Division of Property & Debts RETURN TO “ALL ABOUT” SERIES SLIDE Scott Baroway Mediation Partners...
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Transcript of Division of Property & Debts RETURN TO “ALL ABOUT” SERIES SLIDE Scott Baroway Mediation Partners...
Division of Property & Debts
RETURN TO “ALL ABOUT” SERIES SLIDE
Scott Baroway Mediation Partners [email protected]
DISCLAIMER
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No legal advice is given in this website. Nothing said in this website shall in anyway constitutes legal advice. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. All information presented is for informative purposes only and should not be considered legal advice in any way. Additionally, no attorney-client relationship is established by viewing any information on this website. If you believe you are here to get legal advice in any way, you should leave now. THIS WEBSITE IS FOR GENERAL INFORMATION PURPOSES ONLY.
No Warranties or Guaranties are made regarding accuracy of the information provided.
Equitable Distribution Defined
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The division of marital property, “without regard to marital misconduct, in such proportions as the court deems just and equitable after considering all relevant factors...”
May consider economic fault in very limited circumstances
Colorado not a community property stateDivision is not necessarily 50-50 or equal“Dual Property” Equitable Distribution State
Marital Property For Distribution
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Real property Bank accounts, certificates of
deposit Vehicles Tangible personal property Personal Injury recoveries Frequent Flier Benefits Stock, stock options, bonds Pensions, profit sharing,
retirement plans, IRAs, 401(K)s, etc.
Businesses, partnerships, professional practices Life insurance (cash surrender
value) Other
Mortgages on real estate Other long term debts Revolving charges Other short term debt Legal liabilities - lawsuits Contract liabilities to third
parties
(leases, rental agreements)
Assets Liabilities
What is considered “Marital Property”?
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All property acquired by either spouse subsequent to the Marriageregardless of which spouse holds titleregardless of whose name debt is inpresumed to be maritalsubject to 5 exceptions
Five Exceptions To Marital Property
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Gift, bequest, devise or giftAcquired in exchange for above or Pre-marital property
(which has not been commingled)
--HOWEVER for these three – increase in value is marital property—
Acquired after a decree of legal separation issued
Property acquired by valid agreement of parties.
“Commingling”
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“Separate property” can become marital property if “commingled”
“Commingled” defined as – Mixing of separate property with marital propertyi.e. - Third party gift to one spouse put into a joint
bank accountAdding spouse’s name to inherited propertySale of premarital property used to buy marital
property
3-Step Process in evaluating property of marriage
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Classify as Marital or SeparateValue the propertyEquitably divide property
based upon fair market values at time
Equitable Division Factors
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The Court may consider any or all of the following in determining an “equitable division” of the property:
Contribution of each spouse to acquisition of property, INCLUDING contribution as homemaker
Value of property set apart to each spouseEconomic circumstances of each at time of division
– includes right live in home for reasonable period to raise kids
Increase or decrease in value of separate property during marriage
Depletion of the separate property for marital purposes
ANY OTHER FACTOR COURT DEEMS RELEVANT(other than marital fault or misconduct)
Examples of Other Factors
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Duration of Marriage Age, physical and emotional health of parties Income or property brought to the marriage Standard of living established during the marriage Any written agreement made by the parties before or during the
marriage concerning an arrangement of property distribution Economic circumstances of each party at the time the division of
property becomes effective. Income and earning capacity of each party, including educational
background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children, time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonable comparable to that enjoyed during the marriage
Other Examples
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Contribution of each party to the education, training or earning power of the other
Tax consequences of the proposed distribution to each party Present value of the propertyDebts and liabilities of the partiesNeed for creation, now or in future, of a trust fund to
secure reasonably foreseeable medical or educational costs for a spouse or children
Extent to which a party deferred achieving their career goals
Any other factor the Court deems relevant.
Valuation Of Marital Property
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Some assets have stated or easily ascertainable valueBank accounts, certificates of depositIRAs, 401(k)sStock (publicly traded), bonds
Some assets may need independent valuationVehicles Real propertyPersonal propertyDefined benefit pension plansBusinesses, partnerships, professional practices
Valuation Methods
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Publicly available informationVehicles – NADA Used Car book, Internet
sourcesSales of comparable real estate in your
neighborhoodUse of neutral expertsReal estate appraisersBusiness valuation expertsPension appraisers
OR MEDIATED AGREEMENT OF THE PARTIES
Marital Home
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Colorado recognizes “desirability of awarding the family home or right to live therein for a reasonable period of time to the spouse with whom any children reside the majority of the time.”
However, may be cost prohibitive Spouse not awarded house my be obligated to pay
or assist in paying mortgage and delay equity cash value until future date.
Spouse in home – forced to reduce standard of living to keep home
OptionsSell homeKeep home
Offset against other assets or obligationsBuy-out over timeDeferred sale and deferred distribution of
equityFirst $250,000 of gain per spouse/former
spouse from sale of primary residence is tax exempt provided home used as primary residence 2 out of last 5 years
Stock Options Can Be Marital Property
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Possible scenariosOptions acquired and vested during marriage Options acquired but not vested during
marriageOptions for past performanceOptions for future performance
Options acquired after marriage but granted for performance during marriage
Social Security Benefits
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Not marital property subject to distributionCan be considered as an offset against other
marital assetsProtected from most creditors
Exception for payment of child support or alimonyYou’re entitled to your own benefits and may be
entitled to benefits as a former spouse if - Married for at least 10 years and divorced
for 2 yearsBoth parties at least 62 years old Not married when you apply for benefitsNot receiving Social Security spousal or survival benefits
based on someone else’s employment historyNeed to talk to specialist on this subject as law changes
Pensions Often Marital Property
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Retirement benefits earned during marriagedeferred compensation for past employment
Marital propertypart earned from employment during the
marriage, ANDincreased value during marriageMilitary pension benefits earned during marriage
subject to special division rules
Pension Plan Valuation
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Defined contribution plansvalue easy to determine comprised of the spouse’s contributions
plus those of the employerDefined benefit plans
value more complex to determine value is defined by the plan and not the
employee’s contributions
Date Of Valuation
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Date of permanent orders hearing or date of decree
Spouses can agree on different date(s)Increases/decreases due to market conditions
Usually realized by both parties at time of actual distribution or sale (Major Issue now with Economy)
Distributing Pension Benefits
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Two methodsImmediate offset – determine present value of benefit
and offset against other assets being distributedDeferred distribution – non-pension spouse receives
benefits when pension spouse is eligible for his/her benefits
Qualified Domestic Relations Order (QDRO)Judicial device for distributing pension benefits
Specialized and need expert to prepareUsually an added cost to mediation of $350-$500 per
pension plan being divided.
Immediate Offset v. Deferred Distribution
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Immediate offsetPros
Completely resolves pension issue
ConsBased on
assumptions
Deferred distributionPros
Actual pension benefit distributed
Share risk associated with benefit
Taxes apportioned appropriately
Cons Issue not resolved until future
date Benefit contingent upon
pension spouse living to receive pension
Plans options must be considered
“QDRO”sQualified Domestic Relations Order
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A court order requiring a retirement plan administrator to disperse benefits to you or your spouse pursuant to divorce agreement
Used for both defined benefit and defined contribution plans
State, local government and military pensions are not covered by QDROs;
However, there are similar court orders that apply.
Very complicated. Separate expert needed to prepare.