OKlaw4families

Selling Your House

For many people going through a divorce their biggest asset is their home or in legal speak, the marital residence. Deciding what to do about the marital residence is often a major issue in a divorce. There are a few different options when it comes to splitting the marital residence.

One option is for one spouse to keep the house and buy out the other spouse's share. Another option is for one spouse to be granted exclusive use for a specified period of time, usually when the youngest child turns 18, after which the house will be sold. Finally, the house can be sold outright with the profits being allocated to each spouse.

Should you sell your house? Hard as it may be this is a decision that needs to be made devoid of emotions. As a practical matter take into consideration whether or not it is financially beneficial to keep the home. If not and you do decide to sell here are a few tips to help you through the process.

Time is money: Put your home on the market as far in advance as possible of purchasing a new one. Remember that when people buy and sell a home there usually is a domino effect. Closing and moving dates have to be coordinated, and the more firmly everyone commits to a window of dates and sticks to them, the better for all involved. Put all agreements about dates in writing, and protect yourself by negotiating financial penalties for failure to live up to the agreement.

Check your curb appeal: A home that's visually appealing and in good condition will attract potential buyers. This is your home's first impression and it should be a good one! Here are a few things to look at: Are the lawn and shrubs well maintained? How are your sidewalks and foundation? Are they cracked? Does the driveway need resurfacing? Are the gutters, and chimney in good condition? Do the window casings, shutters, siding, or doors need painting? Are garbage cans stored out of sight? Are lawn mowers, etc. properly stored? Is the garage door closed?

On the inside: Probably the least expensive thing you can do to make your home appealing is to make sure it is clean. Windows, floors and bathroom tiles should sparkle. Make sure you have clean heating and air conditioning filters. Shampoo dirty carpets, clean tubs and showers, repair dripping faucets and oil squeaky doors. Keep your home neat, clean, and picked-up at all times. It should not only be squeaky clean but it should smell fresh. You may be used to the smell of a pet or cigarettes, and not even be aware of them, but such odors can be offensive to others.

Remove unnecessary clutter from the all areas of the home including the garage, basement, attic, and closets. Organize and straighten stored items. If your home is crowded with too much furniture, consider putting some things into storage. If a room needs a fresh coat of paint, use a neutral off-white. Finally, set a mood for the buyer. Make your house homey with live flowers and fresh guest towels in the bathroom.

For your own safety and peace of mind, remove valuables such as jewelry and other items from view. It might be wise to put these items in a safe deposit box before you begin showing your home.

Professional help: Unless you are willing to do all of the work in selling your home yourself, a real estate agent is a good idea. They can be the voice of reason during this emotional time. We often have so many memories and emotions tied to our homes that we don't always see their shortcomings. Conversely, not everybody is aware of the real estate market and the values of homes in an area. A good realtor will help you set a fair price.

Keep in mind that cosmetic changes do not have to be expensive. In fact, costly home improvements do not necessarily offer a good return on your investment when you sell. It's attention to the basics that says this home has been carefully maintained. That attention to details will help you get the price you want, even if you don't really want to sell the house.

VALUING A BUSINESS IN DIVORCE

In today's booming economy, it is more and more common for divorcing couples to struggle with the valuation and division of a small business as part of the divorce process. Remember, even if the ownership interest is in the name of only one spouse, it may be marital if it was acquired, improved upon, or financed during the marriage.

Often, only one marriage partner is actively involved in the business. That partner will generally underestimate the value of the business or business interest as part of the divorce process. The other party may not seek an independent appraisal under the misguided belief that the appraisal will cost too much electing, instead, to rely on the estimate of their spouse. This can be financially disasterous.

This risk was illustrated clearly in a much publicized case in Hennepin County District Court, Minneapolis, Minnesota. In that case, Debra Sax married husband Paul Taunton in 1994. Taunton was the owner of a company called Athletic Fitters, Inc. (AFI). During the marriage, Taunton is alleged to have repeatedly told Sax that AFI was worth $6 million and that his income was between $250,000 and $300,000 per year.

In 1997, Taunton filed for divorce and the parties decided to get the divorce proceedings over with as soon as possible. In that proceeding, Taunton stated that his income was $250,000 and that AFI was worth $6 Million. Relying on those representations, Sax agreed to a property division and the divorce decree was entered in October of 1997. Fast, simple and civil, right?

Wrong!

Less than four months after the divorce, AFI was sold for $30 million, five times more than the Company was worth. Moreover, investigation after the divorce revealed that Taunton's Annual income was not $250,000 to $300,000 but ranged from $900,000 in 1994 to $4 million in 1996. Sax subsequently brought a lawsuit against Taunton's divorce attorney, Kathleen Picotte Newman, arguing that the attorney misrepresented the facts since it was her firm, Larkin, Hoffman, Daly & Lindgren, that negotiated the business sale. Though the case has yet to be determined, it is generally believed that Sax is unlikely to succeed in her lawsuit since she elected not to investigate the facts.

For that reason, business valuations are cost effective and even essential as part of divorce proceedings. Cutting corners to save on the cost of an appraisl may wind up costing you a significant amount more. Appraisers generally produce written reports which detail the analysis and steps taken to reach a value conclusion. Even in mediated divorces, appraisals are important. The parties may select a joint appraiser which helps reduce the costs associated with the appraisal for both parties.

The Institute of Business Appraisers (IBA) and the American Society of Appraisers (ASA) have also issued standards for valuing businesses. Although each business appraisal may require an appraiser to make certain assumptions about the business or industry, each appraiser follows a similar general procedure applying professionally accepted standards. This has decreased the variability valuations. In short, if two appraisers review the same business, they may arrive at different values, but the gap between their appraisals should be fairly narrow. As a result, a professional appraisal would eliminate the inequitable result that Ms. Sax encountered in her divorce.

Regardless of the size of the business, it is critically important that you retain an attorney experienced in complex property issues. An experienced attorney will work closely with the qualified appraiser to arrive at a fair valuation of the business and provide advice on the legal consequences.

Source: divorcehq.com Maury D. Beaulier, Esquire

PROPERTY DIVISION AND NON-MARITAL ASSETS

In any divorce case, there is usually a division of assets and a determination of each person's responsibility for debts. Most states, are considered 'marital property' states. This means that any asset acquired and any debt incurred during the marriage is the asset or debt of both parties.

THE MARITAL ESTATE

In a divorce, the parties divide up what is called the 'Marital Estate.' The marital estate includes any assets or debts that were acquired during the marriage. Each spouse is generally deemed to have an equal interest in marital assets or debts.

This true no matter how the property is titled or held and no matter which spouse's job paid for the asset or which party incurred the debt. That means the marital estate includes a 401K account or a credit card debt that is in your spouse's name alone. In fact, marital property is inclusive and encompasses 401K plans, stock plans, stock options, real estate, frequent flier entitlements, bank account proceeds, couches, chairs, cars, utility debts, credit card debts and any other form of asset or liability.

Essentially, the law views marriage as a civil partnership with many of the characteristics of a business partnership. When you join a business general partnership, each partner has an equal interest in the ownership of the business and is exposed equally to the liabilities of the partnership. This is true even if one partner incurs the debt on behalf of the partnership or one partner performs all the work making the partnership a more valuable asset.

Where there are property disputes in divorce, many courts and Judges are not particularly fond of hearing those issues. This particularly true when the dispute involves assets that are primarily household furnishings. As a result, courts often render very unsatisfactory Orders related to the division of household furnishings. In fact, in one memorable case, the Judge gave one spouse half of the dining room table and half the chairs and the other spouse the other half. In the end, the judge stated, 'if you don't like what I did here, you will go out in the hall and find a better solution.' This is certainly an aberration and not the norm. However, it does underscore the Court's general dislike in dealing with property issues.

There are any number of ways to creatively divide household furnishings and personal property when disputes occur. In some cases, the parties may make a list and alternately choose an asset. In other cases, parties may bid on each item of property and the highest bidder both receives the asset and has that value credited to him or her as part of the property division. This may result in an payment from one spouse to the other to equalize the value of the assets received by each. In yet other cases, the one party may create two lists of assets and the second party then has first choice which list and assets he/she will receive.

Mediation is always a potential option for such divisions.

NON-MARITAL ASSETS

Certain assets may be excluded from the marital estate which means that they are not divided between the parties. These are called non-marital assets. Any non-marital assets that you possess remain yours and any non-marital assets of your spouse remain his assets. Although the definition of non-marital assets may vary from state to state, as a general rule non-marital assets may include:

Premarital. Any asset acquired before the marriage (if the asset was encumbered by a loan that was paid off during the marriage, it may only have a partial non-marital value);
Prenuptial Exclusions. An asset excluded by a valid prenuptial agreement;
Personal Injury Proceeds. Personal injury settlements are generally considered personal to the injured party and are non-marital in nature;
Inheritance. Any proceeds or assets from an inheritance;
Gifts. Any asset acquired as a gift to one, but not both parties.

It is important to recognize that in most states assets are considered part of the marital estate unless proven otherwise by a 'preponderance of the evidence.' This places a significant burden on any person making a non-marital claim to prove it. It is essential that any and all documents including documents of title, receipts, or canceled checks that support your non-marital claims must be provided. Any failure to provide documentation may result in the division of the asset in the divorce.

LOSING NON-MARITAL VALUE

Non-marital assets may have both a marital and non-marital value. In some cases, non-marital assets may lose their non-marital characteristic. This can occur in several ways:

Co-mingling. If non-marital proceeds are co-mingled with marital proceeds so that is becomes difficult to identify the non-marital asset, the non-marital characteristic may be lost. For example, placing non-marital proceeds in a joint bank account may not immediately eliminate a non-marital interest. However, if marital proceeds are added to the bank account or if proceeds from the account are paid out for regular living expenses, it is more likely that the non-marital value will diminish since it is impossible to determine which proceeds came out first - the marital proceeds or the non-marital proceeds.

Marital Improvements. Additionally, spending marital money (any money earned by either party during the marriage) to improve a non-marital asset may also create a partial marital interest in an otherwise non-marital asset. The increase in the value of the asset attributable to the improvement is likely to be considered marital.

Active Appreciation. Courts often make a distinction between 'active' and 'passive'appreciation. Passive appreciation of a non-marital asset remains non-marital. Passive appreciation occurs when an asset increases in value without any action by the parties. For example, if the value of real estate increases without the parties improving the property, it is considered passive. Active appreciation is a marital asset. Active appreciation occurs when the value of an asset increases because of an act by the either of the parties during the marriage. Capital improvements to real estate during a marriage may create a marital interest since a capital improvement is likely to add to the property's value. Manipulating a stock account or transferring a mutual fund from one account to another resulting in an increase in value may also be 'active appreciation' which creates a marital interest in an otherwise non-marital asset.

TRACING NON-MARITAL VALUE

Non-marital assets may be 'traced' into later acquired assets giving the party with the original non-marital interest a non-marital interest in the new asset. For example, if one spouse owned a vehicle before marriage and that vehicle is later traded in for a new vehicle during the marriage, that party may be able to trace a non-marital interest in the new vehicle. Tracing is really the process of establishing a sufficient paper trail to claim a non-marital interest in a subsequently purchased asset.

REAL ESTATE

Tracing issues are often difficult and have led to numerous appellate court cases to help define procedures for determining non-marital value. In the state of Minnesota a case from the early 1980's dealt with non-marital interests in real estate. From that case, Minnesota law derived what has come to be known as the Schmitz formula.

The formula provides a simplistic model to help determine non-marital interests in real estate. Since real estate mortgages and other encumbrances against property are paid off over a significant period of time, marital interests may be created in real estate that was owned by one party before the marriage. As encumbrances are paid off during the marriage, a marital interest is created.

The formula states that the proper calculation of a non-marital interest may be derived by determining the ratio of equity to market value at the time of the marriage and then using that same fraction to determine non-marital interest at the time of divorce. For example, lets assume a spouse owns a home prior to marriage and that home has a value of $100,000 at the time of the marriage and that is encumbered by a mortgage of $75,000. The $25,000 equity (the difference between the value and the encumbrance) becomes the numerator in the Schmitz formula and the value of $100,000 becomes the denominator. As a result, the non-marital interest is 25% of the home's value. If the home appreciates to $200,000, the spouse with the non-marital interest may claim the first $50,000 as the non-marital interest and any remaining equity would be divided as marital.

Like most formulas, the limitations are obvious. First of all, it may be very difficult to determine with any degree of accuracy the value of real estate at the time of marriage unless an appraisal is done at that time. That value alone may become a contested issue that results in litigation and testimony of experts.

Second, In many instances, mortgages are refinanced after marriage, second mortgages and home equity loans may also be incurred. These new debts may erase or partially erase a non-marital interest.

Third, the formula does not consider the effect that capital improvements made during the marriage have on the real estate value. Capital improvements that are made during the marriage and which increase the value of the real estate may erode some of the non-marital interest represented by the Schmitz formula.

Often, presenting a persuasive property case depends on clear cut documentation, and expert testimony. It is important to consult with a lawyer regarding significant non-marital issues.

Source: divorcehq.com by Maury D. Beaulier, Esquire

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