Financial Adviser Books of Business, Up-Front Loans Can Be a Challenge in a Divorce

John Zurzola partner with Weber Gallagher Simpson Stapleton Fires & Newby. Courtesy photo
Written by Publishing Team

After limiting the initial obstacles to divorce parties in a disputed matter such as, sorting out the date of separation, meeting statutory waiting periods, and bringing the case to the point where the hearing officer can make decisions about the division of assets and debts, most cases are straightforward. Assets and debts are collected and much of what is left for the hearing officer (or for the parties and their attorneys when settling) is to know each party’s percentages and execution plan. Situations where the parties are self-employed, complex business cases, or even wage earners cases where a lack of documentation complicates characterization of certain assets and debts can be even more challenging. The biggest problems come when there are legitimate questions about whether the asset actually exists or may exist in the future, and if it does, is it possible to split at all.

Such situations may occur when one spouse is a financial advisor. Often, when a financial advisor chooses to stay at an existing company and renegotiate their compensation or, more commonly, when the advisor offers himself to several companies to see where they can get the best deal, the compensation at the new company will include the course A salary but may also include one-time bonus “payable” over a period of years. These “bonuses” are structured as loans accompanied by promissory notes that are repayable in amounts that are free of payment (usually monthly). Actual periodic reimbursement amounts can then be waived by the financial firm but are detailed in the advisor’s payment notices so that the periodic reimbursement amounts can be taxed. The loans are only actually repaid if the advisor separates from the company or breaches other covenants.

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