marital interest in the business, which would thereby maintain all business assets and monies intact.
Notably, illiquid assets are not necessarily detrimental. Individuals with a steady stream of income may not have any qualms with an award of illiquid assets, and may prefer illiquid assets given the potential for appreciation. Clients must be mindful, though, of the ever-present possibility that such an asset may decrease in value. Further, if the illiquid asset is in the parties' joint names and there exists secured debt associated with the asset, then a client must be sure that he/she will be able to gain approval to refinance the asset out of the other spouse's name, and without the assistance of his/her spouse's income. Clients should understand that a financial institution is not obligated to waive its refinancing standards merely because the property is awarded or assigned via an order of property division.
Too often in divorce proceedings, a party believes it is a "win" if he/she receives what he/she wants at the moment, and without any regard to what he/she will need later. If your client is focused on maintaining illiquid assets, it is your responsibility to ensure that he/she understands the potential risks and obligations posed by such assets. Further, an attorney must help ensure that a client considers such assets from an objective - rather than emotional - viewpoint in an effort to protect his/her best interests in both the short-term and long-term future. Do not hang your client's financial future out to dry - work to ensure that your client obtains the best combination of assets for his/her unique needs and lifestyle.