When you file for divorce as a high-net-worth couple, there are unique challenges that you face when dividing your marital assets. You may wonder, “What happens to private equity carry interest in a NYC divorce?”
That interest is considered marital property, but the actual distribution can be challenging because it is illiquid and also tied to future performance. Depending on your unique circumstances, there are two main methods of splitting private equity carry interest.
Hire a High Asset Divorce Lawyer
Since 2005, The Levoritz Law Firm has helped high-net-worth executives, business owners, and professionals as they navigate the difficulties of filing for divorce in New York City and the surrounding area. Our team believes in acting fast to prevent you from becoming the underdog.
When you hire a high asset divorce lawyer from The Levoritz Law Firm, you benefit from our years of experience working within New York’s complicated divorce laws to accurately value your marital estate. We safeguard your short-term goals and long-term interests.
New York City Population
As of 2025, New York City was home to 8,584,629 residents with a median home value of $777,600 dollars. The divorce rate for New York State, as of 2023, was 2.4 per 1,000 residents. This figure aligns with the national average divorce rate of 2.4 per 1,000 population, also during 2023.
In New York, only the Supreme Court handles divorce cases. Each of the five boroughs has its own Supreme Court. In Manhattan, the Supreme Court is located at 60 Centre Street. Brooklyn’s Supreme Court is located at 360 Adams Street.
In the Bronx, the Supreme Court is located at 851 Grand Concourse. The Supreme Court for Queens is located at 88-11 Sutphin Boulevard. For Staten Island, the Supreme Court is located at 18 Central Avenue.
Private Equity Interest During a Divorce
Private equity fund managers receive private equity carried interest as a form of compensation for the work they perform for the fund. Managers are entitled to a certain percentage of the investment profits. This share is often contingent on performance.
Even though private equity carried interest is subject to different tax laws than a traditional salary, they are still considered marital property during the divorce process. It can be difficult to put an exact value on private equity carried interest because they are speculative.
A knowledgeable NYC high asset divorce attorney is likely to use a forensic accountant and financial experts to determine the present value of any private equity carried interest that is part of the marital estate. There are two methods commonly used for valuation:
- The offset, or buyout, method: Using this method, the account values are determined, and the spouse who owns these accounts can buy out their spouse’s share with marital assets of equal value. This method allows for a clean separation between the spouses.
- The deferred sharing method: When it is difficult to estimate the value of the account, this method creates an agreement that each spouse receives their share of the carried interest only after the distributions are actually paid.
If the account was created before the marriage was finalized, only the portion that accrued during the length of the marriage is subject to distribution as part of the marital estate.
FAQs
Is Carried Interest Considered Part of the Marital Estate in New York?
New York does consider carried interest as part of the marital estate, but only the part that was earned or accrued during the course of the marriage. Any carried interest earned before the start of the marriage is considered separate property and is owned by the account owner.
Carried interest is considered a complex asset since it cannot be easily liquidated and split during the divorce. The court has to consider many factors when deciding how to split this asset.
What Is the Carried Interest Loophole for Private Equity in New York?
The carried interest loophole for private equity in New York is related to the type of income that carried interest is considered. For private equity fund managers, the majority of their income is generated through the profits of the funds they invest.
These profits are not taxed in the same way as a traditional salary would be taxed. The loophole allows these individuals to pay smaller tax obligations compared with a salaried employee making the same amount.
What Happens to Capital Loss Carryover in a Divorce in New York City?
During a divorce in New York City, a capital loss that is incurred jointly by both spouses is considered part of the marital estate. A capital loss can provide a tangible tax benefit, so these losses are considered during the equitable distribution considerations for the divorce.
If the losses occurred in a stock or asset that is considered separate property, the spouse who owns that stock or asset also keeps the capital loss as their own separate property.
What Is the Three-Year Rule for Carried Interest?
Under Internal Revenue Code Section 1061, when private equity and hedge fund managers hold investments for longer than three years, they qualify for lower long-term capital gains tax rates.
If these investments are sold before reaching the three-year mark, any carried interest accrued is treated as a short-term capital gain. Short-term capital gains are subject to higher income tax rates compared with long-term capital gains.
What Assets Are Untouchable During a Divorce in NYC?
During a divorce in NYC, separate property remains owned by each spouse while marital property is distributed based on the concept of equitable distribution. Under equitable distribution, marital property is divided fairly instead of equally.
Separate property includes any assets and debts brought into the marriage. Inheritances and gifts given to only one spouse are also considered separate property even when they are obtained during the marriage.
Contact The Levoritz Law Firm
At The Levoritz Law Firm, we believe that strategic filing is critical to protect your assets and custody rights. If you are navigating a high asset divorce, you need a NYC high asset divorce attorney who understands the unique challenges high earners face when divorcing.
Whether you live in Hudson Yards, SoHo, the Upper East Side, or anywhere in NYC and the surrounding areas, we can help you protect your interests during the divorce process. Contact our office today to schedule your initial consultation.
