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Posts Tagged ‘divorce proceedings’

Should I Keep the House?

posted by admin 1:35 PM
Monday, September 26, 2011

Many women start divorce proceedings unprepared for the emotional rollercoaster surrounding the marital home.

Often, it starts as an internal struggle.  After all, most women fully expect to keep their house. To them, it represents a place of comfort that will provide solace during, and after, a time of great uncertainty.

But at times, the marital house can be just the opposite. It can serve as a painful reminder of all that went wrong with the marriage.

Mix in the feelings (and opinions) of a husband and children (not to mention the fact that the marital residence is typically a couple’s largest asset), and it’s easy to understand how a single piece of real estate can ignite a contentious tug-of-war.

Despite all these emotions, however, every woman must answer the question “Should I keep the house?” based on practical financial reasons. Part of our job at Bedrock Divorce Advisors is to complete the financial analyses and projections needed to help a woman understand if she can afford to do so, and if so, for how long.

Are you trying to decide whether or not you should keep your marital residence? If so, here are four key questions you need to consider:

1. Is your marital home a good fit for the new “single” you? Perhaps the house you’re living in now was purchased with the needs of others in mind. Did you choose the location because it was convenient for your husband’s business and travel?  Or did you seek out certain accoutrements largely because they were conducive to entertaining his business associates? If you did, maybe those accessories now seem frivolous and unnecessary.  Are the children you raised in the home grown and living on their own? This could be the right time to downsize and find a place that better suits your life now. It’s important to sort through and separate what you needed from a home in the past vs. what you need now and in the future.

2. What is the current value of the house? Because the marital home is often one of a couple’s largest assets, an unbiased third party real estate appraiser can be an integral member of your divorce team.  An appraiser will calculate the market value of the house by comparing it to homes recently sold and those that are currently on the market.  Ideally, these comparable houses are in close proximity to your home and have similar square footage, acreage and amenities.  Using this information, the appraiser will present an accurate selling price in the current competitive market.  The appraiser’s report could feature prominently in divorce negotiations whether or not you decide to keep the house.

3. What is the cost of keeping the house? Along with mortgage payments, you’ll also have to pay for taxes, utilities, seasonal maintenance, monthly service contracts and perhaps even additional staff to manage the property. Costs like these can add up to become a significant addition to your monthly expenses.   You’ll also have to consider looming repairs and renovations.   While projects like these may add value to the home, they could also prove to be a further financial drain on your resources.

4. What will you have to give up in order to keep the house? Often keeping the marital residence is a tradeoff, rather than an exchange of cash.  In other words, your spouse will keep something that is presented to be of equal value in exchange for the house. If you are concerned about hidden income/assets/liabilities, the possible dissipation of marital assets and/or the value of any item that’s under negotiation, you may need to add a forensic accountant and/or a valuation expert to your divorce team. They can determine the true worth of a business, professional practice or other asset with a keen eye for any misrepresentations that could skew that figure.  The valuation expert can also establish the value of stock options (and/or restricted stock, etc.) and intangibles such as  an advanced degree or training to help ensure that you do not unwittingly give up something of inequitable current or future value in exchange for the house.

Choosing whether or not to keep your marital residence may be one of the most difficult decisions you have to make during your divorce. Give yourself the time to think it through carefully, and remember: Think Financially, Not Emotionally®. You need to strategically manage your assets and develop a sound, comprehensive plan for financial stability and security in the future.

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

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How Are Appreciated Assets Divided in a Divorce?

posted by admin 5:21 PM
Tuesday, June 28, 2011

In an earlier blog post, I explained the difference between separate and marital property.

Now, it’s time to delve a bit deeper and discuss some of the financial nuances you may encounter as the division of separate and marital property proceeds during your divorce. For example, it’s likely your case will involve assets that have appreciated in value during the course of your marriage. Here’s the issue:

In many states, if your separately owned property increases in value during the marriage, that increase in value may be considered marital property. What’s more, the division of this particular subset of marital property can be further complicated by the differentiation between active and passive appreciation of the assets.

Let’s take this step-by-step.

First, understand that an asset can increase in value in one of two ways.  An asset can either

  • Actively  appreciate –as a result of actions by the owner of the asset  . . . or it can
  • Passively appreciate –as a result of changes in the market.

While there are many complex rules that govern division of property and asset appreciation, here are a few fundamentals, in very general terms:

In community property states, where both spouses are typically considered equal owners of all marital property, the division of appreciated assets is often computed based on a series of formulas. The calculations can prove enormously complex, but here’s a short summary of the most salient points by David M. Wildstein, Esq. in his brief, Allocating Active and Passive Appreciation of a Separate Business Asset for Equitable Distribution:

“If the increase in a separate asset is passive, it is not a part of the community estate as long as no community resources were used for the asset. If the asset increases due to the effort of either party, it is part of the community. The time, toil and talent of each spouse is perceived to be a community asset. To reach a fair result, community property law created the doctrine of reimbursement: ‘The fundamental purpose of the doctrine is to bring back into the community estate value which was created by community contributions, but which took the form of appreciation in the value of a separate asset.’”

In equitable distribution states, it’s not as “straightforward” because none of the equitable distribution states use a formulaic approach as described above for community property states. In equitable distribution states, passive appreciation on separate property remains separate property.  But, active appreciation on separate property can be considered marital property.

What can qualify as active appreciation on separate property? That’s a very good question, and courts often struggle to make this determination. Typically, the judge will use a three-pronged test to evaluate active appreciation in separate property.  The judge must find that:

1.     The separate property did, indeed, appreciate during the marriage.

2.     The parties directly or indirectly contributed to the appreciation.

3.      The appreciation was caused, at least in part, by the contributions.

Of course, as with other aspects of divorce proceedings, the rules governing the determination of asset appreciation can vary from state to state.  In some states the burden of proof is on the spouse who claims the appreciation is passive. In other states, it’s the reverse –the burden of proof rests on the spouse who claims the appreciation is active.

Clearly, asset appreciation is a complicated topic that demands thorough and thoughtful consideration.  It’s essential that you seek guidance from a qualified divorce team concerning the particular circumstances of your individual case.

All articles/blog posts are for informational purposes only, and  do not constitute legal advice. If you require legal advice, retain a  lawyer licensed in your jurisdiction. The opinions expressed are solely  those of the author, who is not an attorney.

 

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