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In a high-asset divorce, determining the value of the marital estate is rarely as simple as adding up bank accounts, retirement funds, and real estate.
Consider a couple whose marital estate includes a $5 million interest in a private equity investment. On paper, that investment represents substantial wealth. But what if it cannot be sold for another five years? What if the investor is obligated to contribute additional money? What if the eventual return is substantially less than anticipated?
These questions illustrate an important distinction in high-net-worth divorce cases: An asset's estimated value and the money actually available from that asset are not necessarily the same thing.
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What Makes Private Equity Different?
How Does Maryland Divorce Law Treat Private Equity Investments?
The Problem of Valuation Versus Liquidity
Hidden Obligations Can Change the Financial Picture
Creative Settlement Solutions May Be Necessary
For Maryland couples whose wealth includes private equity investments, business ownership interests, or sophisticated executive compensation arrangements, understanding that distinction is essential to reaching a fair and workable divorce settlement.
What Makes Private Equity Different?
Unlike publicly traded stocks, private equity investments generally cannot be sold whenever an investor chooses.
An investor may own an interest in a privately held company, participate in an investment fund, or receive compensation tied to the future performance of a business.
These investments may have substantial value, but they often come with restrictions.
For example, an investment may:
- Be difficult or impossible to sell before a specified date.
- Require approval before ownership can be transferred.
- Depend on a future sale or other event to generate proceeds.
- Require additional financial contributions.
- Produce returns that are uncertain or difficult to predict.
Consequently, an investment valued at several million dollars may provide little immediate cash to either spouse.
How Does Maryland Divorce Law Treat Private Equity Investments?
Maryland follows the principle of equitable distribution of marital property.
Generally, property acquired during marriage may constitute marital property regardless of whose name appears on the investment documents, subject to statutory exceptions.
Under Maryland law, courts identify marital property, determine its value, and consider whether a monetary award or other authorized relief is appropriate to adjust the parties' financial interests.
Equitable distribution does not necessarily mean equal division.
A private equity interest acquired during the marriage may be marital property even when it is titled solely in one spouse's name. However, determining its marital character and value can require a detailed examination of when and how the interest was acquired.
The Problem of Valuation Versus Liquidity
Suppose a spouse owns a private equity interest valued at $4 million.
The parties agree that the investment is marital property. One spouse proposes retaining the investment while paying the other spouse $2 million.
That may sound straightforward.
But what happens if the investment cannot be liquidated for several years?
The spouse retaining the investment may lack the funds necessary to make an immediate payment. Conversely, the spouse receiving a deferred payment may face years of uncertainty.
This is why valuation is only part of the analysis.
An experienced Maryland divorce attorney must also consider liquidity, timing, taxes, investment restrictions, and the practical ability to satisfy a proposed settlement.
Hidden Obligations Can Change the Financial Picture
Private equity investments sometimes carry obligations that are not apparent from their stated value.
One example is a capital call.
An investor may commit to contributing $1 million to a private equity fund but initially contribute only $700,000. The fund may subsequently require the remaining $300,000.
Certain arrangements also contain provisions requiring investors to return previously distributed funds under specified circumstances.
These obligations can materially affect the investment's ultimate economic benefit.
Failing to investigate them may result in a divorce settlement that looks reasonable on paper but creates unexpected financial burdens later.
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Creative Settlement Solutions May Be Necessary
When private equity investments cannot readily be divided or sold, traditional settlement approaches may not work.
Depending on the circumstances, possible solutions include:
- One spouse retaining the investment while the other receives different marital assets.
- Deferred payments tied to future distributions.
- Structured payments over an agreed period.
- Contractual arrangements for sharing future investment proceeds.
Each approach presents potential advantages and risks.
For example, sharing future distributions may avoid an immediate liquidity problem, but it can leave former spouses financially connected for years.
Carefully drafted settlement provisions may need to address reporting requirements, taxes, future contributions, investment expenses, and what happens if anticipated distributions never occur.
Experience, Financial Analysis, and Planning Matter
High-income and high-asset divorce cases frequently involve financial arrangements that require more than a conventional property valuation.
Business valuation professionals, forensic accountants, and tax advisors may be necessary to understand the true economic consequences of a proposed settlement.
At Baumohl Hamburg LLC, we believe the objective is not simply to identify a number. It is to understand what that number represents, the risks associated with it, and how the proposed division will affect each spouse's financial future.
A settlement should be evaluated not only for its apparent fairness today, but also for whether its obligations can realistically be satisfied tomorrow.
Final Thoughts
A multimillion-dollar investment does not necessarily mean millions of dollars are available to divide.
In Maryland high-asset divorce cases involving private equity, business interests, and complex compensation arrangements, understanding the difference between wealth, value, and liquidity can be critical to achieving a workable financial resolution.
If you are considering divorce and your marital estate includes substantial business or investment interests, careful financial analysis and experienced legal guidance can help you understand your options before making decisions that may affect your financial security for years to come.
Baumohl Hamburg LLC represents clients in complex divorce and property division matters throughout Baltimore County, Baltimore City, and surrounding Maryland jurisdictions. We welcome the opportunity to discuss your circumstances and help you develop a thoughtful strategy for moving forward.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as legal advice. It is always recommended to consult with a qualified attorney for personalized guidance and representation in legal matters.
About the Author
Harry A. Baumohl, Esq. a founder of Baumohl Hamburg, LLC, stands among Maryland's elite family law practitioners, bringing: Over Four Decades of Proven Excellence; Established track record in complex family law matters; Strategic location serving Baltimore County and surrounding jurisdictions.
Specialized Expertise in High-Stakes Family Law Cases
- Complex divorce litigation for high-net-worth and high asset individuals and families with sophisticated asset division and financial untangling.
- High-conflict custody and parenting disputes.
- Prenuptial Agreements, Preventive Planning, Mediation and Collaborative Law solutions.
Distinctive Approach to Client Representation
- Results-driven methodology backed by decades of experience and success.
- Strategic thinking combined with emotional intelligence mixed with calm, measured guidance during turbulent times.
- Proactive communication and responsive client service.
Geographic Reach
- Primary office in Pikesville, Baltimore County
- Active practice throughout: Baltimore County; Baltimore City; Carroll County; Harford County; Howard County ; Anne Arundel County and Eastern Maryland Shore.
