Might Cliff Lee Be Able To Keep Everything If He Divorced In New York?
November can be an exciting month for sports fans, especially check it out sports fans. The area's basketball clubs are both bidding for playoff berths; baseball and baseball fans are settling in with mixed emotions about their team's early performance; and major league baseball's "hot stove" league is a thrill with the potential of free agent signings.This year's biggest hockey free agent legend is pitcher Cliff Lee. And to not surprising the New York Yankees are one of the few competitors bidding for his devotion. The Angels, Rangers, and Yankees have all supposedly "pitched" Cliff Lee and have provided him a king's ransom to play because of their team.Each of the three clubs courting Mr. Lee has different things to supply. California has wonderful weather; Texas has number state income tax; and New York has a chance to earn millions of dollars above a baseball contract in endorsements and sponsorships. There is little doubt that in addition to his agent, family, and friends Mr. Lee gets plenty of assistance from the variety of marketing, legal, and tax professionals.Even although I've maybe not been asked, I thought I'd give my two cents to Mr. Lee's problem. Cliff, avoid New York. Maybe it's your economic ruin.Assume Cliff Lee signs with the Yankees for seven years at $25 million per year and agreements for yet another $5 million per year for advertising. It does not take a forensic accountant to estimate that throughout the next seven years he will earn $210 million. But guess Lee, A-Rod, and Jeter get out one evening to enjoy a huge make an impression on their arch rivals, the Boston Red Sox. All of us know that Alex Rodriguez and Derek Jeter are magnets for beautiful women. And only imagine Cliff Lee determines fleetingly afterwards he would be happier as a in New York City living. Unlike any other state in the marriage, New York State provides fair distribution for the enhanced earnings capacity purchased during marriage; a thought that the potential ex-Mrs. Lee may briefly learn.The enhanced earnings capacity (commonly known as EEC) is calculated whilst the current value of the advancement in earnings over an expected work life. In Lee's case, this expectancy would extend within the next seven years of his new commitment and may possibly proceed for many years thereafter, if he should be fortunate enough to become a trainer, commentator, or tv expert after his playing days are over.The approach to calculating the superior earnings potential in New York State was established in 1985 as a result of a York Appellate Court's conclusion in O'Brien v. O'Brien. This concept was later reaffirmed in 1995 in the New York Court's conclusion in McSparron v. McSparron; in addition to many other circumstances that followed. The method applied to the calculationspecific to Cliff Lee may be broken down in to five steps:1. Determine Cliff Lee's profits potential at the commencement of the hypothetical divorce motion, caused by signing with the NY Yankees. This really is known as Top-Line Earnings.2. Decide Cliff Lee's profits volume if he'd not turn into a baseball phenom and continued the career path opted for during the time of marriage. That is referred to as Base-Line Earnings.3. Compute the after-tax profits of the Top-Line and Base-Line portions through the use of federal, state and local income tax rates, as well as the social security and medicare tax.4. The distinction between the net after-tax earnings of every earnings base may be the net superior earnings capacity owing to his record location contract.5. Calculate the current value of the web increased earnings capacity over his NY Yankee contract.For illustrative purposes, let us assume that Cliff Lee had a bachelor's degree during the time of marriage. Let us further suppose a white man with a bachelor's degree, living in New York City at Mr. Lee's present age could earn $125,000 each year. Here is the volume considered as a for Base-Line earnings.The following dining table illustrates the after-tax earnings of both the Top-line and Base-Line amounts; as well as the annual net increased earnings capacity.Top-Line EarningsBase-Line EarningsPre-Tax Earnings 30,000,000 125,000( -) Fica/Medicare -441,622 -8,434( -) Federal Income Taxes -9,256,731 -24,333( -) State/City Income Taxes -3,784,335 -12,019Net After Tax Earnings16,517,31280,214Net Enhanced Earnings Capacity 16,437,098A current value discount rate was created to reflect the value of money in a relatively without risk investment. Economists, financial analysts and accountants generally agree totally that the actual rate of interest is between 2% and four to five. Because the present worth factor used in this computation; however in recent cases have considered rates between 5% and 10 percent the courts have traditionally acknowledged 3%. Today's value discount rate is essential. Because the present worth discount factor increases, the full total enhanced earnings calculation decreases.Based upon these calculations, the enhanced earnings ability caused by Cliff Lee's potential seven year contract with the NY Yankees is $102 Million (Rounded). These table illustrates this computation.Year Net Enhanced Earnings Capacity Present Value Discount Factor @ 3% Net Present Value1 16,437,098 0.97087 15,958,3482 16,437,098 0.94260 15,493,5413 16,437,098 0.91514 15,042,2734 16,437,098 0.88849 14,604,1495 16,437,098 0.86261 14,178,7856 16,437,098 0.83748 13,765,8117 16,437,098 0.81309 13,364,865Total102,407,772Since New York is definitely an fair distribution State, a percentage of this amount could belong to his soon to be ex-wife. In some instances the courts have granted as much as a share and in others as little as 10%.As you can imagine, there are certainly a selection of things Cliff Lee has to consider when choosing which mound to call home next year. Can he grow in the California sun; the knowledge of Texas home cooking; or the cement marketplace of New York City. Only time can tell. But what we do know is this - getting separated in New York State after signing a record location free agent contract might be more unpleasant than losing on the planet Series to the San Francisco Bay Area Giants.For more information about the calculation and application of the increased profits capability calculation, including our Enhanced Earnings Capacity Questionnaire, please visit our web site.