Navigating Complexity: High Net Worth Divorce Insights from Patrick Kilbane
Navigating High Net Worth Divorce with Patrick Kilbane
In this episode of How to Split a Toaster, Seth and Pete dive into the complexities of high net worth divorce with special guest Patrick Kilbane. As a wealth advisor and former family law attorney, Pat brings unique insights on how to think about your money before, during, and after divorce, especially if you fall into the high net worth category.
Seth and Pete explore key financial considerations in high net worth divorces, such as dividing complex assets, understanding tax implications, and planning for your long-term financial future. Patrick shares his expertise on helping clients make informed decisions that align with their goals, even during the emotionally challenging process of divorce.
Questions we answer in this episode:
How do you think about money during and after a high net worth divorce?
What are common financial blind spots for high net worth individuals going through divorce?
How can a wealth advisor help navigate the complexities of high net worth divorce?
Key Takeaways:
It's crucial to understand the long-term financial implications of divorce settlement decisions.
Working with a wealth advisor can empower you to make informed choices about your future.
Dividing assets in a high net worth divorce requires careful consideration of tax consequences.
This episode is a must-listen for anyone facing a high net worth divorce and looking to make smart financial decisions. Seth, Pete, and Patrick offer valuable insights and practical advice to help you navigate this challenging process and set yourself up for long-term financial success.
Links & Notes
Visit Patrick on the web or LinkedIn
Got a question you want to ask on the show? Click here!
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Pete Wright:
Welcome to How To Split A Toaster: A Divorce Podcast About Saving Your Relationships from TruStory FM. Today your toaster got bling.
Seth Nelson:
Welcome to the show everybody. I'm Seth Nelson, as always, I'm here with my good friend, Pete Wright. Today on the show we're talking about your money. Specifically, how do you think about your money before, during, and after your divorce, especially if you fall into the high net worth category. To help us wrap our heads around the complexities of this category of divorce, we have the perfect guest. Pat Kilbane is a wealth advisor and general counsel at Ullmann Wealth Partners and has spent the last decade helping their clients coordinate their wealth management plans. Pat, welcome to the Toaster.
Patrick Kilbane:
Sup Pete. Great to see you both. Thanks for having me.
Pete Wright:
Oh, it's great to have you.
Seth Nelson:
Pete, I'm going to interrupt.
Pete Wright:
You do it. I know where you're going and I'm eager for this.
Seth Nelson:
I don't think you do.
Pete Wright:
Oh no.
Seth Nelson:
I don't like our guest
Pete Wright:
Already.
Seth Nelson:
Already. He hasn't said a word.
Pete Wright:
His just said hi.
Seth Nelson:
Other than saying hello. Okay, here's why he got out. He got out. I didn't put in the intro, but he is an attorney who used to do family law and he got out.
Pete Wright:
He got out. This is the Shawshank Redemption story, right?
Seth Nelson:
That's right.
Pete Wright:
[inaudible 00:01:41]. He's now working on his boat as a wealth advisor and you are stuck in prison, the prison of the law, is that what you're saying?
Seth Nelson:
That's exactly what's happening here. So Patrick, welcome to the Toaster.
Pete Wright:
We're so glad you're here.
Patrick Kilbane:
Listen, I am happy to join the podcast from my boat, as you mentioned.
Pete Wright:
That's actually right where I wanted to start, that you have this unique background on the law, family law, and now wealth management. I'm actually really interested, we'll just say I'm asking for a friend whose name is Seth. How did you make that transition from family law to helping people particularly in this, dare I say, tax bracket?
Patrick Kilbane:
That's a great question. So let's rewind to April Fool's day of 2013. Glenn Ullmann, who is my business partner, I actually represented Glenn in his divorce way back in 2008. I would refer him my clients who came out of the divorce and I knew they needed wealth management help. So fast-forward five years after Glenn gets divorced, we come out of the great recession. Glenn took me to lunch and we were talking about us joining forces. He was just catching up as I was a [inaudible 00:03:04] business and I asked Glenn how business was for him and he said, look, coming out of the recession, I'm growing at a 25% clip every year, on and on and on. He was so enthusiastic about what he was doing and jokingly I said to him, Glenn, if things are that good, why don't you hire me?
He said, look, I would hire you in a second, but you've got a fantastic law practice. You're a young guy, you're on the way up. You're not going to, you wouldn't quit practicing law. I said, look, make me an offer. I studied business and finance as an undergraduate. I'm always really interested in personal finance. All of my clients who work with Glenn had nothing but great things to say. As Seth mentioned, it's crazy that he teed up this way, but I thought, my gosh, look, I do all the hard work with the clients. They go to Glenn, he gets to have all the fun, and then I see them and their lives are totally transformed. I was like, I want that.
Pete Wright:
Yeah, I mean there's this relationship piece, right, that when you're done with the divorce case, they move on and to your partner and they're with him for the rest of their lives keeping their, you have no relationship.
Seth Nelson:
What they're also doing Pete, those clients that go, they're usually sophisticated and if not, they're learning the sophistication of the money. They're saying for years on end, that money I spent on that lawyer, if I would've invested it, I would've been making more now. I couldn't retire even earlier. That's what they're saying. Okay.
Pete Wright:
My divorce was an ultimate own goal. Yeah, I get it.
Patrick Kilbane:
It's like what Warren Buffett says about the $10 haircut, right? There's no such thing as a $10 haircut.
Pete Wright:
So okay, I want you to give us a bit of a tutorial about how to think about money and particularly thinking about money during, and then the most important sort of after the divorce, right? There is a mindset that I am presumptively maybe, that I think has to change as you navigate your divorce, even when you're navigating a high net worth divorce. Am I right?
Patrick Kilbane:
I think you're exactly right. What I find Pete is a lot of the people that I have the pleasure of working with going through the divorce, they have trouble thinking about anything past the divorce because most of them, it's their first time through it. I'm very careful not to push them out 2, 3, 5 years down the road because again, they're just trying to get to tomorrow. As I work with them and I'm sort of helping the lawyer sort of translate what the settlement is going to look like to the client down the road, I will never tell a client, look, you can't keep your second home. But what I will tell them is show them the economic consequences of keeping the second home. You can keep that beach house if you want to run out of money in seven years.
Seth Nelson:
Which if the beach house is a shack, that might not be a bad plan.
Patrick Kilbane:
It depends on the beach house.
Seth Nelson:
Just go live on the shack in the beach.
Patrick Kilbane:
But [inaudible 00:06:09] I think you hit the nail on the head. All of these people, the super majority of them are sophisticated. Maybe during their two decade, three decade marriage, they never had the chance to apply that sophistication. So they want to do it. Maybe that wasn't their role during the marriage. So I like to feel like I help them make decisions together and empower them and help them understand what they do. I mean, if I tell them no, I always tell them, it's your money, it's your money, but if you give me two goals and they're diametrically opposed, I'm going to show you how that's going to work. Then they go, oh, okay, yes. I guess keeping the beach house doesn't make sense. Maybe we can keep it for a year or two and then sell it. But I find that that works way better and you've got a better collaborative partnership with your client.
Seth Nelson:
In what I think Patrick is laying out, Pete, we've talked about it on the show before. He's not telling the client, and this is a question for you as well, Patrick, he's not telling the client what you can and can't get in court. He's saying, if you do this deal, this is what your life looks like. Because as a lawyer, I can only tell them, here's what I see the facts to be. Here's the question marks on how it's going to come out in court. There's some ambiguity here or there's some legal arguments on both sides.
But in my opinion, I think we're in this very narrow range. So I can tell you what I can get you in court or in this range in court or in a settlement. I can't tell you what that will do for you 2, 3, 4, 5, 10, 15, 20 years down the road or how is that going to impact your estate plan for generational transfer of wealth? You need to have sophisticated guys like Patrick to communicate during the process. It's too late if you're talking to the financial advisor after the final dissolution of marriage, divorce decree is signed by the court. So Patrick, my question is that hard for you? You're trained as a lawyer and you're in a different role now.
Patrick Kilbane:
It's actually not. I think it's one of my competitive advantages because Seth, when I was doing what you were doing, I worked with people like me. What I found is that all of a sudden they wanted to become advocates and they made my job more difficult. I no longer want to be an advocate. So in preparation for mediation or any settlement discussion that we're going to have, what I would go to you Seth and say, okay, tell me where you think this case should settle?
All right, now give me a scenario of what it looks like if you think that you do better than expected with a settlement. Then on the other hand, give me sort of the bare minimum that you'll take before you'll run this up a flagpole and bring it before a judge. That way I can show you and the client, if you get the best case scenario, here's what things will look like if you get the settlement that Seth expects, here's what it'll look like and this is what it'll look like right before you walk out of settlement impasses and you go in front of their judge. That way it empowers the client to make the decision.
Seth Nelson:
Right. Along with that Pete, if I'm having that conversation with Patrick, the other thing that I'm doing is saying, and this is what my estimate of cost is to litigate your case.
Pete Wright:
Oh, because that's going to put a particular dollar sign thumb on a scale.
Seth Nelson:
That is real money. When you're dealing with high net worth cases, and let's be clear about what we're talking about when we say high net worth. A friend of mine years and years ago goes, wouldn't you love to have a $2 million divorce case versus a bunch of $200 million divorce cases? Of course being the lawyer, I say, it depends. He's like, what are you talking about it? $200 million divorce case, that's going to keep you busy for years. I said, unless they have a house or two houses, they both know which house they want, they agree on the value, and each house is worth 25 million and they've got $150 million liquid and they're going to split in half, case is over, done.
So usually what happens in high net worth cases is there's a lot of businesses, there's a lot of trust in beneficiaries. When I say a lot of businesses you might have holding companies and LLCs that will hold property and then that has a 2% share of another one for protection against creditors. There's a lot of moving parts. To be able to sit down with someone like Patrick that says, here it is. Here's the plan, here's the nice little boxes with little lines showing who owns what is a godsend because clients don't know and I don't get all the documents and figuring it out. Then you can start figuring out who's going to get what, how we're going to divide it, how do we move forward?
Pete Wright:
Okay, you just said something really interesting to me and Patrick. So as you address Seth's question, Seth's monologue, let me ask you this. My assumption is when you deal with people in high categories, that they come as we've said before with a certain degree of sophistication, but I'm really curious as Seth says clients come and they don't know. They don't know what? What is the sophistication gap at this tax bracket that you find you have to educate and help them get a sense of where they really stand.
Patrick Kilbane:
I find people all across the continuum, some people maybe 20, 30 years ago knew, but they just don't have the confidence because their estranged spouse told them that they didn't know what they were doing. Maybe the estranged spouse is really into high-risk investments, some private equity deals, private financing, etc. Then I have some people who literally have stayed at home and raise kids and they have no idea how much it costs to run their life. So I literally have to go say, okay, what are all your spending sources? Let's start from the beginning. How do you spend money? Do you use PayPal, Zelle, Venmo? Do you write checks? Are things auto-debited from your account? Are things run through the business?
Seth Nelson:
Swiping the credit card?
Patrick Kilbane:
Yeah, we do the best we can to first try and figure out how much they spend.
Seth Nelson:
That is layperson speak for a financial affidavit. What is your budget?
Patrick Kilbane:
Exactly, and to Seth's point, in Florida where I'm at, 45 days or so a month and a half after the case is filed, you have to turn in that financial affidavit and the party that doesn't have access to the information doesn't know, is completely scared because they think they get one bite at the apple. They don't even have all the puzzle pieces to put the 10,000 piece puzzle together and tell you that that's a giraffe eating out of a tree because they don't have the pieces. So what I tell them is, look, you can write estimate or you can write unknown and you can say, I'm going to update this document as soon as I get all the other pieces to the puzzle. Then they relax and they go, oh.
Seth Nelson:
Or you can have your lawyer file a motion for an extension.
Patrick Kilbane:
That too.
Seth Nelson:
You put it out there and just say, judge, we're going to do the best we can. My client doesn't have access to a lot of these documents, was a stay at home mother, not disparaging anyone. The husband was running the finances, we're not saying he was doing it poorly, we're just saying that was the rules that they had and she doesn't even know the passwords. So you got to give us some time.
Patrick Kilbane:
No, and [inaudible 00:14:34], just so you know, I mean I would argue that the financial affidavit is arguably the most important document in the entire case because each party files their own affidavit. The affidavit is a document where you're swearing under oath to the veracity, to the truth of what's in the document. So you're saying this is what the income, this is what my expenses, these are what the assets are and these are what the liabilities are. So most of my clients, they don't have any income. Great.
So 25% of the documents done, they may have investment income. So they can say that the interest and dividends that they receive on a monthly basis unknown are to be determined. That's fine. They say, well, we own these two businesses, I don't know what they are. Okay, fine. Disclose them and say that the value's going to be determined and we'll update the case after our business appraiser comes back and gives us an idea as to what the value of this business is. So not as, I mean when you first get the document, it's daunting and you're like, oh my Lord, how am I going to do this?
Seth Nelson:
Then Patrick, I'm sure you deal with this problem as well. It just says household pay, the document says household on it. So what are your household expenses? Rent, mortgage and with people that have more than one home, they're like, do I put down one? Do I put them all together? Do I separate them? How do I do it? So it's really up to the lawyer to sit them down and say, listen, this is what's required. We are going to approach it this way. We are going to be slow and steady and not freak out about this, every day or every week we're going to accomplish some goals in getting the information we need. So everybody has all the information they need to make an informed decision when they're trying to settle their case because it's overwhelming. We've gone through mandatory disclosures in Florida. It's a nightmare.
Pete Wright:
Yeah, well I mean hearing you talk about it is the equivalent of me going outside and touching grass. It feels very grounded. But you also laid out a whole bunch of questions that I still don't feel like I would know how to begin to answer. So some of what you just said, Seth, sounds like the attorney has some leeway over how you frame each item in the financial affidavit.
Seth Nelson:
Oh, absolutely. Absolutely. So let me give you an example. You go to the grocery store, so it has on there groceries, you have kids, do you put your grocery bill under household groceries and do an estimate that two-thirds is for the adults in the house and one-third is for the children? Or do you, let's just take $300, so 200 bucks there and then you do the little math or do you take a hundred dollars of that and put that in the section that says expenses for children in common with whoever's on the top, the other party in the case, you can do that. Where do you do gym memberships? There's all sorts of stuff.
Pete Wright:
So paint me a picture though of the benefits either way. How does that appear to the court?
Seth Nelson:
If I put it in household and I don't differentiate between the parents and the children, that number can be part of an alimony analysis. If I put part of it for the kids, it's not part of an alimony analysis.
Patrick Kilbane:
So Pete, and let me tell you from my perspective, because sometimes I opened up this door with this particular client profile and if I'm helping the client put together the financial affidavit for Seth in his office, what I'm going to tell him is, look, if you ask 100 people how to put together the perfect resume, you're going to get 100 different answers. A financial affidavit is very similar. So what I tell them to do is put everything out and then put a footnote next to the number, which will help them and their lawyer's office understand how they got that number. Then Seth's office, whether it's him and or his paralegal, can repackage that information the way that their office does it.
Seth Nelson:
Pete, I footnote the hell out of these things.
Patrick Kilbane:
You know why it's important too, and I learned this from what I was practicing because, so Pete if you're my client and you're being deposed or you're being cross-examined [inaudible 00:19:10] financial affidavit, if you have the footnote on there, it's going to jog your memory and it's going to give you a more precise answer to whatever question you're being asked.
Seth Nelson:
The question's going to be this Pete, where did you get this number? You put down for your income, I'm making up a number, $110,000, 375 cents, right?
Pete Wright:
Okay, 375 cents.
Seth Nelson:
Literally they'll ask you, where did you get that number? You're in a deposition because that's a whole lot of fun and we've talked about prepping for those. You're nervous and you're not going to know because you're going to be like, well, I have the podcast, I'm working on this book. I've got that poker money that I've been playing with. What did I put in there? There's going to be a little footnote and at the bottom it's going to say, footnote one. You're going to say, oh, the podcast lost money. So none of that was there and my side gig made 40 grand, but the poker made $600,000 or whatever the case may be. So when you put the answers there, it makes it very easy for the client. Now you're not making it up, you're working with the client, you're explaining it, they're signing it, saying it's true. Now, yes, are they relying on Patrick? Are they relying on their lawyer if they don't know it? But they are. But you have to show it to them. You have to make sure they understand it before they swear to it. That's very helpful.
Patrick Kilbane:
Pete, did I ever tell you what a great lawyer Seth is and how brilliant he is?
Pete Wright:
We didn't prep you. You're not supposed to compliment Seth on the show.
Patrick Kilbane:
He started the episode off by saying that he didn't like me and I'm just being honest.
Pete Wright:
It's only because he was jealous. Subtext is everything Patrick. As an attorney, I would think you would've gotten that.
Seth Nelson:
I've got some questions, Pete.
Pete Wright:
Oh great.
Seth Nelson:
Okay, so Patrick, straight answers here. When you're working with someone, are you working with one side, the other side or both?
Patrick Kilbane:
My preference is only one side. There are some couples where I have a relationship with both parties. I mean, let's say my firm manages money for what we thought was a happily married couple. I don't want to pick sides, but the wealth management world doesn't have the same conflict of interest rules that the attorney world does. But I'm a fiduciary. I'm also a lawyer who was also a fiduciary. I prefer to only work with one side.
Seth Nelson:
I would totally understand that. That's what I thought you were going to say. So here are some things that usually come out in high net worth divorce cases that I use frequently and I want to get your input on whether they make sense or not. So Pete I'm laying it out there. I could be wrong on these.
Pete Wright:
Vulnerability is the best
Seth Nelson:
I know. I hope I'm right. Here we go. So sometimes Pete, let's just say there's a million dollars in a brokerage account. That brokerage account has been invested in over a period of time, buying and selling stocks. Its name is only in the husband's name for this scenario. The wife has access to everything. It's all in disclosure, no one's hiding anything, it's all there. But in the marital settlement agreement or in the final judgment, it says that the husband shall divide the account and give the wife $500,000 of value of the stock of the brokerage account.
He goes to Patrick and he says, Patrick, I am going to comply with this order. I have to give her $500,000 worth of stock and I want you to look through every single stock and give her $500,000 of value. But the value I want you to look at also is how much tax basis there is. I want to give her the one that we bought low and are now high. I want to keep the ones that are high and are still high or have losses because when you divide them and she goes to sell them, she's going to have a bigger tax consequence than I will.
Pete Wright:
She keeps tax burden that you don't have to deal with anymore on that portion.
Seth Nelson:
I do that frequently.
Patrick Kilbane:
If I was on the other side of your case, you would not be doing that in our case because that's one of the biggest value adds that I try to... So what I try to do with the assets is break them down, real estate, financial assets that have already been taxed and then the tax advantage assets to look at them and then divide them equally within the categories. One of the easiest fixes that you can, if you're my client against Seth, is all you have to do is say that that account will be divided in kind. So that means if that 1 million brokerage account has 150 shares of Apple stock, when the account is divided, each party is going to get 75 shares of the Apple stock.
Seth Nelson:
Of the exact lot that it was purchased in.
Patrick Kilbane:
Correct.
Seth Nelson:
Right.
Patrick Kilbane:
Yep.
Seth Nelson:
Because that's where the basis is.
Patrick Kilbane:
Yep.
Pete Wright:
So we're sharing the tax basis?
Patrick Kilbane:
That's right.
Pete Wright:
Okay.
Seth Nelson:
But notice Patrick's a smart guy, Pete, and here's the thing I just want to point out very directly. He said I was right by not saying I was right. He said if I was on the other side, I wouldn't let you get away with that.
Patrick Kilbane:
[Inaudible 00:24:59] doing that. Yeah. Sure. But I want to clarify. I mean this is one of the reasons why I guess people don't like lawyers, but what Seth did there, and some lawyers intentionally or unintentionally have settlement agreements that say, hey, they're each going to divide the brokerage account. So what Seth is doing is in his client's best interest and within the bounds of advocacy, if you have somebody on the other side of the case who's asleep the switch or uninformed or not paying attention, that's going to do a disservice to their client.
So anyway, another big tax issue is with the marital home and whether one person keeps it or whether they both sell it. A marital home that's been the primary residence for at least two of the last five years. If you sell it as a married couple, then you get to shield half a million dollars of capital gains, which in Florida in the last four years or so now is a really big issue. If you get the home and you sell it as a single person, you only get to shield $250,000 of the capital gain. Then what about the homestead exemption and the portability of the homestead exemption?
Seth Nelson:
So let's just talk about that for a second Pete. So in Florida, a period of time people would have their homestead where they live, but in every year the property appraiser will or a period of time will value property. If it goes up in value, you pay more in tax. So the public policy on this was we don't want people to have their home, keep going up and up in value and them having to raise their taxes on them. Now you have a couple that bought their house when they were in their thirties and they're in their seventies and their tax rate keeps going up and up and up. So there's a cap, a percentage cap that it can only grow so much a year.
But if you sell your house and then you rebuy, you can what's called port, portability, you can say, wait, wait, I can take so much of that protective cap and put it in the new house. But if you get divorced and you leave that house and you go buy a new house, you're starting from nothing. You don't have portability. So you got to think about if that house gets sold, you're allowed to take half the portability with you and your spouse is supposed to take half the portability, but if lawyers don't know about it, they're leaving money on the table and your tax is going to go up in the future.
Patrick Kilbane:
Yeah, Seth, great explanation.
Seth Nelson:
Pete's eyes are glazing over.
Pete Wright:
No, no, no, no. I'm thinking about it because I know we brought this up. I'm dealing with some folks close to me who are just facing this exact situation right now, and I had not heard about that Patrick.
Patrick Kilbane:
So in Florida, the governmental institution that deals with the portability and the homestead is the property appraisers office. So luckily in the county, the counties near where I live, I've got relationships with people in those property appraisers office. So one of the things that I like to do with my clients is talk to somebody in the property appraisers office and say, look, here's the deal. What are the magic words that your office needs to receive in order to effectuate what the parties are trying to do here with the portability of the [inaudible 00:28:28]?
Seth Nelson:
Then you put it right in the document and it's right in the final judgment, and then you take it to the governmental agency and they'll approve it when you're applying for your taxes for your new homes.
Patrick Kilbane:
Pete, I give it to the lawyer so the lawyer can take all the credit for it. I'm not looking to do that. Again, as Seth said, do you want to jump back in and get in there and no, I don't. But having done this, I've got the ability to spot the issues and know like, hey, maybe it's a particular pension or somebody who was working for the federal government pre-1984 is in the civil service retirement system, which is different than the federal employee retirement system. The key difference there is somebody who's in civil service, they have a higher grossed up annuity, but they don't get social security. So well, wait a minute, if social security is a non-marital asset, shouldn't a portion of the civil service retirement annuity be carved out and set aside and be non-marital? So those are the issues that we'll talk about.
Seth Nelson:
That's an excellent example. I think Patrick's advice to his clients that he then turns over to the lawyer to put in the legal document is, hey, I'm going to go to the taxing authority and say, what language do you need is brilliant. It's the same thing we do with other accounts that we should talk about, and those are retirement accounts that have to be divided by a QDRO. We had Matt Lundy on who does QDROs around the state and other states.
Patrick Kilbane:
Let me tell you, I know Matt, he's excellent. If you're a lawyer, anybody listening, I don't care what jurisdiction you are, you should really talk to Matt and do exactly with Matt, what I talked about doing with the [inaudible 00:30:20]. Matt's brilliant by the way, and can save lawyers from potential malpractice pitfalls.
Seth Nelson:
He does exactly that. He'll reach out to the retirement plan. The pension plan, he'll reach out to the plan administrator, is what it's called under ERISA, which is federal law, which we're not going to get into because you will literally go jump off of a bridge. It's that boring. But Matt, as he had on the show, and we do some QDROs in-house and military division of pensions and military retirement now, we have Kristen Scully who's going to be on the show. She does that as well. But Matt's brilliant, I've known him for a long time, and he goes, gets approval from the plan administrator. Then you go get the court order, and then you go back to the plan administrator, you go look at this wonderful order. The plan administrator goes, it's brilliantly drafted because they the one that wrote it and approved it. Then they divide the money the way it's supposed to be divided and Patrick can then help his clients invest the same.
Pete Wright:
Can you talk to a guy like Matt free of jurisdictional constraints?
Patrick Kilbane:
Yes. Because I think whether you work for Johnson & Johnson in Florida or Michigan, it's the same retirement plan. Now of course, the different jurisdictions may want different language in their court, divorce decrees or final judgments, whatever they call them, but yes.
Pete Wright:
But he's not tied to jurisdictions like attorneys are.
Seth Nelson:
He is because he's an attorney doing it, but I think he has four or five different bar licenses.
Patrick Kilbane:
But Pete, what Matt can do is say, look, you can hire me as a consultant. I'm going to go talk to them. This is what they told me. I'm going to give you the information and then it's going to be on you to do.
Seth Nelson:
Right.
Pete Wright:
Okay. That makes sense.
Seth Nelson:
A lot of different ways.
Pete Wright:
Wow. Where are the holes? What are we missing when we're talking about, as we wrap up, I'm imagining sort of 08:00 am, day one, Monday morning, and you're ready to start talking about how to navigate. What are your high net worth separation? What are the first three things you want to do?
Patrick Kilbane:
First thing is they've got to get an excellent lawyer. Somebody within a couple degrees of separation will know somebody in the legal community to help somebody who has been around the sun, who's respected in that jurisdiction and knows what they're doing. Then second of all, as we've talked about with these different assets, in a high net worth case, there's just more of them. Okay, so you have to take them one at a time. If it's a checking account, I mean, there's no special issues with dividing a checking account, but as Seth brought up, if it's a unique retirement plan, SERPs are one that I've had to deal with recently.
What is it? How does it work? How do we divide it? I mean, you ask those questions of every single asset, and then once you get those answers, it's meticulous to go through every single asset. But if you do that with every single asset and you get those answers and you can help the lawyer and their staff put that together. Then the third thing I tell them, Seth, you probably see this, but I find that you want your divorce lawyer to be busy because if the divorce lawyer is not busy, there's a problem.
Seth Nelson:
Right, right. That makes sense.
Patrick Kilbane:
So it's a double-edged sword. If you can't get ahold of your lawyer or they're not readily available, how do we work with the lawyers? How do we get them? How do you get their attention when there's a genuine emergency? From the lawyer's perspective, they need to tell us what a genuine emergency is because those definitions may be different.
Seth Nelson:
That's a great point.
Patrick Kilbane:
So I try to have the lawyers and me, the lawyers and the clients come up with sort of a strategic plan. What do we need to do to get the [inaudible 00:34:37] refinished? What do we need to do to prepare for mediation? I try to stop right there and then we regroup if mediation is unsuccessful. Seth knows sometimes if mediation is unsuccessful, that's just really the beginning of the negotiation. There may be two or three more-
Seth Nelson:
That's right. You planting the seed.
Patrick Kilbane:
Yeah, there may be two or three more mediation section. So the Florida Family rules of procedure allow for case management conferences and case management plans. I just find that cases work a lot better. The big cases with multiple businesses, multiple experts. If you don't want the case to go on for years and years and years, ask your lawyer, ask the court to put a plan to hold everybody's feet to the fire. Because if they put a plan and they say, look, you've got eight months to do discovery. You've got 12 months to do mediation, and then the case is going to be set for trial in 15 months, Pete, if you come the judge and say, your Honor, I'm so sorry. I'm not ready for trial. The court's going to be less likely to postpone the case because the court's going to say, we put together a plan 15 months ago, Pete, where have you been?
Pete Wright:
Look at all the time we gave you. Right, right.
Seth Nelson:
Yeah. Also that's what happens on the federal rules and it's done. Those judges, some people, the judges are like, I'm holding you accountable. Once people know you're held accountable, it's like, okay, the real deal here, there's too many cases in family law in Florida to have that for every case. It's different than the federal system, but for these larger cases, it's very, very beneficial. A few points Patrick, on that Pete said, I just don't want to lose my thought on this and we can circle back, but I think some things get missed very easily because people don't think about them in high net worth cases, and they might be seen like a little pots and pans depending on the net worth.
But a lot of country clubs or golf courses could have pretty significant, I'm going to just leave that term vague on purpose, initiations to join. Those clubs have learned, they put it in one party's name because they're not getting in the middle of divorce. Someone says, well, wait a minute. I put down $250,000 to join this club or a hundred thousand dollars to join this club, and my wife is the member, the spouse. So you get divorced and they're like, what do you mean I'm not a member of the club? Nope. You were the spouse, you're no longer a member. They want to go after the club and they're all pissed off and the clubs have wised up about this because they've been sucked into this more than once.
So in the negotiation, that's value. You're losing a marital benefit. So you got to say, look, I want a hundred grand because I want to join that club because I can't get that asset because it's only in his name and they can't make the club give the asset to you and you can go on and on. He travels all the time. He never uses it. I take the kids to the pool there, I'm always there. Of course the husband's going to be saying, and I'm just doing husband and wife. It could be the opposite.
Patrick Kilbane:
No, I feel like you've taken me back to my prior career. I feel like I [inaudible 00:38:05]. I'm in mediation right [inaudible 00:38:08].
Seth Nelson:
Right, right. Patrick's going to have nightmares. Of course the husband is like, yes, I'm glad she's leaving that club. You should see all the money she's spending at that club. I told her the kids like Chick-fil-A, they don't have to go to that club. But those could be big numbers that just get lost and there's nothing you can do about it later.
Patrick Kilbane:
They are. But back to the very practical, pragmatic approach, that's an asset. What is it? How is it worth? How is it divided? A lot of clubs up in my area, so if you and your spouse are members of a club, the initiation fee was a hundred thousand dollars. If the club was in your name, they will allow the former spouse to buy in at half of whatever your initiation fee is. So as Seth said, the clubs have wised up. They've been in the middle of these things too many times. So they have their own policies on how this works. So you just, while the case is going on, you just get a copy of that policy. If you see the line item in the expenses of the club dues, club membership, then red flag, go get that information.
Seth Nelson:
Right. Two other points too Pete, long-term incentive plans, it's usually given by stock options and when they vest. So when you're in a publicly traded company or sometimes [inaudible 00:39:33], they'll do that as well. Valuing those and figuring out what marital and non-marital is a big issue in high net worth divorces. So you got to make sure people understand how that, and it can be nuanced, it could be complicated, it could be by the plan. There's a lot of arguments to be made there. The other one to be careful of, and I've been familiar with the business that did this, where, actually numerous businesses that did this, the owner of the business has a key employee. To keep that employee, they give them profit sharing, they give them 10%, 5%, when they give them the 10%, the wife and the employee, so the spouse and the employee both have to sign. It says upon either party filing for dissolution of marriage, you forfeit your 10%, it's gone.
Pete Wright:
Wow.
Seth Nelson:
Because that business doesn't want to be drawn into your divorce.
Pete Wright:
To someone else's divorce.
Seth Nelson:
That business does not want to open their books to value the 10%.
Pete Wright:
Oh, right. Because it becomes essentially an asset to be split.
Patrick Kilbane:
So Seth, what would you do? Say I'm your client. Say my former wife was the one who got the 10%. She had to forfeit it. Then I call you up six months later and I say, hey, one of my friends works there and they gave it back to her.
Seth Nelson:
Yeah. I am already making that argument in the first place. I am saying that, judge, she signed it, it goes away, but he is going to get it again. I'm taking the deposition and I'm going there. Then they say, no, he's not. No, he's not. No, he's not.
Patrick Kilbane:
Well, what they're going to say is, I don't know. He might.
Seth Nelson:
Right, he might not. I would follow up for a substantial change in circumstance. I would say that there was fraud upon the court. I go on and on and I'm usually going to lose.
Patrick Kilbane:
Yeah, I mean that's not a biggie because what if it's not an alimony case and it's just equitable distribution.
Seth Nelson:
Which is closed at the end of the day, Pete, you're going to be screwed. But the businesses is protecting themselves and there's ways to protect yourselves that will ultimately not be beneficial to the spouse. Now the spouse signed, this isn't like a side deal. That's the argument on the reverse judge. She knew. He knew.
Pete Wright:
Yeah. Way up front. Like, how is there, and that's the thing that I'm kind of trying to wrap my head around. How is there an argument because she signed?
Seth Nelson:
Because for lawyers, man, we can argue about anything. It doesn't mean I'm going to win.
Patrick Kilbane:
So Pete, you asked me about the three things. I wrote a book that I published three years ago called Move Forward Confidently, the high-net-worth woman's guide to divorce. Everything that we talked about today is covered in this book. I wrote it to try to pull the cover back on the process for somebody who's never been through it before. There's an audiobook version of this. By the way, I'm not getting rich on selling these books. All the money that we generate from selling the books we donate to the Harbor House, which is a domestic violence shelter. But the book has glossary, it has checklists, it has sample standing, family court order.
So when I reference something in the book, the reader, all they have to do is turn to the back and say, oh, okay. That's what that is. That's what that looks like. Like I said, there's a glossary, so you don't remember what a financial [inaudible 00:43:13] is. You can go back and take a look at it. So I really recommend, I've gotten great feedback. Before this book went to print, I had a judge read it. I had a mediator read it. I had a divorce lawyer read it, and I had a client who went through a divorce read it.
Seth Nelson:
Patrick, it would've been really good if you said, and I was going through a divorce and I had my children read it. Okay. That was the joke that just got left hanging out there. Your mother endorsed it.
Pete Wright:
Yeah, that's actually, that's fantastic Patrick, did you do the audiobook?
Patrick Kilbane:
No, we actually found a service. So it's a very soothing female who's reading the book to the person.
Pete Wright:
I'll tell you, audiobooks are a tough slog. You made the right call. That's the right call. Do it yourself. But we're going to put links in the show notes for people to get the book. What do you get? You got a quick URL you want to throw in there for us.
Patrick Kilbane:
You can just type in, Move Forward Confidently in Amazon. It's sold on Amazon.
Seth Nelson:
Where do people find you Patrick?
Patrick Kilbane:
Our firm's website is www.ullmannwealthpartners.com. What I do for anybody who's going through divorce, our intake form, if they want to send it back, I have a no obligation and Zoom meeting with them. The reason that I make them fill out the, there's no pre-qualification, but we've all been through meetings with people where you meet them a second time and they're like, oh, Seth, I tell you I have that 401k from my old job that I never rolled over. So I like to give it to them and I don't like to waste their time going, all right, Seth, what's your address? What's your date of birth? This kind of thing. It can just be a more efficient meeting. So if I could just point somebody in the right direction, I feel like I'm doing a service.
Pete Wright:
That's great. You're doing a great service here to helping listeners to this show. We sure appreciate you joining us Patrick. It's been great.
Patrick Kilbane:
Yeah, this was awesome, guys.
Pete Wright:
Awesome. Well, thank you everybody for downloading and listening to this show. We sure appreciate your time and your attention. On behalf of Seth Nelson, America's favorite divorce attorney and Patrick Kilbane, I'm Pete Wright. We'll see you next time right here on How To Split A Toaster: A Divorce Podcast About Saving Your Relationships.
Outro:
How To split A Toaster is part of the TruStory FM Podcast Network, produced by Andy Nelson, music by T. Bless & The Professionals and DB Studios. Seth Nelson is an attorney with NLG Divorce & Family Law with offices in Tampa, Florida. While we may be discussing family law topics, How To Split A Toaster is not intended to, nor is it providing legal advice. Every situation is different. If you have specific questions regarding your situation, please seek your own legal counsel with an attorney licensed to practice law in your jurisdiction. Pete Wright is not an attorney or employee of NLG Divorce & Family Law. Seth Nelson is licensed to practice law in Florida.
