The valuation of assets and tracing of non-marital interests can present a host of challenges. Marital assets and debts are typically divided equally among the parties. Property and debt division is relatively straightforward for some, and rather complicated for others. Our property division attorneys in Minnesota are here to help.
Equitable (Equal) Division of Marital Estate
Allocation of the assets and liabilities of the parties is necessary in every divorce.
While the law is relatively straightforward (the court shall divide assets and liabilities in a fair and equitable manner), the calculation of the relevant interests of the parties can be challenging and will likely require assistance from experienced property division lawyers in Minnesota.
Generally, if left to the court, the marital assets and debts will be divided equally among the parties.
The first step in the analysis involves a determination of what is “marital” and what is “non-marital.”
Marital and Non-Marital Assets
A marital asset (or debt) involves a property or liability accrued, or incurred, during the marriage, that is not otherwise non-marital property.
Non-marital assets (or debts) include:
- Property (or liabilities) brought into the marriage (student loans);
- Property inherited by one party, and not the other, during the marriage ($50,000 from aunt Mable’s estate);
- Property gifted to one party, and not the other, during the marriage (a piece of fine jewelry); or
- Property acquired during the marriage in exchange for other non-marital property (selling one pre-marital classic car to purchase another)
Balance Sheet and Equalizer
The best way to approach the allocation of assets and debts involves the creation of a balance sheet by one of our experienced property division attorneys in Minnesota. All marital property will appear on the balance sheet, along with any marital liabilities. Each item must be valued – whether by agreement, appraisal, or documentation.
When all of the positive and negative numbers are added up, the value of the net marital estate is determined. That figure is divided by two, to arrive at each party’s proportional share.
Once the value of each party’s interest is ascertained, the litigants can begin allocating the relevant assets and debts. Once allocated, those numbers are added up. If one party has received more value than the other, they must somehow make the other “whole” by equalizing.
Property equalization usually takes the form of a cash payment, or redistribution of retirement interests or bank accounts, to effect an equal division.
Complications in Asset and Debt Division
Complications often arise in valuing assets. How much is the marital home worth? How about pension interests? What about a business owned by the parties? Our property division lawyers in Minnesota frequently coordinate with expert state appraisers to assist.
Some assets have both a marital and a non-marital component.
For example, a litigant may have owned a home prior to the marriage. If that home had equity on the date of marriage, said equity is non-marital (and falls off the balance sheet).
Suppose the litigants continued to reside in the home together, and paid off the relevant mortgage during the marriage. That portion of home equity would be considered marital in nature (and lands on the balance sheet).
In a situation in which property has both a marital and non-marital component, the person who seeks to establish the non-marital interest has the burden of proving (tracing) their non-marital claim.
Sometimes a spouse will “waste” the marital estate, by incurring significant gambling debts, spending money on a new love interest, or purchasing drugs.
In those situations, the court has the authority to make the other party whole by placing the waste on the balance sheet in favor of the offending party.
Title Not Determinative in Division
The status as title-holder bears no relationship to the nature of property as marital or non-marital. The timing of the acquisition is what is critical. Sometimes a couple will elect to have just one spouse apply for a mortgage or vehicle loan. That, however, does not create a non-marital interest.
Key Property Topics
Non-marital property is generally separated from the marital estate. During the divorce process, the marital estate is often divided equally between the parties (although this is not always the case). Non-marital property, on the other hand, is typically not part of this equal distribution.
There are many different types of businesses, and it is important to understand how your business will affect your divorce. If you own any type of business, our business valuation lawyers in Minnesota can help make the process less complicated for you. We routinely work with some of the top business appraisers in the Twin Cities.
Complex Property Issues
Although some couples are able to move through the divorce process quickly, there are several issues that can really complicate a dissolution action. Complex property issues are often a big obstacle in a divorce. If you are involved in a Minnesota divorce that has complex property division, our lawyers are here for you.
Podcast: Property Division in Divorce
Welcome to another podcast of the Family Law Show. This is Jason Brown. I’m one of the founding partners with the Brown Law Offices, a Minnesota divorce and family law firm located about 15 minutes northwest of Downtown Minneapolis. Today’s program is going to focus on the division of assets and liabilities as part of a divorce. Now, some cases involve custody issues, other cases do not. Some cases may involve alimony or spousal maintenance issues while others may not. But I think one thing is clear is that every single divorce we handle, whether a case is contested or uncontested, whether parties have been married for a month or 10 years or 25 years, there is always some property aspect to the case that needs to be addressed. And of course, as you might expect, some cases are going to have a lot of marital equity and marital interest that needs to be divided.
Marital v. Non-Marital Assets
We’ve handled cases involving multimillion-dollar marital estates. And just the same, we’ve handled cases where there’s nothing but debt. And so even though every case is going to involve some sort of property component, it’s impossible to say that every single case is going to look alike. All right, the first question that we’re going to look at as part of our analysis in terms of how to divide assets and liabilities is to figure out what’s on the chopping block. The legal way of saying that is a distinction between what is marital in nature. In other words, what is a product of the marriage or what was acquired during the marriage and what is non-marital in nature, those assets that may have been brought into a marriage or given to one party is a gift or an inheritance during the marriage, but not the other.
Common examples of non marital assets are things like equity brought into a marriage from a home, or retirement assets that were in existence at the time of the marriage. Not only can an asset be non-marital, but a debt can be non-marital as well. A classic situation there would involve a credit card debt or a student loan that one party brought into the marriage. As I mentioned a moment ago, a marital asset is an asset that was purchased by the parties during the marriage. Now, quite often we’re asked whether the title to a particular asset is what dictates how the asset is going to be divided. And the general rule is that it’s the timing of the acquisition as opposed to who holds title that will determine whether an asset’s going to be subject to division among the parties.
Classic examples of parties who purchase assets in their own name, despite the fact that they’re married, include homeowners. Perhaps they took out a mortgage in their own name because their spouse’s credit rating was low and they wanted to get a more attractive interest rate, or maybe out of sheer convenience. Perhaps a party is at a car dealership and wants to purchase a vehicle and the other spouse isn’t available and they want to get that vehicle home tonight. They simply sign off and create title in their own name despite the fact that by operation of law, it’s a marital asset.
Assets Both Marital and Non-Marital
Of course, just to make things a little more complicated, there are assets that are both marital and non-marital in nature. I mentioned earlier that a classic non-marital asset would be a retirement interest brought into a marriage, or a home brought into a marriage. But if the parties continue to contribute to that retirement account, or they continue to spend down the mortgage principle relative to that residence, those assets would then have both a marital and a non-marital component. So it’s our job as an attorney to either trace through and find out what the value is of that non-marital interest, or hire a qualified CPA to look through the numbers and tell us what percentage of the asset is marital and what percentage is non-marital. Again, keeping in mind only marital assets are subject to division in the divorce.
Invasion of Non-Marital Interests
Now the rule that only marital assets are subject to division also has a caveat, and the caveat is this, that if the court believes it would be inequitable, in other words, if the marital estate is insufficient enough to generate sufficient property interests for the opposing spouse, the court does have the inherent authority to go ahead and allocate non-marital interest between the parties if it believes it is fair and equitable to do so.
I will say that it is extremely rare for a judge to go tinkering with non-marital assets. One of the more sacred concepts in family court is the fact that non-marital assets are typically allocated to the party who owns the non-marital interest exclusively, and only marital assets are subject to division by the court. Once we figure out what is marital and what is non-marital, we’re able to begin the process of actually attaching values to the marital assets.
Use of a Balance Sheet
The way that we typically will proceed in this regard is by putting together a comprehensive balance sheet. The balance sheet is going to list out all the assets of the parties. It’s going to note any liabilities against the asset, like a debt against a vehicle or a mortgage against a piece of property, and it’s going to also include any debts that are sitting out there that are unsecured, things like credit card debt. What we’ll do is go ahead and then figure out what the value is of each of the assets and liabilities that we’ve listed on the balance sheet. By statute, there is a valuation date that is to be the first pre-trial conference that occurs in a particular case. Now a pre-trial conference is a conference that takes place just before the trial in the case, typically six to eight months into the litigation process.
More and more however, courts are relying on the date of the initial case management conference. That’s one of the early appearances made by the parties. I think that the underlying assumption is that the parties ought to know what the value of the assets is going to be as part of the early neutral evaluation process. The court does retain the authority to assign a different valuation date if it thinks that a different valuation date is appropriate. A classic example would involve a stock portfolio. Let’s say that on the date of the initial case management conference, the shares had a total value of $100 thousand. As of the date of trial, let’s say, that the portfolio due to market forces either went up by $50 thousand or down by $50 thousand, it would be inherently unfair to both sides to simply use the old number if the reality of the situation was the value of the asset had significantly increased or decreased.
In addition, in some cases, we’ve actually had judges use different valuation dates for different assets. For example, a particular retirement account may only have a quarterly statement that’s offered. The parties may have secured a neutral appraisal of a piece of real estate that is a month or two prior to the pre-trial, or a month or so after the date of the initial case management conference, and so it’s not always necessarily set in stone that on a specific date, the court will value absolutely everything.
Determination of Value
Determining value for various assets can be a bit tricky. In most situations. We will have one of two approaches. Either we will see if the parties can agree on the value of an asset, or if they can’t agree, then we will go ahead and do the necessary either research or hiring of an expert to tell us what a particular asset is worth. In the case of a piece of real estate, we might hire an appraiser or have a market analysis done by a realtor. In the case of a motor vehicle, we may look up Kelly Blue Book values or may look at something like Cars.com to figure out what a particular make and model might be worth under the circumstances.
In terms of bank accounts, we’re going to secure more recent bank statements. And the same is true with retirement assets. Quite often we have to do what’s called a present value calculation of a retirement asset if it’s in the nature of a pension interest. We may want to figure out what the present dollar value is of future pension payments that will be received once a litigant retires. In that situation, we will more often than not rely on an actuary to tell us what a pension interest is worth. An actuary is a specialized accountant who is familiar with the mortality tables and the tax implications associated with pension interests.
In terms of business interests, we often will hire a business appraiser to come in, usually an accountant, to tell us what the business is worth based on any number of approaches. And naturally with debts, we will usually verify debts by simply getting the most recent statements associated with those debts, whether credit card bills, or mortgage statements, or car loan statements.
Allocation of Assets and Debts
So once we know what assets are marital, and we know what the value is of those marital assets, and we know the nature of the marital debts, we’re then in a position to be able to start allocating the marital assets and liabilities. What we will do with that balance sheet we’ve created is put a column in place for the wife, put a column in place for the husband, and then as each party takes a particular asset, we will put those numbers in their column.
So let’s say for example that the wife takes all the equity in the home, and the husband takes the interest in his vehicle, subject to the debts against that car. The wife takes her vehicle subject to all debts. Each party takes their own bank accounts, each party takes their own retirement interests, and each party takes whatever credit card debts are in their name. Under that hypothetical, we add all those numbers up and one of them is almost always going to walk away with more in value than the other. And so what we need to do is equalize that and we will have one party pay a cash equalizer to offset that difference.
The statutes tell us that the standard is a fair and equitable division of the marital assets and liabilities. Almost always, I mean almost universally the court is going to divide assets and liabilities equally. A 50-50 split is by far the most common approach that a judge is going to take with the exception of situations where it would be inequitable to do so. Frankly, I’ve had more trouble with the opposite scenario where we’ve got an uncontested case and the parties want to agree to divide their assets unequally and the judge will actually step in and inquire of the parties, try to find out why it is that they haven’t divided their assets and liabilities literally equally.
Just a couple of other key points to keep in mind as you move forward and then I think we’re going to wrap things up. The first point is the fact that once a summons and a petition to dissolve the marriage is served in the case, the parties are ordered not to dissipate marital assets. In other words, they can’t sell assets, transfer assets, or conceal assets except for situations where they need to generate some cash to pay ongoing living expenses or pay for their legal fees.
And then second, if you are seriously considering attempting to conceal assets from your spouse, I have one word for you, don’t. The bottom line is that as lawyers, we have a number of tools at our disposal. We’ve been involved in hundreds and hundreds of cases. We’ve unearthed assets through subpoenas, through private investigators, and the list goes on. You run the risk of a finding of contempt, being told that you’re going to pay your spouse’s attorney’s fees and costs, ultimately having that asset allocated in full to your spouse, and you could ultimately face criminal charges in the form of perjury. So the bottom line is that there needs to be a full and fair disclosure of all income assets and liabilities as part of a disillusion.
And there you have it about 11 minutes or so on an issue that, quite frankly, often encompasses a two to three volume treatise, the division of marital assets and liabilities. There are cases that go back decades from the Minnesota Court of Appeals and Supreme Court on all the subtle nuances. We’ve just tried to hit the high points for you. Every case is unique and if you have a question that this podcast has not answered about your situation, I certainly invite you to give us a call or write to us.