We have touched on this before. “Boomers” in America are reputed to hold $96 trillion in wealth and a lot of people from children to criminal scammers are noticing. Aside from the countless articles about silver divorce and how to divide inherited wealth when divorce and re-marriage have re-cast families, there are two other places where this money makes for crazy challenges.
The first involves Gen Xers (age 45-60). They also get divorced and some of them have parents who are figuratively “loaded.” The Xers come in for a divorce consult. Some are well-off; others are not. The lawyer does the interview and let’s say the estate nets out to about $500,000. Depending on what they have and how they got it, the range is from a low of $200,000 to $300,000. While doing the analysis the lawyer heard some unusual facts. The house is debt heavy but seems way beyond the couple’s means. The cars are worth far more than either spouse earns. And the kids are in private school at $70,000 after tax dollars a year.
The lawyer does his $200-300,000 equitable distribution spiel and there is a huff of dismissal in response. “I can’t live on that!” The projected alimony and/or child support is $4,000 a month. But, the mortgage is $3,500. The one car lease is $850 and tuition is almost $6,000. That’s $13,500 with no food, clothing or electricity. “You, pitiful lawyer, don’t seem to understand. We have been living this way for a dozen years.”
This is when the dam breaches with new found facts. Mommy and Daddy Warbucks gifted $200,000 to acquire the magic castle. The cars are leased by Warbucks Enterprises, LLC. The LLC is owned by the elder Warbucks and son and daughter in law are paid $24,000 a year to consult. The elder Warbucks pay the tuition directly or employ a handsomely funded 529 plan.
In a word, the lifestyle is a parent funded mirage. One spouse will leave the marriage with Warbuck-wealthy parents. The other will not. The “not spouse” inevitably asks:
“What can be done about this. His parents are in their 80s and he/she is going to be crazy wealthy when they go. We need to show a court just how much the Senior Warbucks are worth.”
The reasoning is sound but it does not work in legal world. The wealth of the seniors is theirs until they actually gift it away or die and leave it to June or Junior. In theory, it could be that they give it away to public television or the Daisy Hill Puppy Farm. Yes, they provided the down money for the house and pay for the cars and Fancy Prep. But, they have no obligation to provide anything to anyone in the future. Equitable distribution is limited to assets you own or are entitled to. Until they die or make an irrevocable gift, no one is entitled to any of their assets or to measure their wealth.
There is a small exception to this, but it will be hotly contested. If the senior Warbucks put money into an irrevocable trust and named June or Junior as a beneficiary, that asset is out of their hands and irrevocably designated to go to their child. The problem is that even their child may not know about this trust until the trustee is directed to start distributions. And investment houses that manages these trusts are about as tight-lipped as an institution can be. There are times when the tax return of the Gen Xers shows some income coming from such trusts. That money should be traceable to its source but trusts typically assert that they have no duty to provide anything more than the tax record of the distribution.
What do lawyers do in this setting? They have clients testify about the cars, the every summer beach house at the shore and the winter vacations to Chez Heavybucks in Martinique. Often, this meets with objections as irrelevant. Usually, these objections are overruled if only to let the one spouse vent over a lifestyle that is sailing away.
The court may be affected by this in terms of sympathy but that doesn’t allow it to grab an asset which neither divorcing spouse owns to divide it in divorce. The court might see and hear about the millions managed by Glenmede or Mellon and see the views from the cabanas in Longport or Grand Riviere. But, it has no jurisdiction to make those assets or that lifestyle “shared.”
This has and will remain a hot topic. Many clients leave divorce interviews professing that what they need is a “better advocate.” Unfortunately, advocacy does not change what is a marital asset and what is just an “expectancy.”
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