Would Cliff Lee Be Capable Of Keep It All If He Divorced In New York?

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December can be an exciting month for sports fans, especially New York sports fans. The area’s soccer teams are both bidding for playoff berths; baseball and tennis fans are settling in with mixed emotions about their team’s early performance; and major league baseball’s ‘warm stove’ league is a buzz with the potential of free agent signings.This springs biggest hockey free agent legend is pitcher Cliff Lee. And to no real surprise the Brand New York Yankees are one of the several teams bidding for his passion. The Angels, Rangers, and Yankees have all supposedly ‘pitched’ Cliff Lee and have presented him a king’s ransom to perform because of their team.Each of the three clubs courting Mr. Lee has something different to provide. California has wonderful weather; Texas has no state income tax; and New York has an opportunity to earn vast amounts above a baseball contract in recommendations and sponsorships. There’s little doubt that in addition to his representative, family, and friends Mr. Lee gets lots of guidance from the selection of marketing, legal, and tax professionals.Even although I’ve perhaps not been expected, I thought I would give my two dollars to Mr. Lee’s problem. Cliff, stay away from Nyc. It may be your economic ruin.Assume Cliff Lee signals with the Yankees for seven years at $25 million per year and agreements for an additional $5 million per year for marketing. It does not have a forensic accountant to estimate that through the next seven years he will make $210 million. But guess Lee, A-Rod, and Jeter go out one night to celebrate a big make an impression on their arch rivals, the Boston Red Sox. Most of us realize that Alex Rodriguez and Derek Jeter are magnets for beautiful women. And just guess Cliff Lee determines fleetingly thereafter he would be happier living as a bachelor in New York City. Unlike any state in the partnership, Ny State provides fair distribution for the enhanced earnings capacity acquired during marriage; a thought that the potential ex-Mrs. Lee may briefly learn.The enhanced earnings capacity (generally called EEC) is calculated as the current value of the advancement in earnings over an expected work life. In Lee’s case, this requirement would increase within the next seven years of his new agreement and may possibly continue for all years afterwards, if he should be fortunate enough to become an instructor, commentator, or tv analyst after his playing days are over.The approach to determining the increased earnings capacity in New York State was established in 1985 as a result of a New York Appellate Court’s decision in O’Brien v. O’Brien. This idea was later reaffirmed in 1995 in the New York Court’s decision in McSparron v. McSparron; as well as a number of other cases that followed www.thesea.org/. The method applied to the calculationspecific to Cliff Lee could be divided into five steps:1. Determine Cliff Lee’s profits volume in the beginning of the theoretical breakup motion, caused by signing with the NY Yankees. This really is called Top-Line Earnings.
2. Establish Cliff Lee’s earnings volume if he had perhaps not become a football phenom and continued the career path chosen at the time of marriage. This really is referred to as Base-Line Earnings.
3. Calculate the after-tax profits of the Top-Line and Base-Line quantities by applying federal, state and local income tax rates, together with the social security and medicare tax.
4. The distinction between your net after-tax earnings of every earnings base could be the net increased earnings ability due to his record-setting contract.
5. Estimate the current value of the internet increased earnings ability 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 male having a bachelor’s degree, residing in New York City at Mr. Lee’s current age might earn $125,000 per year. This is actually the amount regarded as a proxy for Base-Line earnings.The following table shows the after-tax earnings of both the Top-line and Base-Line amounts; as well as the annual net superior earnings capacity.
Top-Line Earnings
Base-Line Earnings
Pre-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 -12,019
Net After Tax Earnings
16,517,312
80,214
Net Enhanced Earnings Capacity 16,437,098A existing value discount rate is made to reflect the value of profit a relatively risk-free investment. Financial experts, economists and accountants generally speaking concur that the actual rate of interest is between 2000 and four or five. The courts have historically recognized three years because the present worth factor used in this computation; in new cases have considered rates between 10 % and five minutes. The present value discount rate is very important. Whilst the current value discount factor increases, the full total enhanced earnings computation decreases.Based upon these computations, the enhanced earnings ability attributed to Cliff Lee’s potential seven-year agreement with the NY Yankees is $102 Million (Rounded). The following table demonstrates this computation.Year
Net Enhanced Earnings Capacity Present Value Discount Factor @ 3% Net Present Value
1 16,437,098 0.97087 15,958,348
2 16,437,098 0.94260 15,493,541
3 16,437,098 0.91514 15,042,273
4 16,437,098 0.88849 14,604,149
5 16,437,098 0.86261 14,178,785
6 16,437,098 0.83748 13,765,811
7 16,437,098 0.81309 13,364,865
Total
102,407,772Since New York is an fair distribution State, a portion of this volume could belong to his soon to be ex-wife. Sometimes the courts have granted around a 50,000-1,000,000 share and in others less than 10%.As you can imagine, there are certainly a variety of things when deciding which mound to call home next year Cliff Lee has to consider. Will he prosper in the California sun; the understanding of Texas property cooking; or even the concrete marketplace of New York. Only time can tell. But what we do know is this – getting divorced in New York State after signing a record location free-agent contract may be more unpleasant than losing on earth Series to the Bay Area Giants.For more details about the calculation and application of the improved profits potential computation, including our Enhanced Earnings Capacity Questionnaire, please visit our web site.