When Wealth Planning Meets Divorce

Speaker A: This is the wealth and Law podcast, a podcast about the intersection of, um, personal wealth and the legal landscape. We'll take a deep dive into relevant topics. We'll basically teach you what we know, and we'll engage with guests with deep expertise in their field. We hope that you'll enjoy this episode and many more episodes. So please join us on this journey as we try to bring you relevant information that is both timely and important for you to know order to engage in this area of the world. All right, good afternoon, everybody. Thank you for joining. This is the wealth and Law podcast and we're going to talk today, as advertised, about what happens when our great wealth planning runs into divorce. Maybe divorce attorneys is what, what it really runs into. But that's why Lisa Zeiderman is with me today. So thank you so much, Lisa.

Speaker B: Thank you so much, Brenda. I'm really excited to have this conversation.

Speaker A: It's a good one. It's a good one. I tell my clients whenever we're talking about kind of downstream, I'll say protection of assets, you know, trying to keep things in trust and such for kids and grandkids, that the IRS is not a good creditor, but the actual big creditor out there is ex spouses. It's the biggest one, um, which I'm sure speaks to your heart. But for the few people who don't know who you are, why don't you at least explain your CV for us?

Speaker B: Sure. So, obviously, my name is Lisa Zeiderman. I am a matrimonial attorney. Um, I have a practice in both m. New York and um, in New York, Manhattan and in Westchester County. Um, Miller Zeiderman is the name of my practice. And we are about 50 attorneys who really focus on, on family law, um, divorce custody, high stakes, high net worth, um, and um, as well as prenups and postnuptial agreements. Um, I'm also board chair of an organization called Savvy Ladies, which, um, is for women's financial literacy. Um, basically, that's the mission. It's a non for profit. And um, I am an investor and um, advisor to a company called hello Prenup. Because I do believe in prenups.

Speaker A: As you should. Absolutely. Me too. I, I believe in them as well. Um, actually had a, a client of mine, he, he didn't need a prenup, but he asked me the other day, I said, do you do, do you do any prenups? I said, yeah, actually I've, I've been doing quite a lot of them, uh, lately. In, in particular, he Says, really? I didn't know people did them. I said, well, maybe first marriage people don't do them, but second, third, fourth marriage people, they really start to believe in prenups.

Speaker B: Well, interestingly, I'm going to say that in the last year and a half, I have had so many people who are in their first marriages, going into their first marriages, who are, um, dual professionals who want to have a prenuptial agreement for so many different reasons. And I will also say that interestingly, um, hello, prenup, um, really, which is a nationwide company, um, works with people from all income levels, including lower income. And because it really has democratized prenups. And so even I think when people think that they don't need a prenup when they have almost nothing, um, they don't know these days when they're going to have something because there's so much, so many avenues, I think, to, uh, create wealth that you really don't know what's going to happen when you're young.

Speaker A: Yeah, absolutely. Very much so. And I, I wish we had time, um, today to talk about savvy ladies. I may have to have you back to talk about savvy ladies, which is a very, very cool organization. So I, I, we may have to do it.

Speaker B: We'd love that.

Speaker A: Yeah. Well, let's, you know, let's talk about it. What, what are the big issues that, you know, from your perspective, being in, in the trenches, of what happens to our beautiful planning when divorce happens?

Speaker B: So, look, I think that the first thing is that people are planning their wealth when they're married for two. And that is very different than planning on splitting up your wealth. Right. And, um, I think that we are seeing more and more divorces that are happening when the children have left the house, um, or the apartment, for that matter. Um, because I think that for various reasons, which we can discuss, but at the end of the day, no matter how much wealth you have, you're still at usually about half. Right. In New York anyway, um, equitable distribution, not necessarily equal, but if it's a long marriage and you have kids, you're going to likely have an equal distribution of most of the assets. And, and so, um, the bottom line is that if you have 1 million, you've only got 500,000. If you've got 20 million, it's only 10. And very different lifestyles and very different, um, economics when you're looking at dividing your wealth in half. And I think that for people who are in their late 50s and sometimes 60s, who are coming to us now, um, in what's called Gray Divorce. Not sure that I love that name, but it's very, very popular now. Um, they are, um, some of them are very concerned about what their planned retirement is going to look like because they had planned it one way and then they might have had a curveball thrown at them, and now they're planning it a different way, and it could look very different for them. So that's one. One issue, I would say. Um, and then, you know, there are various other issues. I think that sometimes people confuse marital property with being separate property. We can talk about that, what that looks like. Um, maybe they think that somebody else's. Some. Their spouse's inheritance is theirs when most times and in New York particularly, um, it is not. So an inheritance if you kept it separate and apart is. Is yours, um, as long as you can trace it back. And so I think there's various surprises that people, um, have when they are going through a divorce and they're learning for the first time what it means to divide up their assets.

Speaker A: Yeah. And things that they don't think about. Like you just mentioned separate property or marital property. People have no, no conception of what these things are. Maybe we should. Maybe we. Maybe we should start there because, uh. And I'm in a community property state, so I can kind of layer some community property stuff on top. On top of that as well. But, you know, maybe break that down for people so they know exactly what you mean when you say that.

Speaker B: Uh, so happy to break that down. So, you know, I think, Brent, when people come into my office very often, and I'm going to start here, because I think it's an important thing that people need to know. When they come into my office, they very often say, don't worry, I kept it all separate. I'm like, okay, but what does that actually mean that you kept it all separate? Don't worry, it's all in my name. And then I say, well, what is it that's in your name that you believe is separate? Well, I came into the marriage with X. And then I. During the marriage, I worked. And don't worry because I then put that all in that same account, and I only use that account. And my spouse and I never actually, um, put our funds into joint accounts. And so don't worry, it's all mine. And I. Or the opposite, which is I have somebody who comes in and says, nothing's in my name. And so does that mean I have nothing? And I say, logically, how could that be Right. And logically, how could it be that you think that everything you've just earned, okay, that you're going to leave your spouse basically with nothing because they weren't earning? Maybe they were staying home and taking care of children, or maybe they were supportive of the household or any of those things. Do you actually think that that's how the law works? Right. And they are very, very confused, um, at that moment because they really thought. And disappointed because they really thought that they did themselves a big favor. The fact is that in New York, it's not about how the property is titled, but it is about making sure that you keep inheritances and premarital property and property that you earn after the marriage, of course, ah, is commenced, that you keep that separate and that you can trace it back and that you can show that I got this inheritance from Aunt Molly or I, um, I came into the marriage with, um, all of this money in this brokerage account, in this retirement account. And I can show I didn't actually do what is called commingling. Okay. I didn't take money that I earned during the marriage and put it into the same account that I came into the marriage with. And most importantly then I didn't do that and take money in and take, put money in and take money out and do that in an account. Because now I have, um, made it almost impossible, I'll say almost. Almost impossible to track and trace. Okay. And so with the exception of retirement accounts, because retirement accounts are different, okay. Um, with the exception of retirement accounts, if you came into the marriage, you should. With monies, you should either have a prenup or you should keep that money separate and apart during the entire marriage and keep the statements and make sure that you can trace. Because in New York, the burden is on you who wants to prove your separate property that you can actually show it was your separate property. So inheritances, um, there will be certain, um, settlements that if you had an accident or something that, um, you know, personal injury type of situations could be separate property. Um, as I said, premarital property. Um, anything that you decided to define a separate property in a prenuptial agreement. Okay. Or a post nuptial agreement. That's all separate property.

Speaker A: Yeah. What should be telling people how, uh, complex it can get and why having a prenup to try to sort it out ahead of time is Very wise. Very wise.

Speaker B: Yes. Prenuptial. Prenuptial. Prenuptial. And as I said to somebody this morning, if you can actually, if I could make a New, um, law. I would actually make it mandatory that people sign prenups now because it makes so much sense.

Speaker A: M. It does. Yeah. It makes a lot of sense. And there's, um. I think there's a lot that people assume about this transaction we call marriage that they're getting into. Sometimes I'm. I'm very. I'm not very romantic, and I kind of. I kill things, all the excitement, and I say, well, you know, in the eyes of our beautiful laws, it's just property. We don't actually care about all of your feelings. You could get married and never live together. We don't care. It's still married. And all the same rules apply to you. So just, you have to, like, convince people to put that hat on. And it's very hard to get them to do it when they're in that situation. They're about to get married, they're excited. They got, you know, they finally got engaged. The fiance is excited, the whole family is excited. They're planning. And now you have to ruin it with lawyers.

Speaker B: Yeah. And I think that there's this, um. There's still out there, although I think it's less now. Um, there's still out there a view about prenuptial agreements. This old, um, view. I think that, um, you're somehow, um. You know, if you're signing a prenup that you've been given, that somehow somebody is trying to trick you or, um, you know, you're giving up your rights. And I think what people don't consider is that they have given up their rights, essentially, when they say I do, to the extent that there's already a prenuptial agreement that they're signing on for. Right. And that prenuptial agreement is the law of your state. Right. So it's all written, it's all codified. You actually never will read it. Right. Because it is in this little tiny print, and it's in all these books and all of these, um, different cases. And, um. And so you're not reading all of that, but trust me, you have signed, essentially, a prenup when you get married, even if you don't sign a prenup, because there is a contract. Okay. And it is. And. And that is the law of the state. And there will be a judge who will interpret that, um, that law. Okay. Um. As opposed to the other part of the law. And so this goes to New York. I'll say in New York, we have the ability under the law. Pursuant the law, and in accordance with the law to change the law that was in the state. Okay. And to make it, craft it for yourselves. And I think that that's the most important thing. So if I. Why not do that and why not have these really transparent discussions and, um, understand what the assets are and understand what you're both wanting and figure it out ahead of time.

Speaker A: Absolutely. Yeah. And I think that's a really good way to frame it as well, that people have to accept the fact that the legislature has written the prenup and do they trust the legislator to get it just right? Probably not for them. Yeah, probably not. But that's what you sign up for when you. When you go in without, uh, without a prenup. Well, I'll add one little thing I'm very curious about. You were mentioning commingling assets. I'll tell you the Arizona rule, which I don't think is too terribly different from most community property states. The Arizona rule is, especially when it comes to cash, if you commingle community cash with separate cash, the separate cash, 100% is now community property. Uh, there is no tracing. And, uh, the authority and the case law is, well, you can't trace dollars. You can't tell which dollar came from which source. Therefore, there's no tracing. Therefore 100% conversion to community property. That's a very harsh result, but that is the result. So what happens in this, this tracing exercise that you're describing? Like what level of detail do you have to go through?

Speaker B: So usually we will hire forensic. If it's very complex, we will hire forensic accountants who will go back and, um, look at the statements and, and um, try to unravel what has happened. Because, um, you know, people come to us sometimes with many, many millions of dollars that they are trying to trace back. And the marriage may have been long, but the extent of it could have been frankly very, um, voluminous. Um, and they will unravel the accounts to see what they can prove is separate property. So you're right. Like if it's a checking account, um, probably you can't really trace. Trace that. Okay, probably. But retirement funds, for example, you can go back and, um, and get the information and show that you. And retirement accounts are treated differently. We don't call them actually commingled unless they. You were withdrawing and then contributing and then borrowing against or cashing out or all of these things. But, um, you know, you add money to a retirement account. So you show us what you had, the date of the marriage, um, how it rolled over, where it is now. Okay. And you will likely get credit for what you came into the marriage with and the, um, market forces on that amount. So you came into the marriage with $100,000, and you had market forces, and now it's worth a million dollars. You get the million dollars, okay, as long as you can show all of that. And that will perhaps mean getting account statements or some sort of proof that the hundred thousand dollars existed then and that, um, it just grew. Um, then there is, um, the money. For example, you might have had, um, maybe you had an apartment when you got married. It's like, perfect example. You had an apartment when you got married. And you can show the closing statements and you can show the transfer of the money from the day you closed to the day the next closing happened for your house, okay, that you bought next, right? So you had an apartment in Manhattan, and then you had a West Hampton house that you purchased, okay? And you took the monies from the apartment that you had premarital, it got sold, and you put it into the West Hampton house. And you could get a credit for that. Perhaps you could get a credit for the appreciation, but that has a lot more complications in it, so I won't go into it. Um, or there was a brokerage account, and I love this example. You came into the marriage with millions of dollars in the brokerage account, and you did actually trade the stock, okay. Or you gave it to a financial institution to trade the stock, and that stock either got traded. So you might have had, um, AT and T, and then it became Tesla, and then it became, I don't know, meta. Okay, but you can show all the statements showing I came in with AT&T and then I traded it and I got Tesla and then I traded it in and I got Meta. And here is what I have today, and it's the same stock, okay? Basically, same thing. You can get credit for that. So there is, you know, various, um, places that people can actually get their separate property. Um, or I got this inheritance from Aunt Molly, and I put it into this separate account, and maybe two weeks later, I transferred it out to my separate account. And it was just for convenience because I didn't have a separate account at that point. And then I transferred it out again. You've got to show all of this happened. Maybe Aunt Molly's will. Um, so we know that it came from Aunt Molly, um, showing the account statement, it going in, it going out, um, all of those things. And so you, you do have the ability to do this.

Speaker A: Yeah. It can't be done. Like you said, it takes, usually takes forensic accountants to sift through all the data, but it can be done much

Speaker B: of the time and, and the key is getting the statements. And that's sometimes the most difficult part of the whole thing. It's not the tracing, it's getting the statements. Because um, sometimes the um, financial institutions only keep them for seven years and then you have to ask for other types of statements and m. And everything is not as straightforward. And so it takes time and effort and, and of course it's costly, but it could be worth it, we have found. You know, and, and um, gotten people their separate property in millions and millions of dollars. So. And I will say it is very gratifying when you're able to do it.

Speaker A: Yeah. So you mentioned post nuptial agreements. So explain to people what would be different about that from a prenup.

Speaker B: Sure. So, um, and I'm only talking about New York, I'm going to say this because um, other states don't necessarily. Some states recognize postnuptial agreements and some do not. Um, New York does recognize the post nuptial agreement. So it's important to know that um, and essentially maybe you didn't get a prenuptial agreement, maybe you ran out of time. Um, perhaps you hadn't thought about it. Um, perhaps, you know, you and your spouse are starting to disagree about financial issues and you feel like you want to separate out certain funds from the marital pot. Um, or you want to have certainty in your life for later in case um, any of these things or you feel like it will be some sort of um, aid in um, enhancing your marriage. Okay. Which is often the case. Um, and you really want to um, take this issue off the table so that everybody can just relax and be married and not have to worry about this. So you enter into essentially a post nuptial agreement. Um, it's a little bit stricter in terms of the oversight a court might give a little bit. Right. It has what they call a cloak, um, over it that the court is going to look at to make sure it's fair. Fair in some way. And it's not too one sided. That doesn't mean it has to be even just so we're clear. It doesn't mean it's like tit for tat in terms of like you get this asset, I get that asset, or you get half and I get half. It just has to be, um, it has to be something that is not so unfair that it shocks the conscience essentially. Um, and that nobody in their right mind would have signed it. So, um, that, that's what you're looking at. And you can sign an agreement and again, it is a way of, to craft, um, or develop a plan for yourselves that, that is different than New York state law.

Speaker A: Yeah, exactly. It's kind of looking at each other and saying, we don't want to do all of that, uh, tracing and fighting and having your accountant versus my accountant on the stand and doing it in the context of an actual act of divorce which might not be so friendly. Yeah, it's uh, again, like a prenup. It's a very good idea. It can avoid a lot of problems in the future.

Speaker B: Yeah. And for people who got inheritances, perhaps one of the issues is, right, that they figured out that maybe they did commingle an inheritance and they don't think it's fair, um, for their inheritance to be the other person's because perhaps they commingled their inheritance, but the other person just got an inheritance. Like I could see this as being a fact patent. Right. You commingled your inheritance and I just got my inheritance and I'm keeping it separate. And you think to yourself, well, that doesn't seem fair right now. My inheritance, your inheritance is going to be marital. My inheritance is going to be my separate property because I kept it better. So bottom line is great reason to have a post op. You, uh, can now say, right, an inheritance was received. This will be my separate property. You got your inheritance. That's your separate property. And even though it is now in account xxxxx, it's still going to be my separate property. And you've solved a problem that perhaps was a, um, an issue in the marriage.

Speaker A: Yeah, it can also, it can also solve, uh, it can also solve problems when someone dies because all that commingling creates questions about how you, how you divide assets, especially when you have split families.

Speaker B: Yes, it can. And, and, and that is another important reason actually to enter into prenups and postnups. I've also learned in doing them that very few people, people, uh, surprisingly have wills. It's unbelievable to me.

Speaker A: Yeah, it is. Yeah. A lot of clients of mine will ask, well, can't I, you know, aren't I protected? If I have my revocable trust, you know, instead of having to go through a prenup, then I have to be the bearer of bad news and say, no, not really. You know, it doesn't really, it doesn't really fix it. Sorry. So you really have to put things on paper. You really have to agree to it and the other thing m. You mentioned this, Lisa, which is, which is a really good point. And um, at least in our state, I don't know if it's this way in um, New York, but in Arizona and many states there is an actual statute that governs prenups. It's a Uniform Premarital Agreement Act. Most states have adopted it. And so you're actually following a real statute when you're, you know, you're pinning this thing to something with, with actual statutory authority behind it. It's very meaningful and it gives you a lot of comfort that it's probably going to be respected unless like you say, you know, fraud or some crazy thing that a judge would never countenance. Um, so it really is very, a uh, very powerful tool.

Speaker B: Right. So I think we don't have that, um, same statute that I know is in California, for example. Um, that being said, there is in the statute that we have, it gives you um, permission essentially to enter into and encourages people to enter into agreements on their own. And so therefore, um, as public policy in New York, um, it is difficult to um, set aside a prenuptial or a post nuptial agreement because people came to it voluntarily. Um, you know, and essentially um, had a negotiation most of the time, were represented by council, um, were transparent about their finances, have all the bells and whistles in terms of the acknowledgments at the end as are required to file a deed in New York. And so, um, they. It is encouraged in the statute and people are permitted to enter into those agreements.

Speaker A: Yeah, it's a really good point, actually. A good point. I can see Stephen, uh, Claussen also put a, a comment here about Texas, Texas permitting tracing. Every state is different. That's the other thing. And people um, move. And so you really, you want an agreement that will kind of think about what happens if we move. Uh, are we going to be beholden to the new state? Do we want a certain set of rules to apply to us and hopefully follow us around the country, if not the world? So it's, it's not just tied to one place, but every place is different.

Speaker B: Yes. And you know, in our prenuptial agreements when we draft them, we will make sure that there is a clause that states what law we're going to follow and also a clause about what would happen if you do relocate. Right. That New York law, for example, would be still the law that you would follow and that if you are moving abroad that you would consult with attorneys abroad to the, in the country. That you're moving to. To make sure that you're, um, that your prenuptial agreement will be somehow valid, or if you need to sign a new agreement, that that's somehow valid because not every, um, country will uphold, um, some of the things that we do in New York, for example. And so that's important to make sure if you are relocating and we think about that, and we put language into the prenuptial agreement about that.

Speaker A: Yeah. What we see here, uh, frequently are people who maybe get married in Mexico and then they move to the U.S. mexico doesn't quite have a prenuptial agreement regime. Kind of what you do is you make an election when you get married and you sort of elect. I'm saying this in very general terms, but you sort of elect in or out of community property. That's effectively the way that it works. And that election is not exactly a prenup. And so when you come to the US there's this cloud of uncertainty about, well, the thing that you thought that you did where you got married might not have any force whatsoever here. And to your point of you, uh, talking about these postnups of just, like, resolving unresolved issues, it's a per. It's a perfect place for you to do a postnup, Just resolve that issue, agree on what things are going to be here. Just because you moved shouldn't change the outcome of what you intended.

Speaker B: Yes. As long as the state that you're going to live in is going to uphold a postnup. Right. Because there are definitely states in the United States that do not recognize them. So super important that you actually check that.

Speaker A: Right? Absolutely. Well, Lisa, I could talk to you about this, um, all night long, but I know you also have a life, and it's not talking to me. So, um, I think we'll leave it here. Thank you so much for the time and all of your expertise. I just can't thank you enough.

Speaker B: Thank you so much. Really fun discussion.

Speaker A: It's been my pleasure. Yes. Thank you. Have a good one. And thank you, everybody. Hey, listeners, thanks again for joining me on the podcast. It's fun to do it for you. If you're enjoying it, please subscribe at Apple Podcasts or wherever you get your podcasts. Subscribe to my blog@wealthandlaw.com and follow me on social mediaalthandlaw. I'll see you there.