Illiquid Assets and Your Divorce

August 23, 2010

Just because a person appears to be a multimillionaire or better on paper does not mean that they actually have all of that money in the bank.

Take for instance Elon Musk, the CEO of SpaceX, co-founder of PayPal and co-founder of Tesla Motors. By some estimates, Musk is believed to be worth nearly a billion dollars and had as much as $200 million in cash reserves in recent years. Yet, during his much-publicized divorce, Musk admitted that he has little cash available because he had reinvested nearly all of his earnings into his businesses. He also said that he finances his monthly living expenses with money borrowed from friends.

The fact that all of Musk's assets are tied up in his companies made it difficult for his wife to get the alimony, child support and $6 million in cash that she sought. The postnuptial agreement she signed six weeks after marrying Musk stipulating which property was to remain separate also did not help. In the end, the judge ruled in Musk's favor, finding the postnuptial agreement was valid and limiting his former spouse's alimony to the terms of the contract.

Protecting Your Interests

Dividing and valuing marital property is one of the most difficult tasks in any divorce. The task becomes that much more difficult in cases where much of the wealth is tied up in illiquid assets.

It is necessary to have an accurate accounting of each spouse's assets, monthly incomes and monthly living expenses because the court uses these figures in part to determine how much alimony and child support should be awarded.

In some cases, a spouse may try to use the illiquidity of their assets as a way to hide or shield them from the other spouse. While a judge always can order a spouse to sell stock or other property holdings as part of the divorce order, it can take time to do so. Additionally, in the current economy, there also is a risk that the asset will net much less than what it was valued at.

Having a prenup or postnup agreement also can complicate matters, as Musk's wife found out. Generally, courts will uphold these martial contracts so long as each party fully disclosed the full value of his or her property and debts to the other spouse. This is meant to prevent the parties from misrepresenting their true value by hiding either assets or debts from their partners.

In addition to full disclosure, each spouse also must be given a reasonable opportunity to consult an attorney prior to signing a marital agreement for it to be valid. This is meant to protect individuals from situations in which they might be coerced into signing the document in such a short period of time that they could not have spoken with their own counsel if they wanted to.

It is important to note that the law, however, does not require the parties to actually have consulted with their own attorneys prior to signing the agreement in order for a prenuptial or postnuptial agreement to be enforceable. Rather, the parties merely must be given enough time to have done so.

In some cases, an individual may sign a marital contract without understanding what the terms mean, only to feel taken advantage of later. It is not uncommon for the party with fewer assets to feel he or she is powerless to alter the terms of the agreement or, conversely, to believe that doing so makes it appear they are marrying the other party for their wealth.

Regardless of whatever reservations the party may have, it is important that he or she have their own attorney review either type of document and clearly explain what it means to them before they sign it.

Contact an Experienced Divorce Attorney

While no one enters a marriage believing it will end in divorce, the unfortunate truth is that many marriages do fail and it is better to protect your interests at the beginning of the marriage than trying to scramble to do so after it is over.

Just because you signed a premarital or postmarital agreement does not mean the contract is valid. If you have questions about property division, asset valuation or other divorce issues, contact an experienced divorce attorney.

Article provided by Law Firm of Victoria T. Ferrara, P.C.
Visit us at www.victoriaferrara.com