Complex Property Valuation & Division

Dividing Major Assets of the Marriage

"A big case is never simple; neither is a small one." -Anonymous Divorce Lawyer

BUSINESSES DON'T EXIST IN A VACUUM. Neither do retirement accounts and other major assets. When people divorce, all assets are integral parts of a couple's net worth and must be divided in an equitable manner. If those assets consist of a home, a closely-held business, several investment and retirement accounts, other pieces of real estate and other items of personal property, the job of dividing the marital estate can be difficult and must be taken as a whole.

If one party receives the business, the judge will often require that a larger majority of the other assets go to the party who does not get ownership of the business to offset its value. If only one large asset is available to the couple, the judge may not be able to divide it. In that case, chances are that asset will be sold and the proceeds divided by the judge in some manner.

The theory of equitable division, that governs how assets are divided in an Alabama divorce, requires that marital property be looked at as a whole and divided equitably.

Dividing Personal Property

Personal property generally includes household furniture and furnishings, goods, wares and appliances, along with each individual's clothing, jewelry and personal items. Most settlement agreements specify one of two things about this type of property; either the parties have already divided the personal property and neither party makes any claim to the other's, or the agreement contains a specific list of the property each party is to receive.

If you and your spouse are fairly amicable, this may not be an important issue to address in the settlement agreement. You may be cooperative enough to divide the household property without help from the judge. If you find it impossible to agree on the simplest of issues, such as the division of towels and sheets, the agreement needs to specify every item you receive. When the agreement states that the wife shall receive one-half of the pictures in the residence, it needs to specify exactly which pictures she receives. You may own assets in an odd number that cannot be divided, and you could end up spending more on legal fees to fight over a toaster or a couch than you would replacing that item. You must assess whether the emotional and financial cost of fighting over certain property is worth all the trouble. Many divorce clients later admit that their decisions were based on ego and pride rather than logic, and due to the memories associated with an item, they did not even want that item anymore.

Closely-Held Businesses

Determining how a business will be held and whether you can sell it can be an important feature of a divorce. The settlement agreement needs to detail who receives the business and how it will be managed after the divorce. If one party receives the business, you need to specify if the other spouse is obligated for any business debts or taxes now or in the future. If the business is successful, an independent accounting of the books and records of the business may be needed to determine its true value.

More games are played over the value of a family business than any other asset in a divorce. The person running the business wants to attach the lowest possible value to the business, because often half of the appraised value must go to the other party. He or she may content that the market is soft, sales are suffering and those new initiatives just aren't working.

The person who does not run the company only sees an unbroken string of successful years and a good living for the family. This person wants the judge to accept the highest possible value for the company, so that he or she can lay claim to a greater share of the marital assets.

I recall one owner who had a very successful business at issue in a hotly contested case. He claimed the business was worth just $20,000. We knew during the trial that the business was worth many times more than that. We offered to purchase the business for $40,000, and have a cashier's check to him with three hours. The owner, of course, would not sell the business at twice the value he placed on the business because he said a lot of factors go into valuing a business, and he felt its potential was there. So much for his creative accounting. Once he refused to take the bait at twice the claimed value of the business, he was forced to get realistic about its true value. The overall settlement was drastically affected when the business was proven to be worth significantly more money than the owner's original evaluation.

Retirement Accounts

Retirement benefits are often the largest marital asset of the parties, and should be considered before any determination is made on the fairness of the overall settlement agreement. You may be entitled to a share of your spouse's retirement plan in a property division and should consider accepting part of the plan rather than other assets.

In many long-term marriages, the husband often wants his retirement money and the wife wants the house. But a retirement plan may be several times more valuable than the equity in the marital residence. A woman may have an emotional attachment to the home, but she may be making a mistake if she accepts it.

You should make every effort to obtain a recent statement for the retirement plan, showing its present value as well as future values. If no one will give you this information, a lawyer can obtain it from the account manager through the discovery process.

"When looking at retirement plans at the time of a divorce, I always advise people to keep an eye out for any large distribution from the accounts," says Zach Ivey, a financial planner for First Financial in Birmingham. "Spouses have a tendency to take money out of their retirement plans before filing for a divorce. It's easy to track these distributions, since all of them are documented in the account paperwork."

In addition to splitting the account, you should look at the survivor benefits under the retirement plan. Ivey says that survivor benefits applicable in the event of the spouse's death may also provide security for a spouse and should be addressed in the settlement agreement. The agreement should state that benefits cannot be assigned or reduced in any fashion. If this is an issue in your divorce, it may be wise to spend some time verifying the actual values of the retirement plan and tax complications with your lawyer and your accountant.

The most effective way to divide a retirement plan is through a Qualified Domestic Relations Order (QDRO), which basically splits the plan into two separate plans. QDROs offer protections to both parties. To the party who receives a share of the other party's plan, the QDRO splits off as much as 50% of the appreciation of the plan that occurred during the marriage without the tax complications associated with dividing the plan prior to maturity. The plan's original owner is also protected from any tax liability from the portion of the plan given to the other party.