During a divorce your assets and liabilities will be equitably divided. While many people think, this means splitting each of the assets in half, typically the analysis is a bit more complex. Certain assets cannot be divided or it doesn’t make sense, economically, to divide them. In those cases, certain assets or liabilities must be offset against others. For example, if the Wife wants to keep the home, which has $100,000 in equity, then she will need to pay the Husband $50,000 from some other asset. The same is true for liabilities. For example, if the Husband were to keep $50,000 in credit card debt, then the Wife would owe the Husband $25,000 from some other asset. Typically, an equitable distribution worksheet is created to account for all of the assets and liabilities. However, the main purpose of equitable distribution is to separate the couple’s financial interests, so that they are no longer jointly liable or joint owners of any asset or liability. While there may be certain circumstances where the parties agree to remain joint owners of an asset or jointly liable, this typically leads to messy litigation down the road. At the DeWitt Law Firm, our divorce attorneys have extensive experience handling complex financial issues, which impact equitable distribution.
Generally, any asset accumulated during the marriage as a result of the efforts expended during the marriage is considered marital and subject to distribution regardless of whose name it is in. However, assets that were acquired prior to the marriage may also have a marital component, if marital funds or efforts were used to increase the value. Additionally, if a premarital asset was coming led with a martial asset, the entire asset may become marital. Comingling of a marital asset is best described as taking two eggs, cracking them in a bowl, and whisking the eggs together. Once that is done, there is no way to separate the eggs individually. When marital funds are added to an account that was premarital, it is often the case that there is no way to differentiate martial from non-marital funds.
If a debt or liability is acquired during the marriage, the debt is marital, even if the debt is solely in one spouse’s name. For example, if one spouse has a credit card that is in his or her name, the debt is marital, even if the other spouse was unaware of the debt. However, there are certain exceptions if the marital debt was acquired as a result of misconduct. Misconduct is not shown by mismanagement or squandering of marital assets in a manner that the other spouse disapproves. Rather, there must be a specific finding of intentional misconduct based on evidence showing that the marital funds were used for one party’s own benefit and for a purpose unrelated to the marriage at a time when the marriage was undergoing an irreconcilable breakdown.
When valuing an asset or liability the court has the option to choose either (1) the date of separation; (2) the date of filing the Petition for Dissolution of Marriage; or (3) the date the Final Judgment is entered and the divorce is finalized. The trial judge is to utilize the date that he or she believes is just given the circumstances. However, the judge can choose a different date for each of the individual assets and liabilities.
The method for valuing the asset will depend on the type of asset. Obviously, assets such as bank accounts are fairly straight forward. However, certain assets can be more complex. For example, if the Husband had a Pension Plan where 4 years of his pensions are deemed non-marital, a coverture fraction may need to be calculated to determine the marital portion of the pension. Alternatively, if there is a retirement account such as an IRA or 401K where there is a pre-marital component, the pre-marital component plus any gains or losses must be calculated to determine the total non-marital portion. There may also be valuation issues when there is a marital business. Given the circumstances, it may be necessary to retain a business valuator or forensic accountant depending on the complexity of the valuation issues.
When it comes to equitably dividing the marital home, the parties must decide whether one spouse wants to keep the home or whether the home should be sold. If the home is to be sold, the equitable distribution is fairly simple as the profits are just split between the spouses after the mortgage and all expenses from the sale are paid. However, if one spouse wants to keep the marital home, that spouse must pay the other spouse the equity in the home and refinance the mortgage. Typically, the spouse who is not remaining in the home will not want to remain on the mortgage as it will jeopardize his or her credit and possibly prevent him or her from purchasing a home in the future. Further, you never want to execute a quit claim deed giving your spouse your interest in the home, until you are assured that you will be released from the mortgage.Read More: What to do with a House during a Divorce