Expert Panel:

Carole Azran-Dickstein, Esq., Kolodny Law Group (Family Law)

Walter T. Killmer, Jr., Esq., Rodi Pollock Pettker Christian & Pramov (Trusts and Estates)

Robert Dalie, Oppenheimer & Co. Inc. (Wealth Management)

Mark Luttrell, CPA/ABV, Mayer Hoffman McCann P.C. (Forensic Accounting and

Valuation)

KEY FINANCIAL AND ESTATE PLANNING ISSUES: BEFORE, DURING AND AFTER DIVORCE

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Carole Azran-Dickstein is a partner at Kolodny Law Group, a leading Beverly Hills law firm specializing in complex and sophisticated family law and matrimonial matters arising out of interpersonal relationships both domestically and abroad. Carole has been practicing family law exclusively for over 18 years and has extensive experience handling complex cases involving significant community property assets, prenuptial and postnuptial agreements, valuation and division of marital assets, spousal and child support, child custody, paternity matters, breach of fiduciary duty issues, and domestic violence. Her expertise makes her well-suited to handle the family law needs of individuals and families with large assets. Carole holds a B.A. degree from UCLA and a J.D. degree from Loyola Law School, Loyola Marymount University.

9100 Wilshire Boulevard Ninth Floor, West Tower Beverly Hills, CA 90212 310.271.5533 Ext:249 azran-dickstein@ kolodnylawgroup.com www.kolodnylawgroup.com

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Walter T. Killmer, Jr. is a Principal in Rodi Pollock Pettker Christian & Pramov. He represents individuals, families, fiduciaries and nonprofit organizations in the areas of estate and trust planning, fiduciary administration and charitable giving. Before moving to Los Angeles, Walter practiced in New York at two large international law firms, serving at the latter as head of the trusts and estates practice for seven years. Walter's clients include business owners, corporate executives, professionals, artists, families with dynastic wealth, and executors and trustees. In addition, Walter advises clients in the area of international estate and tax planning. In his international practice, Walter has represented non-U.S. persons seeking to invest in the U.S. or who own U.S. assets; Americans living abroad; Americans who live in the U.S. but own property in another country; and U.S. residents who are nationals of another country and may have assets in multiple jurisdictions. Walter has lectured on international and domestic estate and trust topics to banks, investment advisors and bar and community audiences. Walter holds a B.A. degree from University of Arkansas and a J.D. degree from Columbia Law School.

444 South Flower Street Suite 1700 Los Angeles, CA 90071 213-550-5099 wtk@rodipollock.com www.rodipollock.com

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Robert Dalie is an Executive Director – Investments, Oppenheimer & Co. Inc.. He joined Oppenheimer & Co. Inc. in 2000, and is responsible for providing wealth management advice to individuals, families and their fiduciaries across all asset classes. He also oversees the team’s capabilities, which include creating custom solutions that incorporate insurance, tax planning strategies, retirement cash flows, and estate planning strategies. Robert began his career working for an institutional trading team at Oppenheimer & Co. Inc. In this capacity, Robert’s role included completing trades, conducting quantitative research, and constructing Excel-based models. Robert is a member of the Los Angeles Financial Planning Association (FPA), and holds the Certified Financial Planner™ (CFP) designation from the Certified Financial Planner Board of Standards Inc. Robert graduated from Pepperdine University with BA in business administration and a BS in sports medicine. He holds the General Securities Representative License (Series 7), the Investment Company Products/Variable Life Contracts (Series 6), the Uniform Securities Agent State Law Examination (Series 63) and the Uniform Investment Adviser Law Examination (Series 65). He resides in Los Angeles with his wife and four children.

110880 Wilshire Blvd, Fl. 24 Los Angeles CA 90034 310-446-7501 robert.dalie@opco.com www.opco.com/summagroup

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Mark S. Luttrell is a managing shareholder of the national accounting firm, Mayer Hoffman McCann P.C. Mark manages the firm’s offices throughout Southern California, which employ approximately 250 individuals. His primary practice areas are litigation and valuation consulting. Mark has been engaged as an expert witness in hundreds of cases throughout California and Arizona. Mark has spoken on litigation and valuation topics at over 40 national and state conferences for groups such as the American Academy of Matrimonial Lawyers, the AICPA and the California Education Foundation. Mark is a Certified Public Accountant and holds a B.S. degree in accounting from San Diego State University.

Bakersfield, CA 661-616-3714 mluttrell@cbiz.com www.cbiz.com

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MAJOR TOPICS

•  Financial and estate planning for individuals before they get married; •  Premarital Agreements and other ways to protect assets before marriage; •  Financial and estate planning for couples after marriage; •  Management and control of community and separate property assets; •  Fiduciary duties between spouses during marriage and after initiation of divorce proceedings; •  Statutory restraining orders effective upon the filing of divorce; •  Modifying wills, trusts and beneficiary designations during divorce proceedings and after divorce; •  Statutory revocation of some (but not all) estate planning provisions for a former spouse; •  Discovery during divorce and the role of a forensic accountant •  Identifying and valuing the community’s estate •  Remarriage vs. cohabitation; •  Community and separate property issues to consider before remarriage; •  Providing for the new spouse in estate planning documents; •  Estate planning provisions for children in a blended family; •  Balancing interests of the new spouse and the next generation; •  Planning for the closely held business and a blended family; •  Financial planning for the non-business owner after divorce and division of community property; and •  The importance of getting your financial house in order after a divorce.

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HYPOTHETICAL

I.  FACTS: John Public, a single man in his 40s, never been

married, with no children, sells his privately owned company to a major corporation netting him $90,000,000.

A. John meets with his wealth manager to discuss

investment strategy.

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FINANCIAL PLANNING

The fact that John sold his company and had a life-changing event creates a need for financial planning.

•  Create a balance sheet and cash flow summary •  Analyze how much income John needs to maintain his lifestyle and

future goals •  Maximize income and minimize taxes (residency and entity planning)

is a typical priority when no family or kids are involved •  Carve out a safety net for John, so that his portfolio can sustain his

lifestyle •  Help coordinate a meeting with the trusts & estates lawyer to address

asset protection and separate property protection •  Building out an advisory team is a critical component of the planning

process.

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B. John meets with his estate planning attorney to discuss his estate plan.

Pre-transaction estate and tax planning:

•  Gifts to family members and charities •  Outright and in trust •  Not affected by subsequent marriage

Execution of basic estate planning documents

•  Revocable Living Trust •  Pourover Will •  Advance Health Care Directive •  Power of attorney for financial matters •  Documents to transfer assets to living trust •  Beneficiary designations

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II. FACTS: About one year later, he meets the woman of his dreams, Jane Doe, whom he intends to marry. Jane Doe has never been married and has nominal assets. Neither have children from prior relationships.

A.  John meets with his family law attorney to discuss how to protect his pre-marital assets upon marrying Jane in the event of a divorce:

1.  Prenuptial Agreement:

a)  The property rights of husband and wife under California law may be

altered by a Prenuptial Agreement or other marital property agreement. [Family Code §1500].

b)  Since there is a huge disparity of pre-marital assets between John and Jane, it would be advisable for John to consider entering into a Prenuptial Agreement to protect his pre- marital assets.

c)  Given Jane’s nominal assets, she may also want a Prenuptial Agreement to insure that she is protected in the event of a divorce. She would want the Prenuptial Agreement to provide a formula setting forth exactly what she could expect to receive in the event of a divorce.

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d)  Since John has a very large pre-marital separate property estate, his Prenuptial Agreement should specify that he not waive his California statutory right to reimbursement for all of his separate property contributions used for the acquisition of and improvements to community property assets.

e)  Depending upon the terms of the parties’ Prenuptial Agreement, John will probably want to keep his pre-marital assets in separate bank accounts so that these funds do not become commingled with community accounts or funds acquired during marriage. If his separate property funds become commingled with community funds, this will be something the forensic accountants will have to trace should there be a divorce in the future.

f)  John has a duty to make full and accurate representations regarding his pre-marital assets and liabilities - failure to do so may render the agreement unenforceable.

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g)  Under California law [Family Code §1615], a premarital agreement is not enforceable if the party against whom enforcement is sought proves either of the following: (1) That party did not execute the agreement voluntarily.

(2) The agreement was unconscionable when it was executed and,

(3) Before execution of the agreement, all of the following applied to that

party

(4) That party did not execute the agreement voluntarily.

(5) The agreement was unconscionable when it was executed and,

(6) Before execution of the agreement, all of the following applied to that party: a)  That party was not provided a fair, reasonable, and full disclosure of the

property or financial obligations of the other party. b) That party did not voluntarily and expressly waive, in writing, any right to

disclosure of the property or financial obligations of the other party beyond the disclosure provided.

c)  That party did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.

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h)  Further, in order for the Prenuptial Agreement to be deemed voluntarily executed and therefore enforceable, the Court must find all of the following:

(1) The party against whom enforcement is being sought was represented by independent legal counsel at the time of signing the agreement. So Jane would need to have her own attorney;

(2) The party against whom enforcement is sought had more than seven calendar days between the time they were first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed. John has to present Jane with his proposed Prenuptial Agreement well before their wedding date;

(3) The party against whom enforcement is sought, if unrepresented by legal counsel, was fully informed of the terms and basic effect of the agreement;

(4) The agreement and the writings executed pursuant to paragraphs (1) and (3) above, were not executed under duress, fraud, or undue influence, and the parties did not lack capacity to enter into the agreement; and

(5) Any other factors the court deems relevant.

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2.  Terms John can include in his Prenuptial Agreement: a)  Division of property on divorce; b)  What assets are community and separate property, including the ownership of

the marital residence; c)  Spousal support obligations; d)  Responsibility for premarital debts and financial responsibilities during the

marriage; e)  Which state’s laws will govern in the event of divorce as opposed to the state

where the parties live at the time of the divorce; and f)  Sunset clause - after the passage of a certain amount of time, the Prenuptial

Agreement will cease to be valid

3.  Terms John cannot include in his Prenuptial Agreement:

a)  Child support and child custody of the children;

b)  Anything that is thought to encourage divorce;

c)  Anything "unconscionable" at the time enforcement is sought, especially where there is a great disparity between the parties’ incomes and assets; and

d)  Anything illegal.

e) 

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4.  Questionable terms and clauses - a fidelity clause (Catherine Zeta-Jones is rumored to have one in her Prenuptial Agreement with Michael Douglas); in-law clause - limiting the amount of time the parties have to spend with their in-laws; weight watchers clause; drug testing clause; household religion clause; and sexual frequency clause - may be unenforceable, depending upon the circumstances.

III.  MORE FACTS: John and Jane enter into a Prenuptial Agreement and get married. They buy a house in their joint names (with John using his separate property of $800,000 for the down payment). John and Jane have two children. During the marriage, John uses about $500,000 of his separate property to purchase a Porsche dealership in Beverly Hills over which he has exclusive management and control.

A.  John meets with his estate planning attorney to discuss changes in his estate plan now that he is a married man with two young children.

Execution of new estate planning documents •  Existing living trust becomes separate property trust •  Provisions for spouse and children in separate property trust •  Community property trust •  Changes in trustee, executor, health care agent, agent under POA •  Pourover will - naming guardian of minor children •  Beneficiary designations

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B.  John meets with his wealth manager to discuss his investment strategy, the management of his asset portfolio and any changes which may be required.

•  Review current and future revisions to make sure John’s portfolio mandate is still accurate

•  Ensure that each entity has the appropriate investments included •  Analyze succession planning for the children: will they be part of the

business, and how much should be passed on to them and at what ages •  Discuss idea of family retreats to discuss issues •  Ensure that beneficiary designations are accurate on all retirement type

accounts •  Is appropriate insurance in place

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C.  Family lawyer discusses what John’s fiduciary duties are to the community with respect to the Porsche dealership.

1.  John is subject to the general rules governing fiduciary relationships between persons having confidential relations with each other, which is a duty of the highest good faith and fair dealing. John cannot take an unfair advantage over Jane.

2.  This confidential relationship is a fiduciary relationship subject to the same rights and duties of non-marital business partners, as provided in sections of the Corporations Code.

3.  John’s fiduciary duties to Jane include:

a)  Providing Jane with access to the dealership’s books and records for inspection and copying.

b)  Providing Jane with a truthful accounting upon her request concerning community property.

c)  Accounting to Jane and holding as a trustee, any benefit or profit from any transaction by John without Jane’s consent which involves the community property.

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d) Making a full disclosure of material facts regarding the existence, characterization and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable.

IV.   FACTS: Twelve years have passed and John finds out Jane has been having an affair with the pool boy. John realizes the marriage is over and wants to tell Jane he intends to file for divorce. The parties have no outstanding debts, the family residence is paid off and the dealership is extremely profitable.

A.  John meets with a family law attorney to discuss a plan before he files for divorce.

1.  Discuss that once John files for divorce the Automatic Temporary Restraining Orders (ATROs) go into effect and remain in effect until final Judgment is entered in the matter, absent a court order.

2.  The ATROs (pursuant to Family Code §2040) contain the following orders which are set forth on the Family Law Summons to the proceeding:

a) Restraining both parties from removing the minor children from the state, or from applying for a new or replacement passport for the minor child or children, without the prior written consent of the other party or an order of the court.

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b)  Restraining both parties from transferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life. Notwithstanding these restraining orders, a party can use community property, quasi-community property, or the party's own separate property to pay reasonable attorney's fees and costs in order to retain legal counsel in the proceeding. So Jane could use community funds to retain an attorney once John files for divorce.

c)  Restraining both parties from cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage, including life, health, automobile, and disability, held for the benefit of the parties and their child or children for whom support may be ordered.

d)  Restraining both parties from creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an order of the court.

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e)  John could still create, modify or revoke his will; revoke a nonprobate transfer providing that notice of the change is filed and served on Jane before the change takes effect; eliminate the right of survivorship to property, provided that notice of the change is filed and served on Jane before the change takes effect; and create an unfunded revocable or irrevocable trust.

f)  Once Jane is served with the divorce papers, she could create an estate plan without funding it.

g)  John may want to change the beneficiaries on his life insurance policy, but if the policy was paid for with community funds, this may subject him to a claim of breach of fiduciary duty by Jane.

3.  Once John files for divorce, he is still obligated to comply with his fiduciary duties to Jane, until all assets are divided; providing prior notice to Jane of all transactions which are outside the normal course of business.

a)  Since during marriage, John was operating and managing the Porsche dealership which we assume is mostly community property, after the divorce proceedings are initiated, he has right to the primary management and control of the dealership and can act alone in all transactions but shall

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give prior written notice to Jane and her counsel of any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the personal property used in the operation of the dealership. [Family Code §1100]

B.  John meets with his estate planning counsel to change his Will, Trust and any other document which leaves assets to Jane.

Changes to estate planning documents •  Remove spouse as beneficiary •  Children are more likely to inherit at younger ages •  Remove spouse as fiduciary •  Provisions for spouse’s family members or spouse’s charities •  Beneficiary designations for separate property

C.  John meets with his wealth manager to ensure his investment strategies are on target and that Jane is not the beneficiary on any of these accounts or investments.

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•  As path of least resistance, review the current balance sheet and make

suggestions on certain assets that could be split that can be beneficial for both sides

•  Make sure beneficiary information is updated •  Reallocate investments into a more conservative mix, even cash •  The goal is to avoid excessive risk just to spite the ex-spouse •  Case study: situation backfired and estate cut in half during a long,

drawn-out two-year divorce battle •  Typically, liquidity is needed, and cash is better than a fire sale •  Review any private equity, hedge fund, real estate or other illiquid assets

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V. FACTS: During the divorce, even though there is a Prenuptial Agreement defining the financial terms upon a divorce, and although Jane has been having an affair, she is very bitter and tries to take John “for everything he is worth.”

A.  Discovery during divorce and the role of the forensic accountant - identifying and valuing the community estate:

1.  John hires a forensic accountant to value the Porsche dealership.

2.  John hires a forensic accountant to provide a tracing evidencing no commingling of bank accounts.

3.  Johns hires a forensic accountant regarding his reimbursement claims for the family residence and other separate property funds used toward acquisition of community property.

B.  Forensic accountant necessary to determine John’s income available for both spousal and child support.

1.  John hires a forensic accountant to perform a Cash Flow Analysis for income available for support which would include income from all of John’s assets, including his separate property assets.

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2.  John hires a forensic accountant to perform a Marital Standard of Living Analysis for support.

VI. Trial/Settlement and the division of assets.

A.  Family lawyer discusses a potential division of assets such as the house to Jane, the dealership to John and John providing a Tammen Note to Jane (with a 10 year buyout).

1.  John would most likely want to keep the Porsche dealership and buyout Jane’s

community interest in the dealership. Jane would probably want to keep the family residence and remain there with the children.

2.  Other issues include child and spousal support and custody of their 2 children.

B.  Forensic accountant discusses a Tammen Note.

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VII. Post-Divorce Financial Planning

A.  John meets with estate planning lawyer to discuss possible changes to his estate planning.

1.  In the context of a remarriage for John - preserving his assets for his children

from the first marriage rather than going to new wife.

2.  Financial planning for the new wife (and children if there are new children).

Post-divorce estate planning •  Consolidate assets in separate property trust •  Review beneficiary designations •  Estate taxes likely to be incurred sooner •  Guardians and trustees for children

B.  John meets with wealth manager to discuss possible changes to his investments and

management of his assets.

•  Get a copy of the divorce decree; figure out from a tax standpoint what will be split in kind vs. QDRO pension or retirement assets vs. cash buyout

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•  Re-establish lifestyle and spending needs, back into cash flow models, taking into

account the new split balance sheet and then back into a bogie investment return that needs to be achieved to make goals realistic

•  Rebalance the portfolio and re-position assets based on new roadmap

•  Change beneficiaries on all insurance and retirement accounts to reflect the divorce and make sure titles of accounts are updated to reflect new trusts

C.  Family lawyer to discuss future cohabitation versus remarriage - as it pertains to

spousal support for Jane.

1.  If Jane and her new boyfriend were to live together, this would give rise to a rebuttable presumption that she has a decreased need for spousal support. [Family Code §4323(a)(1)]. This rebuttable presumption would have no impact on John’s child support obligations.

2.  The income of Jane’s new boyfriend would not be considered when

determining or modifying spousal support.

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VIII. FACTS: John falls in love with his personal trainer, Suzy, and wants to get married.

A.  John meets with estate planning counsel to discuss estate planning for Suzy while at the same time making sure his children from his marriage with Jane are protected, discuss marital trusts, life insurance and lifetime gifts.

B.  Estate planning lawyer discusses private foundations and donor advised

funds with John.

Preserving assets for children •  Marital trusts •  Life insurance •  Lifetime gifts New spouse and children in a blended family •  Family businesses •  Private foundations and donor-advised funds

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