Why Might My Divorce Need a Balance Sheet: Understanding the Marital Balance Sheet

Highlights

• Minnesota law calls for a “just and equitable” division of combined property – called a marital estate – during a divorce. Although this is not the same as equal division of property, the Court typically starts with the presumption that each party should receive 50% of marital property during a divorce.

• A balance sheet is a list of all of the assets and liabilities owned by the parties, to be divided. This includes, but is not limited to: real property, motor vehicles, bank accounts, investment accounts, retirement plans, personal property, private business interests, liabilities owed, mortgages, etc. The approximate value of each asset/liability is then assigned to either spouse. At the bottom of the balance sheet, each party’s total will be reflected.

• From here, an “equalizer” is calculated. The equalizer is the amount of money that needs to be transferred from one party to the other in order to create an equal (50/50) division of the assets/liabilities owned by the parties. This may require selling assets or concessions on “who gets what.”

• In the end, the divorce balance sheet provides a roadmap to equitable distribution of assets or debts. A divorce balance sheet is a helpful tool for use by both you and your family law attorney in preparation for mediation, motion hearings, trial, and other stages of your divorce. The marital balance sheet can also be used to help visualize the outcome of a proposed property division during settlement discussions.

A Useful Starting Point: The Value of a Detailed Marital Balance Sheet for Marital Assets

One of the essential issues in a Minnesota divorce proceeding is property division. Minnesota law calls for a “just and equitable” division of marital property. Marital property includes any property that was acquired by either spouse regardless of title from the date of marriage. Most of the time, a just and equitable division of property means approximately 50% division of assets and liabilities, but importantly, Minnesota law allows either party to argue that “just and equitable division” in their case should be something other than a 50% split!

In determining what is a just and equitable division of property, the court must consider the following factors:

• The length of the marriage

• Any prior marriage

• Age

• Health

• Station

• Occupation

• Amount and sources of income

• Vocational skills

• Employability

• Estate

• Liabilities

• Needs.

• Opportunity for future acquisition of capital assets.

• The income of each party.

That’s a long list! Importantly in many divorces, the court must also consider the contribution of a spouse as a homemaker, and ultimately, the court is supposed to consider the contribution of each spouse in the acquisition, preservation, depreciation, or appreciation of marital assets.

This is generally good news for spouses who may not have contributed the same “fair market value” financially. And it may be especially important in high net worth divorces.

Remember, the goal of the court is ultimately to divide assets equitably.

How Marital Balance Sheets Improve Outcomes

Property division is not always a simple exercise of simply listing each asset and liability on a balance sheet. Non-marital claims must be considered, as non-marital property ( or “separate property”) is not supposed to be divided. The above listed factors must be considered, and preferably advice of competent counsel should be sought.

[Read what’s considered separate, non-marital property here.]

In addition to the above-listed considerations, a balance sheet is an integral part of resolving the issues of property division.

• It can be used at mediation to arrive at an out-of-court settlement.

• It can be used for direct negotiations between attorneys.

• If settlement is not reached, a balance sheet is introduced at trial as an exhibit so that the judge can decide on this just and equitable division of marital property.

• Property divison an impact spousal maintenance outcomes.

Therefore, one of the goals of due diligence in any divorce proceeding must be to understand the impact and power of a balance sheet.

Considerations for Your Marital Balance Sheet

Several items are important in building a proposed balance sheet for a just and equitable division of property.

What’s Included

Typical assets (and atypical) we see as part of forming a marital balance sheet include:

• Principal residences and vacation homes

• Values of vehicles, recreational vehicles, or any other tangible assets of high value

• Pets (Animals are considered personal property in Minnesota divorce law)

• Personal property (Furniture/art work/jewelry/furs or other personal assets)

• Savings and checking accounts, including those owned by a business

• Brokerage accounts (Accounts containing equities, bonds, or other marketable securities)

• Investments in private companies

• Retirement assets (Traditional IRA/Roth IRA/401(k)/profit sharing plans/etc.).

• Secured or unsecured debt (Including whose name the debt is under)

• Life insurance policies with cash value.

• Pension or other retirement savings vehicles

Similarly, all marital debts should be listed:

• Mortgages and home equity lines of credit, both joint or individually held

• Credit card debt

• Private or vehicle loans

• Business loans

As the above list indicates, anything of value that was acquired after marriage should be included in a balance sheet – it truly is all the assets you or your spouse care about.

Dates of Acquisition and Cost Basis

For all of your assets and/or debts, it is extremely important to have a precise idea of the date of valuation and the source of the information.

For example, has an appraisal been conducted, and is the same date of valuation being used for all of the assets? If not, what is the reason for the deviation? In addition, it is important to separate post-tax assets from pre-tax assets. As an example, $100,000 in cash or equity in real estate is very different from $100,000 in a pre-tax retirement account.

Details to Prepare

This begins with a simple written balance sheet or ledger, but as the divorce process continues, you may need to produce proof of the asset, or more current values. Be prepared to have official financial documents when possible or the latest account statement for bank/debt/investment accounts. Assets like private businesses or collectibles may require an independent outside appraisal.

Other Considerations

It may take some time to complete the balance sheet! These instances include occasions where there may be a business which needs to be valued by a financial expert.

A spouse or both spouses may have non-marital claims in certain assets, and a financial expert may be necessary to trace or substantiate the non-marital claims. If a spouse has a pension, it may need to be valued by an actuary. Residential or commercial real estate may need to be appraised.

• The precise nature of the assets (Is it residential real estate or commercial? Has an appraisal been conducted?)

• Whether or not the personal assets generate investment/rental income

• Value of a business (Has a formal business valuation taken place with a true business valuation expert?)

• Calculation and potential exclusion of non-marital values (Whether it is in real estate, vehicles, retirement accounts or any other assets)

• When valuing a business, it’s crucial to account for both ‘net tangible assets’ and ‘identifiable intangible assets’ to determine the fair market value accurately. Any value not attributable to these assets is considered ‘goodwill’, underscoring the importance of understanding how goodwill is treated in divorce proceedings.

Save Time, Money, and Build Better Outcomes With A Good Marital Balance Sheet

Preparing a marital balance sheet early in the process will save both parties attorney’s fees and additional time and expense, as once this information is complete the negotiation can evolve into offers and counter-proposals.

A precise balance sheet will not only improve the chances of arriving at a settlement relative to property division, it will help your attorney draft a divorce decree which is precise and less prone to confusion.

On the other hand, if information is missing or if one spouse claims that they do not have all of the information, this can serve as a major roadblock towards a settlement.

Barring very extreme circumstances, property division cannot be reassessed and/or renegotiated: once a judge signs off on your divorce decree, property division is final. For this reason, it is extremely important that you work with a competent and experienced attorney to ensure that all of the issues relative to property division have been considered, an accurate balance sheet has been drafted, and a fair settlement has been negotiated on your behalf.

Have questions?

Alithis Family Law’s experienced divorce attorneys can help you plan for and execute around a good balance sheet during your divorce. We have extensive experience with complex and high income divorces ,international divorces, and more. Let’s talk! Call or email today to schedule a free divorce consultation.