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Asset Classification & Organization in Divorce


Please be mindful that I wrote this blog for my own, Eric Roy's, personal benefit. This is a subject matter of interest to me and useful for any divorce attorneys who currently works or will work in my firm in the future. This article outlines some methods that can be used to assist the divorce practitioner in getting organized beginning early on in the case with respect to classification of assets. It is important for the divorce attorney to get working on locating assets and classifying them early on in the divorce process. There are a couple of reasons for this emphasis on early initiative. One is that you want to always be a step ahead of opposing counsel. The attorney who knows more and is one step ahead is the attorney with greater credibility. Moreover you need to understand as divorce counsel that often times it takes a long time to get some of this information. This can especially be the case when opposing counsel frustrates your attempts to access such information. Often times you will find that you need to follow up on new financial information which you didn't initially anticipate the need for, only after reviewing your initial discovery documents provided. When your first settlement conference comes around you want to be fully prepared. You can't effectively represent your client without a clear picture of the entire marital estate. If asset's whereabouts or value are uncertain at your client's settlement conference then you are doing your client a disservice. So get started early with the process.

As you begin receiving documentation by way of your own client, initial disclosures of opposing counsel, requests for production, interrogatories, subpoenas, and depositions immediately begin entering your results into your tracking software. For low asset divorces you can get away without having a marital balance sheet (MBA). However, I always prefer to use one. A martial balance sheet keeps things neat and organized. It will also save you time as you won't have to continuously go back to review documents. A martial balance sheet is a necessity for high asset divorces. Without a marital balance sheet counsel is left making guesses and rough estimates as to what a proper division of assets should be. The marital balance sheet provides exact and easily understandable numbers which can thus be easily analyzed. Without this balance sheet it is difficult to make settlement offers or engage in settlement negotiations. Use the marital balance sheet as a check list to ensure that you have every single asset and debt of the parties. This saves time, money, and makes for accurate lawyering.

Your marital balance sheet needs to include an identification of all assets and debts. Once these assets and debts are all provided in a column you then need to value each and every one of these items. Some of these net values will be easily attainable such as cash accounts. Some valuations will require estimates or valuations by experts. In any event, a net value must be provided. After you value each asset and debt then go on to classify all of these assets and debts as either separate or marital property. If they are separate you will need to further define them as to which spouse's separate property they in fact are. Then create a couple of columns for proposed distribution to either husband or wife. These columns can include both hard numbers as well as percentages of the total asset or debt. You should use both. Lastly, include a column for comments. In the comments column you can include information such as who valued that asset, who has title to that vehicle, how your client wishes for that asset to be allocated, and so forth.

When preparing you marital balance sheet be sure to include some basic things such as the last four digits of all account numbers. Include the statement dates in which valuations were determined. List all closed accounts as well. In the comments section you can also take note of any special financial considerations which may apply to a certain asset. For instance, most stock options can't be transferred, certain assets have built in capital gains, and many retirement accounts have special tax treatment provisions. These considerations are to be taken into account when considering property distribution. Always have you client review the martial balance sheet as well. You need to spot errors or omissions early on. The last thing you want is to find out about missing assets or incorrect valuations in the middle of your settlement conference or divorce trial.

Remember that some of your assets may have both community and separate property components. When this is the case you will need to take into consideration not only valuation at the date of divorce but also valuation at the date of acquisition or marriage. The spate property component sometimes is valued by reducing the current or divorce value by the valuation at date of marriage. Include these numbers under your separate property and marital property columns.

For more information on this subject I direct you to Miles Mason, Sr.'s work. He is a JD and a CPA and has written thoroughly on these subjects. Most of my learning such as the information provided above comes from his mastery and writing on the subject matter.

Categories: Family Law