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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Dear girl, it's too

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Speaker 1: talk because you know it, don't at it anyway, A

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Speaker 1: fidget tooth dog.

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Speaker 2: Half of all marriages and in divorce. That's just as

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Speaker 2: true for the ultra wealthy and celebrities as it is

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Speaker 2: for the rest of us. Jeff Bezos, Bill Gates, Kanye West,

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Speaker 2: David Geffen. What happens when there are billions to divide?

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Speaker 2: I'm Barry Ridheltson on today's edition of At the Money.

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Speaker 2: We're going to discuss the finances of divorce for the

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Speaker 2: ultra wealthy and full disclosure, I am not a billionaire

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Speaker 2: and I remain happily married for thirty three years. To

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Speaker 2: help us unpack all of this and what it means

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Speaker 2: for your portfolio, let's bring in Patrick Kilbain. He works

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Speaker 2: at Omen Wealth Partners, where he is a CFP and

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Speaker 2: general counsel. He leads the firm's divorce advisory group. So, Patrick,

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Speaker 2: the old joke is true. The wealthier different than us,

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Speaker 2: they have more money. Well kidding aside, just how different

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Speaker 2: are billionaire or celebrity divorces from the run of the mill.

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Speaker 3: Splits Barry First, thanks for having me it's an honor

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Speaker 3: to be with you, believe it or not. Celebrity divorces

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Speaker 3: and billionaire divorces are not all that different. They may

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Speaker 3: have more assets, more zeros in the bank account, more

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Speaker 3: complicated assets, but what you really got to do is

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Speaker 3: you got to take a step back and you got

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Speaker 3: to figure out what you're dealing with. And then, you know,

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Speaker 3: the biggest difference I think between a celebrity or a

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Speaker 3: billionaire divorce versus you know, the run of the mill

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Speaker 3: divorce is the privacy issues that go along with that.

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Speaker 3: And you know, we can unpack that a little bit more,

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Speaker 3: but I think that's a big non financial issue that

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Speaker 3: we're dealing with in those cases.

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Speaker 2: So you're talking NDAs and things along those lines for

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Speaker 2: everybody involved.

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Speaker 3: Well NDAs, and depending on what state you're actually getting

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Speaker 3: divorced in, there's open government and sunshine laws that can

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Speaker 3: get access to the divorce files. And one of the

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Speaker 3: things that I enjoy working on the higher net worth

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Speaker 3: and higher profile divorces is most of the time both

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Speaker 3: parties to that case are very cognizant of that issue.

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Speaker 3: So what we tend to do is we work very

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Speaker 3: collaboratively and get everything settled and valued and tied up

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Speaker 3: nice and neatly, and we are thinking away, We are

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Speaker 3: thinking constantly about how to play keep away from the press.

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Speaker 2: Really really interesting. We mentioned people with a lot of

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Speaker 2: zeros their net worth. When you have an ultra high

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Speaker 2: net worth couple splitting, are the mistakes that they make

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Speaker 2: more or less the same as what we see in

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Speaker 2: normal divorces? Or are there things that happen that you

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Speaker 2: know are really problematic and potentially not reversible.

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Speaker 3: Well, they are the same. The problem is a one

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Speaker 3: percent tax mistake in your case or my case is

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Speaker 3: magnified tremendously in that billionaire divorce case. So the mistakes

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Speaker 3: are the same, the consequences are tremendously more consequential in

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Speaker 3: that type of case. And then barry what I found

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Speaker 3: in these higher net worth cases. Generally, you know a

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Speaker 3: young couple who starts making and earning and accumulating significant assets,

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Speaker 3: they start doing what I call a state planning two

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Speaker 3: point zero or state planning three point zero, Because as

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Speaker 3: I tell everybody, there's two types of money problems, too

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Speaker 3: much and not enough. And these people have the too

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Speaker 3: much problem. So they have very complicated estate plans that

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Speaker 3: are designed to not be busted apart. So then you

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Speaker 3: start saying, Okay, you know this is a couple that's

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Speaker 3: been married thirty five forty years. They have slacks and

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Speaker 3: grats and cuberts and these complicated state vehicles. Well, okay,

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Speaker 3: how do we separate them? What are the tax consequences

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Speaker 3: as a result of separating or blown apart that estate plan?

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Speaker 3: And do we really want to do that?

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Speaker 2: Really really interesting. I was out with a couple of

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Speaker 2: guys right before the holidays. One of them was divorced,

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Speaker 2: and another person at the table mused, gee, I wish

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Speaker 2: I could afford to get divorced. So I guess that's

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Speaker 2: the too little money as opposed to too much money.

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Speaker 2: But let's talk about the too much money. A lot

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Speaker 2: of assets are not liquid. The headline value looks like

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Speaker 2: it's really big. How do you figure out the difference

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Speaker 2: between what something appears the liquidity factors? And then of

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Speaker 2: course you wind up either with a concentrated position or

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Speaker 2: a tax headache if there's a liquidity event in sale,

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Speaker 2: for the for the divorce. How do you navigate those areas?

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Speaker 3: Excellent question, excellent points. So let's let's think back to

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Speaker 3: the financial crisis two thousand and nine, twenty ten, the

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Speaker 3: late Elayne Win and Steve Win. We're getting a divorce,

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Speaker 3: and we think of Steve and Alaine Win, and we

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Speaker 3: think about people that have tons of cash, cash flows

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Speaker 3: and a problem. Well, the Wins had to liquid eate

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Speaker 3: shares of win resorts to you know, free up money

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Speaker 3: for their divorce case. So if Steve and Alaine Win

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Speaker 3: have to sell assets from a liquidity standpoint in a

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Speaker 3: divorce case, you can imagine that other business owners may

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Speaker 3: have to do the same thing. And then, like you said,

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Speaker 3: maybe the couples are going through a business sale or

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Speaker 3: there's some other liquidity events. So again, as I stated earlier,

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Speaker 3: the great thing about these cases is generally people are

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Speaker 3: motivated together to reduce tax liabilities and work together to

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Speaker 3: maximize the size of the pie. And I think again

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Speaker 3: in the billionaire celebrity divorce case, there's more motivation from

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Speaker 3: both sides to do that.

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Speaker 2: What do you do with things that are kind of

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Speaker 2: hard to put a dollar number on, carried interest RSUs,

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Speaker 2: restricted stock, even deferred comper options. How do you navigate that?

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Speaker 3: Sure, Well, there are all sorts of other professionals that

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Speaker 3: are experts and in placing of value on that. And

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Speaker 3: then you've got to step back and say, okay, what

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Speaker 3: are my goals and what are my strength spouse's goals.

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Speaker 3: So all of the contingent assets that you just rattled off,

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Speaker 3: they have some sort of expectation that you're still going

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Speaker 3: to have to be linked together for some period of

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Speaker 3: time in order to realize those assets. And you know,

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Speaker 3: maybe the person who's employed and is compensated in those

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Speaker 3: you know, alternative ways, they may not want to, you know,

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Speaker 3: have their you know, former spouse contacting their human resources

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Speaker 3: department or their executive compensation parts. So then the question

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Speaker 3: becomes do we have enough liquidity to buy that person out?

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Speaker 3: And you know, what sort of risk premium are we

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Speaker 3: assigning on kerry that may actually not materialize? And you know,

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Speaker 3: are these assets are they deferred, are they qualified? Are

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Speaker 3: they non qualified? What sort of growth rate do we

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Speaker 3: model when we're coming up? You know, do we think

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Speaker 3: that growth rate is fair? If we don't, then we

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Speaker 3: just say, okay, fine, I'm gonna roll the dice and

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Speaker 3: I'm gonna you know, I'm gonna ride along and see

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Speaker 3: what happens with the carry and whether it materializes or not,

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Speaker 3: And but I think history is a good place to

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Speaker 3: look to too. If you know we've been airried for

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Speaker 3: a significant amount of time, how have previous iterations of

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Speaker 3: the funds done? And how comfortable do I feel about,

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Speaker 3: you know, Carrie actually being there.

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Speaker 2: You mentioned outside experts. How do you, as the advisor

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Speaker 2: coordinate with outside lawyers and accountants and the state attorneys.

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Speaker 2: You're sort of trying to make sure the client isn't

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Speaker 2: stuck as a project manager as they're undergoing this emotional,

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Speaker 2: very emotional potentially I'm gonna say that again, they're undergoing

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Speaker 2: a very emotional experience.

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Speaker 3: Barry, It's not fair for the client to be the

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Speaker 3: project manager. They're the ones who are leaning on professional

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Speaker 3: advice and having litigated for nearly a decade, I generally

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Speaker 3: know all of the best to breed divorce lawyers in

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Speaker 3: the area, and I'll lean on law school classmates to

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Speaker 3: find the best to breed divorce lawyers all over the country.

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Speaker 3: And the divorce lawyer is going to be the quarterback.

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Speaker 3: I think it's very important to understand where the divorce

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Speaker 3: is actually taking place, so you can have a great

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Speaker 3: expert witness. But if that expert witness is not known

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Speaker 3: to the judge, or they're just simply not able to

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Speaker 3: communicate their work product and make the court understand what's

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Speaker 3: going on, then they're not a very good expert. So

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Speaker 3: I think you really have to know where you're at,

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Speaker 3: know the experts that have significant experience doing this type

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Speaker 3: of work. And then you know, if that expert is

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Speaker 3: well known to the court and to the opposing parties

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Speaker 3: and they do sort of a B plus job, then

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Speaker 3: maybe we need to sort of backstop them with that

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Speaker 3: national expert that is really really precise and really refined

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Speaker 3: that can help out so that situation. And you know, Barry,

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Speaker 3: I said this to a client the other day, I'm

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Speaker 3: sort of the offensive coordinator. I know enough to be dangerous,

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Speaker 3: I know, but I'm not in the business of giving

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Speaker 3: out legal advice. If I wanted to do that, I

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Speaker 3: would still be an advocate. But we work together. I

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Speaker 3: make suggestions. The head coach, the lawyer has got to

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Speaker 3: be the one who ultimately implements the plan.

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Speaker 2: So I mentioned in our introduction Jeff Bezos and Bill Gates,

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Speaker 2: it raises the question when you have highly appreciated founder's

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Speaker 2: stock at a very low cost basis and then all

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Speaker 2: of the capital gains that come with getting liquid with that.

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Speaker 2: When I look at folks like Larry Allison, O Bezos

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Speaker 2: or Gates, they've let it run for so long. What

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Speaker 2: we saw with Gates is he literally there was an

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Speaker 2: eight billion dollar transfer of Mike Off stock before the

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Speaker 2: selloff to Melinda Gates Foundation. What are best practices with

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Speaker 2: dealing things like founder stock at a really low cost basis?

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Speaker 3: Yeah, I mean you hit on one of the strategies

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Speaker 3: right away. If philanthropy or charitable giving is part of

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Speaker 3: the problem, then we bring in an expert and talking

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Speaker 3: about if a charitable foundation isn't set up, what's the

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Speaker 3: best way to maximize gift to charity, and you hit

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Speaker 3: the nail on the head. Donating appreciated stock to the charity,

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Speaker 3: to a charitable foundation, to a donor advice fund is

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Speaker 3: certainly a way to do that because, as you know,

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Speaker 3: you get the market value for the contribution of the stock,

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Speaker 3: you don't have to worry about the capital gains tax,

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Speaker 3: neither does the charity. Everybody wins.

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Speaker 2: We saw that with Bezos's wife also right it was

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Speaker 2: a big chunk of Amazon stock that went into her philanthropy,

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Speaker 2: what do you do when it's not a public company.

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Speaker 2: What do you have do when you have a highly

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Speaker 2: valued private company? Things like tangible book value in goodwill,

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Speaker 2: they're so squishy. How do you put a dollar value

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Speaker 2: on that?

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Speaker 3: Sure will oftentimes bring in expert witnesses at valuing those

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Speaker 3: privately held companies. And as you and I talked before

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Speaker 3: the taping, Barry, you know, there's two components to the

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Speaker 3: value of a business. There's the tangible assets and the goodwill. Well,

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Speaker 3: in the context of a divorce case, we have to

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Speaker 3: drill down into the good will and we have to say,

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Speaker 3: all right, what component of the goodwill is the enterprise goodwill?

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Speaker 3: And then what component of the goodwill is attributable to

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Speaker 3: the merital litigant. So let me give you an example.

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Speaker 3: Let's say there's Barry Ridtholts Insurance agency, or there's State

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Speaker 3: Farm Insurance where Barry Ritholtz is the registered agent. So

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Speaker 3: if I live in you know, some proximity to the

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Speaker 3: State Farm office where Barry's the register agent, maybe I'm

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Speaker 3: going there because I know Barry, but more likely than not,

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Speaker 3: I'm going there because of the brand State Farm. So

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Speaker 3: there's more enterprise goodwill there. But if I'm going to

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Speaker 3: the Ritholtz Property and Casualty Insurance up the street, it's

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Speaker 3: probably because I rode the train into the city with Barry.

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Speaker 3: Maybe Barry sponsored the Little League baseball team. Barry was

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Speaker 3: referred to me by somebody else that you helped, you know,

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Speaker 3: in who needed those products. So those are the issues

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Speaker 3: that we have to get. And you know on my team,

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Speaker 3: you know, you and I and your listeners know how

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Speaker 3: significant small businesses are to the American economy. Well in

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Speaker 3: the higher networth cases, a lot of these families have

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Speaker 3: small businesses. It's the biggest asset in the divorce case.

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Speaker 3: So I found my business partner, Caitlin. She was working

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Speaker 3: at a business brokerage firm, and I thought, man, this

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Speaker 3: woman has great credentials, great presence, she has that business

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Speaker 3: valuation expertise. So on my team, I have somebody who

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Speaker 3: came from the valuation world to help the lawyers and

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Speaker 3: our clients spot those business valuation issues because they are

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Speaker 3: so essential to the divorce case.

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Speaker 2: Since we're talking about ultra high net worth potential divorces,

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Speaker 2: one of the things I was thinking about was liability protection.

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Speaker 2: A lot of these families have umbrella policies. They have

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Speaker 2: very specific lawsuits and potential liability. They're trying to shield

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Speaker 2: themselves run How do you manage that throughout a divorce process.

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Speaker 3: I mean, that's probably the most important question that you've

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Speaker 3: asked me. We can divide, we can design the best portfolio,

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Speaker 3: have a great asset allocation, have strategy to you know,

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Speaker 3: redeem company stock and dilute concentrated positions. But if you

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Speaker 3: don't have the right protection in place, if you don't

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Speaker 3: have an umbrella policy, if you don't have an umbrella policy,

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Speaker 3: that is taking into consideration uninsured motorists. And I'm going

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Speaker 3: to even back up before we even get to insurance

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Speaker 3: and look at how assets are titled. So, Barry, I

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Speaker 3: live in Florida, and Florida is one of the jurisdictions

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Speaker 3: in the country where you can hold property as tenants

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Speaker 3: in the entireties. And you know, most of the other

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Speaker 3: jurisdictions you can hold property as joint tenants with right

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Speaker 3: of survivorship. And I don't want to make this a

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Speaker 3: law class you're a lawyer, but tenants by the entirety

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Speaker 3: means that you and your spouse own an undivided interest

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Speaker 3: in that asset. Joint tennants with right of survivorship means

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Speaker 3: that Barry and his wife own each own fifty percent.

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Speaker 3: So if you're a tort feezer and you don't have

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Speaker 3: an umbrella policy, I can go after fifty percent of

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Speaker 3: your brokerage account. But if you hold it as tenants

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Speaker 3: in the entirety, then you and your wife have to

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Speaker 3: be the fees aer for me to you know, try

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Speaker 3: to go after those assets. What about titling cars? I mean,

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Speaker 3: how many advisors are looking at how their clients title

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Speaker 3: their car. You know, I'm dealing with a case right

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Speaker 3: now where somebody that I know was killed by a

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Speaker 3: sixteen year old motorist. Well, the insurance companies are smart.

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Speaker 3: They don't want to just title the car in the

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Speaker 3: kid's name, right, They'll charge higher premium, you know, to

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Speaker 3: make sure that either mom and or dad is also

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Speaker 3: on the title, so you know, they can have mom

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Speaker 3: and Dad's assets be you know, used to satisfy a judgment. So,

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Speaker 3: I mean, these are all the things that I try

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Speaker 3: to help people look at and say, hey, look, just

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Speaker 3: by the way you title your assets, you can shield

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Speaker 3: yourself from a potential liability.

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Speaker 2: Final question, what are your thoughts on finding hidden assets

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Speaker 2: and not just Swiss bank accounts, but other ownership of companies,

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Speaker 2: of real estate, of what have you that perhaps one

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Speaker 2: of the spouses is not fully aware of.

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Speaker 3: Right. That's why tax returns and corporate tax returns and

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Speaker 3: following the money and watching where it goes is so significant.

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Speaker 3: You know, most of the time you know one spouse

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Speaker 3: trusts the other spouse or has no dealings whatsoever with

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Speaker 3: you know, what's going on at work and the business

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Speaker 3: accounts and so on and so forth. So it's really

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Speaker 3: important you talked about big money mistakes before you agree

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Speaker 3: to a settlement. Get a CPA to help you sit

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Speaker 3: down and take a look at the tax returns and

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Speaker 3: see how the money's flowing. I mean, generally there are

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Speaker 3: things on there that raise significant red flags which may

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Speaker 3: make you want to pause and say, okay, I need

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Speaker 3: to take a look at this. I need to look

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Speaker 3: at the corporate bank accounts. How are these retained earnings

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Speaker 3: consistent with other you know, businesses in the same industry.

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Speaker 3: Is just too much? Did the salary significantly change? Did

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Speaker 3: distributions significantly change? How have the historical expenses changed? You know,

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Speaker 3: right around the time that the divorce was starting to

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Speaker 3: bubble to the surface.

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Speaker 2: So to wrap up, billionaire divorces aren't all that different

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Speaker 2: from run of the mill divorces. Sure, there are a

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Speaker 2: couple of more zeros at the end of the asset

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Speaker 2: list and some complications, but generally speaking, the risks, the

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Speaker 2: boxes you want to check, and the other issues that

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Speaker 2: you're going to run through aren't all that different from

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Speaker 2: traditional divorces. I'm Barry Redults. You're listening to Bloomberg's at

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Speaker 2: the Money.

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Speaker 1: You know, don't you