Surveys of the ultra-wealthy consistently find that they are often highly focused on establishing and preserving a family legacy.
Nothing can derail plans for the future faster or more profoundly than fractures in the family, particularly when a marriage fails.
When billionaires, celebrities and other rich individuals divorce, private family disputes can become headline news. Protracted public battles damage businesses, careers and relationships. Worse, divorce can shatter the family dynamic, even when both parties agree that protecting the children is the highest priority.
These families often need a team to navigate through the emotional, financial and logistical challenges that arise when couples separate. Private Wealth assembled a panel of specialists to delve deeper into the issues that often prevent spouses from being able to achieve favorable outcomes with limited acrimony.
The following experts participated in the discussion:
• Judith L. Poller, partner and co-chair of the Family Law Group at Pryor Cashman LLP. She frequently lectures on family law and has extensive experience in trial and appellate divorce, in addition to settlement resolutions and mediation.
• Alan S. Kufeld, a partner at Flynn Family Office, specializes in family office sector trends and advanced planning strategies for ultra-high-net-worth individuals and families.
• Sara L. Weiss, director of Heartland Psychological Services, is a psychologist who has been practicing in New York for 35 years. Her primary focus is helping families involved in a divorce develop parenting plans.
• Glenn Liebman, a partner with Klein Liebman & Gresen, assists closely held companies and professionals with valuation issues relating to equitable distribution, estate and gift tax planning, business planning, the acquisition and sale of businesses and shareholder disputes.
Prince: Who should be part of the team and how does it factor into the divorce process?
Poller: The key members of a divorce task force depend largely on the specifics of the case. The legal team is usually at the center of the process.
If there are children involved, we usually try to bring a mental health expert into the mix to serve as a parental coordinator. Children are the innocent ones, and we always want to try to protect them and minimize the conflict they might experience. The parental coordinator can help assist in addressing custody and access issues and can help families adjust to change and to reach decisions that are in the children’s best interests.
On the financial side, the team often includes financial or valuation experts to assess both lifestyle components and the true worth of business entities, professional practices, real estate and illiquid asset classes.
Kufeld: The family office always works closely with the attorneys and the rest of the team in coordination to ensure that financial settlements reflect the client’s best interests. For the non-moneyed spouse, the lifestyle and financial changes can be even more profound. The tax piece of the divorce decree often protects long-term interests. Most of the leverage vanishes once divorce papers are finalized. Without knowing better, the client might assume that the offer on the table is the best one that can be expected. A default to the status quo isn’t always the best option available.
Weiss: When a psychologist is involved, it’s typically to focus on the best interests of the children or to help the spouses navigate the impact of the divorce. The desire to protect children from harm is leading to more collaborative divorces among ultra-wealthy families. As an alternative to litigation, each parent selects an attorney to participate in the process alongside a mental health professional that acts as a coach to help the parent through this often painful process. A mental health professional that is a parenting specialist may be included as the voice of the children. A neutral forensic accountant can participate in the team as well.
Prince: Why is it so important to limit acrimony in an ultra-wealthy divorce?
Poller: Settlement is always preferable. Litigation is adversarial and the intensity, duration and cost of the divorce process increases significantly when you go to trial. Neither party wants to spend substantial amounts on legal fees, and the more moneyed spouse will often be forced to pay more for the non-moneyed spouse’s legal fees.
Avoiding a trial is more cost effective, less disruptive to business and personal interests and far less invasive. Limiting acrimony allows the family to move through a time of chaos and look forward to a new future. More immediately, the goals are consistency, stability and safety. If there are children involved, you want them to be able to stick to their routines in familiar environments—the same communities, schools, nannies and activities.
Weiss: It’s natural for both sides to grieve the end of a marriage. The sense of loss can be more devastating if one party feels blindsided or victimized. Even though most agree that the best interests of children should come first, it is often hard to hide hurt or angry feelings from children. Parents who are experiencing a high degree of conflict have a harder time listening to their children and keeping their children out of the middle. With wealthy families, financial resources can be used to prolong the fighting. In the end, everyone is going to have to live with compromise, but getting to that point is often not easy.
Kufeld: Ultra-wealthy families do not live a life of idle luxury. The assumption is that having money makes life easier. Being wealthy can actually make things more complicated. The family office is there to provide stability and support. It’s fair to consider divorce its natural enemy. In most cases, both parties will have to rethink every single aspect of their lifestyle and finances. … It’s a process that is almost certain to be contentious at times.
Poller: There will always be a degree of acrimony. Lifestyle and expenses can be triggers for anger, disagreement and contempt. Usually, it’s much easier to agree on the big picture than the mundane. Talks are often stalled or derailed by disputes over business appraisals and valuations of illiquid assets. Real estate is tricky as well, as are the substantial discounts taken in connection with the valuation of limited liability companies or family limited partnerships.
Liebman: For the valuations team, the nice thing about being neutral and having no ax to grind is that forensic conclusions are based on data. You might think that would eliminate acrimony from the valuations process entirely, but of course you’d be wrong. It’s completely possible for two dispassionate professionals to use proven methods to arrive at disparate conclusions.
Prince: What are some of the unusual ways that acrimony creeps into the process?
Poller: Ultra-wealthy individuals are sometimes surprised at how much the opposing counsel can influence how the process will proceed. As attorneys, it’s something of considerable interest to know who our adversary will be. If your soon-to-be-ex-spouse has hired a lawyer known for being a fierce litigator or more interested in creating legal fees than reaching a settlement, you have an indication of how the process might unfold. A spouse may hire such an attorney in the hope that the fear of such an attorney will be enough to force the other spouse to accept unfavorable terms. They may try to use the media to their advantage as well, particularly in celebrity divorce cases.
You need to plan accordingly. In those situations, the legal team should brace the client for the fight ahead and make sure that all the right people are in place to support the family financially and emotionally.
Weiss: There are some issues that trigger a high degree of conflict, such as substance abuse, estrangement of children and developmental issues, where active monitoring is needed. A judge is likely going to want more information. Issues also sometimes arise around interactions with blended families. So much of the approach depends on the family’s specific situation.
Parents need to be on the lookout for any of their own emotional issues that might interfere with providing a stable home environment. Both the emotional and physical security of the child should be prioritized.
Kufeld: Issues always seem to arise around liquidity, assets and taxes. If a client has 50% of personal wealth tied up in a hedge fund, for example, liquidity could be a concern. Another client might face severe tax consequences if the majority of assets they are to receive is invested in a retirement [fund]. The stated mission of many family offices is to bridge financial and lifestyle goals. In a divorce, the ability to quantify that connection becomes more important. You need to understand the financials beyond the balance sheet and have a handle on lifestyle expenses in relation to income and wealth.
Liebman: It’s no secret that a protracted divorce can hurt the viability of a business. The disruptions to professional relationships can be more financially harmful to both parties than the divorce itself. For hedge fund and private equity managers and entrepreneurs, disputes over valuations can make it tougher to land clients and recruit talent. When the task force has experience in matrimonial matters, settlements are far more likely.
The rules for matrimonial situations are nuanced, but really involve two key calculations: How much is this thing worth and how much is each party entitled to? Settlement is more practical because the outcome is clear—it’s over and done.
Things tend to get nastier when sides can’t agree on value or distribution. A trial involving expert testimony makes it infinitely harder to maintain privacy and keep emotions from obscuring shared goals.
Prince: How can you reassure clients through the process?
Weiss: Watch out for warning signs in children and keep them out of the drama. Remember, they are tuned in to their parents and know how their parents usually behave. Kids may show signs of distress in a variety of ways. They may display separation anxiety, sleep issues, problems relating to peers, regression to behaviors that were seen in earlier stages of their development or declining academic performance. Some children may not show any immediate signs of problems whatsoever, only to fall apart down the road. Parents need to be attentive and reassuring throughout the process. Children should be reminded that they are not to blame.
Kufeld: Balance sheet management, budget analysis and prioritization of tasks are all critical from the start. Divorce forces clients to make quick decisions about things that can have a lasting impact on family wealth and well-being. With the future in doubt, it’s hard to even think about things like managing debt, and finding competent advisors. Having a task force of specialty providers who have been through the process with other clients is definitely reassuring.
The hardest part is building trust that has been lost. You can’t just bring in new faces to replace valued advisors and expect the client to be completely at ease with the changes.
Prince: What do you do when, despite your best efforts, things get contentious?
Poller: Hopefully an agreement on custody and access can be reached. Even when a matter is contentious, judges push very hard for agreement to be reached and for the children to be shielded. In most situations, both sides usually want to do right by their children. However, on the issue of family finances, managing expectations is critical. This will often come into play with demands for unreasonable spousal support or child support and may be indicative that things are about to get heated.
Clients should also know that going to court doesn’t always mean going to trial. Sometimes, an impartial judge can be your best friend.
Liebman: Valuations can change by the nanosecond, day-to-day or hardly ever. To arrive at an independent opinion you need to understand how to read anomalies. A business coming off an inflated year will produce inflated valuations that may be aberrational. In other cases, unusual activity may be an attempt to shield assets. Discovering hidden assets won’t necessarily eliminate acrimony, but it’s clear why it’s critical.
Weiss: How parents interact in a divorce is correlated to self-esteem and identification in children. Helping parents to express their anger, sadness and frustration away from the children, perhaps in a confidential therapeutic setting, may help. If that’s not immediately available, the parent still needs to stay cool, which is easier said than done.
