Construction and division of the marital estate

• Author: Nicholas L. Bourdeau
• Pages: 335-398

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Chapter 20

Construction and Division

of the Marital Estate

TABLE OF CONTENTS

§20:00 AUTHOR’S NOTE

§20:10 MARITAL ESTATE

§20:20 ASSETS IN GENERAL

§20:21 House

§20:22 Other Personal Property

§20:23 Automobiles

§20:24 Businesses

§20:25 Retirement Plans

§20:25.1 Retirement Accounts

§20:25.2 Defined Contribution Plans

§20:25.3 Defined Benefit Plans

§20:25.4 Other Considerations: Defined Contribution and Defined Benefit Plans

§20:25.5 Other Retirement Plans

§20:25.6 Pension Plan Division

§20:25.7 Qualified Domestic Relations Orders

§20:26 Financial Assets

§20:26.1 Checking Accounts

§20:26.2 Savings Accounts

§20:26.3 Cash

§20:26.4 Cash Equivalents

§20:26.5 Investment Accounts

§20:26.6 Other Investments

§20:30 LIABILITIES IN GENERAL

§20:31 Bankruptcy

§20:32 Loans From Relatives

§20:33 Unsecured Creditors

§20:34 Secured Liabilities

§20:40 EXCLUSIONS FROM THE MARITAL ESTATE

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§20:00 The Determination of Income for Child Support 20-2

§20:00 AUTHOR’S NOTE

A judge once commented to me, “Family law

is not really law.” The words and the possible

meanings behind the words haunted me for a long

time. I remembered them as I watched marital

estates dissolve paying for litigation, the agony

of divorce trebled by the adversarial process, and

parents and children alienated in the heat of battle.

I watched as judges resisted hearing family law

cases, as attorneys dumped their family law prac-

tices at the first opportunity, and as those who did

not leave the practice, burned out at a staggering

rate. I came to the conclusion that the legal system

is inadequate for dealing with families and that the

judge was correct: family law is not really law.

I also came to the realization that some attor-

neys were highly adept at handling divorces with-

out the involvement of a judge. I noted that it gen-

erally took less skill, in my opinion, on the part of

an attorney to simply throw a case to a judge and

hope for the best, than to negotiate a settlement

that would appease (or at least equally anger) all

parties. I have seen more and more courts mandate

mediation or settlement conferences in hopes of

having the parties resolve their differences. I have

watched the emergence of collaborative attorneys

working in the family law area, negotiating settle-

ments and relegating courts to where they should

be: avenues of last resort. I have become trained

and experienced as a mediator and have become

convinced that in the huge majority of cases, a

negotiated divorce is far superior to one tried in

court. Therefore, this chapter takes the point of

view that all divorces are initially and ultimately

negotiated settlements, and the failure of those

negotiations is court.

This chapter is dedicated to those students

of human nature who understand that the legal

aspects of divorce pale in comparison to the emo-

tional aspects involved and have prepared them-

selves to deal with both. It is dedicated to family

law attorneys, collaborative family law attorneys,

and mediators who take pride in their ability to

wheel and deal under adverse conditions. It is

dedicated to those individuals who can bring order

from chaos and control the seemingly uncontrol-

lable. These individuals are hereinafter christened

divorce managers.

§20:10 MARITAL ESTATE

At its simplest, a marital estate is defined

as everything a couple owns and everything the

couple owes. In accounting (and legal) terms, it

is the assets and liabilities of the couple. The net

marital estate is the assets of the couple minus

the liabilities. In this discussion, reference to the

marital estate will generally refer to a summary of

the marital estate which facilitates the completion

of the following equation:

+ Everything that is owned (Assets)

- Everything that is owed (Liabilities)

= Net Marital Estate

The marital estate equation is taken directly

from the most basic accounting equation:

§20:50 BUDGET PROCESS

§20:51 Income

§20:52 Expenses

§20:53 Alimony

§20:54 Immediate Needs

§20:60 MEN VERSUS WOMEN IN DIVORCE

§20:70 TAX CONSEQUENCES

§20:80 DIVISION OF MARITAL ESTATES

§20:90 CASE STUDY

FORMS

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20-3 Construction and Division of the Marital Estate §20:10

Assets – Liabilities = Owner’s Equity

All courts dealing with marital estates utilize

the formula whether or not it is recognized as an

accounting equation put in number format, or writ-

ten out in paragraphs of text. The concept is the

same in spite of the format.

[NOTE: Throughout this chapter, the comple-

tion of a Marital Estate Summary will refer to the

completion of a numerical summary (columnar

balance sheet) of the estate of a marriage. An

example is presented in the Case Study. I fully rec-

ognize that some jurisdictions, by custom or man-

date, summarize marital estates and their division

in textual format. However, a marital estate sum-

mary is describing the fiscal relationship between

two parties: a husband and a wife. In this case, a

format designed to describe a fiscal relationship is

superior to one that is not. Consequently, the bal-

ance sheet format is used throughout.]

Construction of the Marital Estate

Summary of the marital estate begins with the

full disclosure, by both parties, of all of their assets

and liabilities. Disclosure can be obtained by the

legal discovery process, mutual agreement, or

divorce manager mandate. The form is not impor-

tant; completeness is. Initially, considerations of

whether or not an item is marital, its true value,

who gets it, or any other consideration should be

stridently ignored by divorce managers. Existence

should be the only consideration. There are two

key reasons for this position. Some localities

have penalty provisions associated with failure to

disclose. For example, they may provide that any

hidden asset may be given to a damaged spouse in

its entirety if it is discovered after the divorce. The

second reason has to do with trust and credibility.

A negotiated settlement requires a minimum level

of trust to exist between the parties in order for

an agreement to evolve. The discovery of hidden

assets during the course of a divorce will minimize

the chances of a peaceful resolution. In addition, a

judge who learns that the reason he is listening to

a couple argue about table lamps is because one

party tried to hide assets may have very little sym-

pathy for that party.

After disclosure, a preliminary value is placed

on the assets and the liabilities. Initial values may

have been provided with the disclosure of assets

and liabilities and can be used as a starting point

in the summary.

As a point of law or agreement (stipulation),

items can be deemed as part of the marital estate

and will be divided by the couple or kept out of the

marital estate and be given to one of the parties. It

is possible that determining the value of an item

that is to be excluded from the marital estate is

unnecessary. Therefore, the next step in construct-

ing the marital estate is to make a preliminary

determination of whether or not the items disclosed

are part of the marital estate or not. For example,

a couple agreed that an antique gold watch given

to the husband by his grandfather would not be

part of the marital estate. Consequently, having

the watch appraised was unnecessary. In another

case, the husband admitted that he had incurred

gambling debts and agreed that they were solely

his own. The existence of the debts was disclosed

in the divorce, and the assignment to the husband

recognized, but a determination of value was not

made. If the inclusion or exclusion of an item from

the marital estate is in question, it is tentatively left

in the marital estate summary, and valuation of the

asset or liability is undertaken. This is to determine

the relative importance of the item in the equitable

division of the estate and absolute materiality.

Simply put, if the item is relatively unimportant in

the total picture or has small value, the parties may

recognize that the item is not worth arguing about

and make a provision for its disposition quickly.

After preliminary exclusions of the marital

estate have been made, the values of the remain-

ing assets and liabilities are determined. Valuation

procedures are undertaken to reduce the marital

estate to economic fact. They are applied in pro-

portion to the risk of an item being materially

misstated and the contentiousness of the couple.

Consequently, the breadth and depth of the valua-

tion process is dependent upon the circumstances.

For example, the marital estate of a couple con-

sisted only of a vehicle each and joint credit card

debt. The valuation procedures consisted of get-

ting retail values of the vehicles from the Internet

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