Property division can easily become a stumbling block in any divorce scenario. Couples disagree about what assets and debts they should divide, as well as what their property is worth and who retains which assets.
As the marital estate grows in size and complexity, the opportunities for disputes and misrepresentation during property division proceedings also increase. Spouses need to identify all marital assets and debts. They need to establish a reasonable fair market value for their holdings. They then need to negotiate a property decision settlement with one another or present a compelling case in family court.
Some assets are easy to value and divide, while others present a much larger challenge for divorcing spouses. For example, illiquid assets can cause conflicts and logistical challenges in high-asset divorces quite easily.
What are illiquid assets?
Illiquid assets are resources that spouses can not readily convert to capital. Certificates of deposit, deferred executive compensation packages and business holdings are all examples of illiquid assets. The process of converting those assets into liquid capital can be costly or may not even be an option, depending on the timing of the divorce.
For example, if an executive compensation package includes restricted stock units (RSUs), actually liquidating and dividing those resources may not be possible until the executive spouse reaches key RSU vesting milestones. Various financial investments are also subject to retention terms that prevent withdrawals and liquidation before a certain date.
How can people address their illiquid resources?
Spouses preparing for property division proceedings can identify the assets that they cannot sell when preparing for their financial disclosures. They can then agree on a valuation date, which can guide the process of determining the fair market value for those assets. After determining who retains the illiquid assets, the spouses can offset their value when addressing other marital property and marital debts.
Those with complex marital estates often need assistance when identifying and valuing marital property, as well as when negotiating a settlement or preparing for litigation. Retaining an experienced attorney can be a key step for those facing a high-asset divorce. An attorney can educate their client about their rights, review the marital estate and help identify solutions for addressing illiquid assets that spouses cannot directly divide.