Equitable Distribution – How are the Assets and Liabilities Divided in a Divorce?

Sean_l._Collin300The distribution of marital assets and liabilities plays an important role in divorce proceedings. As a courtesy to my clients, I created this “cheat sheet” with answers to some frequently asked questions concerning how the Court determines the distribution of assets and liabilities accumulated during the marriage.

Please be advised that the presumption in Florida is the equal division of marital assets and liabilities. Stated another way, it is presumed that the Husband and Wife split every asset and liability accumulated during the marriage 50%-50%. This presumption can be overcome at trial, however. Additionally, how and when the Court should value a marital asset or liability is oftentimes disputed.

The million dollar question often becomes – what is considered a marital asset / marital liability and how and when are these assets / liabilities valued?

Marital Asset v. Non-Marital Asset

An asset is anything that can be converted into cash, including but not limited to, stocks, bonds, real property, and personal property.

Surprising to some, all benefits and funds accrued during the marriage in retirement, 401k, pension, profit-sharing, stock options, deferred compensation, and insurance plans are considered marital assets and subject to equitable distribution.

Non-marital assets (liabilities) – not subject to equitable distribution in a divorce – would include:

• Any asset acquired or liability incurred by either party prior to the marriage … For example, the Wife may not be stuck paying for a student loan acquired by the Husband prior to the marriage.
• Any asset acquired separately by either party by non-interspousal gift … For example, the Husband may not be able to claim an interest in a gold locket bestowed to the Wife by her grandmother (although accumulated during the marriage).
• All income derived from non-marital asset during the marriage (unless the income was treated, used, relied upon by the parties as a marital asset).

Of note, the general rule is that an engagement ring is a gift made upon an implied condition that a marriage ensue and, as such, should not be considered marital property subject to equitable distribution. Stated another way, the Wife keeps the ring. The exception is if the engagement ring was “enhanced” during the marriage.

Non-marital assets that are commingled with marital assets may lose their separate nature and be subject to equitable distribution in a divorce.

For example, Wife owns a home prior to marriage (non-marital asset). During the marriage, Wife sells her home (non-marital asset) and deposits the proceeds in a joint bank account to pay for joint marital expenses. A year later, the Wife uses the proceeds from the sale of her home to purchase a new home with Husband. The commingling of funds may transform the Wife’s non-marital asset into a marital asset. Additionally, if title in real property is held jointly by both Husband and Wife, the marital residence is presumed to be a marital asset (even when the property is purchased by one spouse using their marital assets).

What is the date for valuing marital assets and liabilities?

The cut-off date for determining a marital asset (liability) is the earliest date the parties entered into a valid separation agreement or the date of filing for dissolution of marriage.

The date for determining the value of marital assets and liabilities is the date(s) the judge determines as just and equitable under the circumstances.

The rule of thumb is that when a marital asset “passively” appreciates (depreciates) between the petition date and the trial date, the parties should equally share in the appreciation (depreciation); conversely, where one party’s efforts are responsible for the appreciation (depreciation) from the date of the petition until the date of the trial, the filing date should be used so that the party whose effort resulted in the change in value should receive the benefit or detriment of those efforts.

Example of using the trial date to value an asset

Filing date of 01/01/13. Husband had 401k accumulated during the marriage which was valued at $100,000.00. On the trial date of 12/31/13, the 401k increased in value to $200,000.00. The Husband did not make any changes to his 401k in 2013. The increase in value was due to uptick in the economy and the stock market. The Husband and Wife should both equally share in the passive appreciation.

Example of using the filing date to value an asset

Filing date of 01/01/13. Husband has 401k accumulated during the marriage which is valued at $100,000.00. On 01/02/13, the Husband unilaterally decided to liquidate his 401k to gamble in Vegas for the month – wiping out his 401k. As the Husband’s efforts resulted in the dissipation of the asset to the Wife’s detriment, the Court should value the 401k from the date of filing.

Alimony Considerations in Equitable Distribution

The Court determines equitable distribution of the marital assets and liabilities prior to determining alimony. Why? … For the Court to consider an award of alimony it first has to find that the requesting party has a need and the paying party has an ability to pay. If the equitable distribution of the assets eliminates the need for alimony, the issue is moot.

For example, Husband and Wife incur a $50,000.00 in credit card debt during a 2 year marriage. If the trial court disproportionately (unequally) distributes this liability to the Husband (i.e. he is responsible for paying off the entire debt), alimony may not be appropriate if this alleviates the Wife’s need for support.

Another example, Husband and Wife own their marital residence outright. If the trial court disproportionately (unequally) awards the Wife the marital residence, alimony may not be appropriate if this alleviates the Wife’s need for support.

As the distribution of marital assets and liabilities plays an important role in divorce proceedings, it is important to retain an attorney familiar with the nuances of equitable distribution. Family law attorney Sean Collin has a Masters in Business Administration (MBA) and is skilled in reviewing financial affidavits and retirement portfolios. Sean uses this knowledge and experience to get you every penny that is rightfully yours.

If you have any questions concerning equitable distribution, please contact divorce attorney Sean Collin for a free consultation.

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