Venture Funds, Private Equity, Hedge Funds and Other Alternative Investments in Orange County Divorces
In the intricate landscape of Orange County divorces, especially those involving high-net-worth estates, the division of assets goes beyond the mere allocation of tangible properties like real estate and automobiles. Such divorces often delve into the complex world of alternative investments, including venture funds, hedge funds, private equity, private credit, natural resources, digital assets, real estate and limited partnerships holding other non-traditional assets. These assets, by their nature, introduce unique challenges in the valuation and division process, essentially requiring the skill of an Orange County divorce lawyer with specialized expertise.
The Complexity of Alternative Investments in an Orange County Divorce
Alternative investments represent a broad category of investments that are characterized by their complexity, lack of liquidity, and the difficulty in valuing them accurately. Unlike traditional assets, where current market values can readily be determined, alternative investments require a nuanced understanding of their market, the macro economy, the specific conditions affecting their value, and the appropriate methods for valuation.
In an Orange County divorce, the court is required to equally divide the marital estate. This does not necessarily mean a literal 50/50 split of each asset but rather a distribution of the entire estate that is equal. Some assets, particularly alternative investments, may be hard or impossible to legally divide. If they cannot be divided due to the unwillingness of the General Partner, one spouse will be forced to hold the interest of the other spouse “in trust” for that spouse until the partnership is terminated which can be up to 12 years.
Holding the interest in trust presents problems for both spouses. The trustee spouse must comply with ongoing fiduciary duties and the other spouse must rely on the trustee spouse to equally divide distributions, provide documentation like k-1s on a timely basis, etc. An interest may be allocated wholly to one party, with the other receiving offsetting assets or compensation to equalize the division. The compensation must take the form of an equalization payment paid at the time the judgment is entered or over a period of years. An award of one of these assets to one party hinges on the ability to accurately value the assets held in the partnership, a task that can be daunting due to their complex nature and the speculative elements involved in their valuation.
Valuation Challenges
The valuation of alternative investments in a divorce context is fraught with challenges. Many such investments are valued on a “mark to market” basis, which is intended to reflect the current values. However, due to the nature of many alternative investments, the complexity of the valuations and the fact that values may fluctuate wildly, the value may not be the actual value of the assets on the date of the valuation. Moreover, the valuation methodologies used in the investment world, may utilize the discounted cash flow method or other methods that involve speculation about future profits, making them unsuitable for divorce proceedings where speculation is generally not permitted. Generally, valuations in an Orange County divorce, of ongoing business interests apply the excess earnings or the capitalization of excess earning to the business’s financial performance over the prior five years.
Furthermore, the practicality of performing an independent valuation of these assets in a divorce context is often not feasible due to the high costs and expertise required. This can lead to situations where an asset is simply divided equally without a true understanding of its current value. Such an approach may be problematic in a number of situations. For example, when the terms of the partnership require future capital calls and one spouse refuses to pay their share of the capital call when due.
Legal Expertise is the Key
The unique challenges presented by alternative investments in a divorce context underscore the importance of retaining an Orange County divorce lawyer with specialized knowledge in these areas. A lawyer well-versed in high-net-worth divorces and the intricacies of alternative investments can provide invaluable guidance and protection. They can navigate the valuation process, negotiate the terms of settlements that consider the risk, illiquidity and nature of these investments, and address potential future liabilities related to capital calls.
For those going through an Orange County divorce with alternative investments, choosing a lawyer with the right expertise is not just an option—it is a necessity. The right legal counsel can ensure that assets are addressed properly and that your financial interests are protected.
Our Website As A Tool To Help You Find The Right Lawyer
The world of alternative investments is just one area of family law that must be characterized as complex. How does one find the right Orange County divorce lawyer? Our website may be a valuable resource to you in your search to identify the right lawyer for your unique situation. Our team of 19 Orange County divorce lawyers limit their practices to family law matters filed in Orange County. We bring almost 300 years of combined experience to our clients’ cases which allows us to leverage a broad wealth of knowledge into creatively achieving our clients’ objectives.
For over four decades, Minyard Morris has provided upper-level professionals high-caliber divorce representation. To discuss your alternative investments with an experienced divorce attorney, call us at 949-724-1111 or send us an email inquiry to schedule a consultation.