How Is The Division Of Assets Handled In The Divorce Process?
New York is an equitable distribution state, which does not necessarily mean that assets are divided 50/50. There are a lot of nuances that come into play.
“Equitable” is just another word for fair. There are numerous statutory factors a Judge will use to decide “what is fair” in any given case.
So, I’ll give an example on retirement assets. There are a variety of ways we can divide retirement assets so the presumptive or general rule is that somebody will get 50% of the marital portion of the retirement asset. In other words, the amount which accrued to the account between the date of the marriage and the date of the commencement of the divorce proceeding is divided in half, and that’s what you get.
That’s a rather simplistic way of going about it – and there are many different ways parties can otherwise divide a retirement asset. That’s why it benefits you to have an experienced divorce attorney representing you. If the attorney is inexperienced, they’ll likely only know that 1 simplistic way to divide the retirement asset – and they won’t know the numerous other ways one can actually do it.
Another way one can divide a retirement asset is to do offsets of the two retirement portfolios. For example, one spouse has $200,000 in their retirement portfolio and the other spouse has $100,000 in their retirement portfolio. It doesn’t necessarily make sense to have one spouse get half of $200,000 and the other spouse to get a half of $100,000. It actually makes better sense to just say that one spouse will get one half of the offset between the two retirement portfolios. That way, you don’t need to have dueling qualified domestic relations orders to divide out these retirement assets.
Another way of deviating from the general rule is by moving the goal posts. In other words, the general rule is date of marriage to the date of commencement of the general divorce case, but that doesn’t have to be the case. You can move the goalposts so the division is between the date of marriage and the date of physical separation. You can justify this by saying it wouldn’t be fair to give the one spouse a share of the retirement assets which accrued after the parties stopped living together, as the other party cannot make a fair argument they made a “contribution” which allowed for the accrual of those retirement assets.
This discussion then goes to what is fair or equitable in any given case, and I’ve certainly been successful in my cases in negotiating that deviation from the general rule. Another option is to negotiate no distribution of retirements – a “he-keeps-his, she-keeps-hers” scenario.
There are many different types of assets – other than houses & condos – which are valued & divided in a divorce case.
A short list of the types of assets typically divided is as follows: real property, bank accounts, interests in businesses, bonuses, educational degrees, tax shelters, investments, jewelry, wedding gifts, personal property (including furniture), gifts exchanged between spouses, vested & unvested pension rights, vested or unvested, matured or pension rights that have not matured, profit-sharing, retirement & savings plans, value of assets in a family asset protection trust, severance payment, value of “book business” of a broker, face value of insurance, frequent flyer miles and church (even if operated as non-profit).
Additionally, common forms of “separate property” are premarital property & assets, inherited property/assets, gifted property/assets (when clearly gifted to only 1 spouse) and personal injury compensation. The bottom line is that these are general rules & there are many exceptions made to the general rules. Each case is ultimately decided on its own merits and each situation brings to the table unique facts.
With the increasing cost of housing, many intact couples do not find they have a ton of money left over after paying their mortgage as well as their basic living expenses. When those same couples split up, however, they may be left with less money than is necessary to meet those expenses.
While the real estate market is not great right now (2017) for sellers, if the mortgage is otherwise eating you alive, you may have no choice but to sell. Couples often budget a mortgage factored on two incomes coming into 1 household. When the couple goes through a divorce, now they are left with trying to support 2 households – meaning 2 sets of utility bills as well as payment of the mortgage as well as payment of rent for the spouse who’s moved out. It’s not uncommon for this to leave the parties at the break-even point – or even leave them with less money than is needed to pay all their basic expenses. If this is the case, then the best option is to immediately put the house on the market & salvage what you can of the equity.
The other option – if one party wishes to keep the house but the parties cannot afford to fund 2 households – is for the party wishing to keep the house to get a co-signor on the mortgage. That way, the party giving up his/her rights can get a buy-out from the refinance & go on with his/her life. Making these decisions sooner rather than later in the divorce process will save on attorney’s fees as well as preserve equity you’ve worked so hard to build up in the house.
Nevertheless, there are cases where the parties get married, but it’s pretty much a rocky marriage throughout. Somebody lives downstairs and somebody lives upstairs, they don’t joint (“co-mingle”) bank accounts, they file separate taxes, and they pretty much live separate existences during their marriage. For the most part, they never formed an economic partnership in the first place.
In those rare instances, one can make the argument it would be unfair or inequitable for the other spouse who did not make any direct or indirect contribution (which allowed for the accrual of the marital asset(s)) to still get an equal share of those marital assets. Maybe instead of getting 50%, they should get a lower percentage. Perhaps they should only get 40% or 30%, or in rare cases nothing. I’ve certainly done cases where the courts have ruled after trial that the non-monied spouse will get nothing from the retirement assets because s/he never put in evidence of direct or indirect contribution to allow for the accrual of those assets.
The other issue to address is people who attempt to hide assets. I’ve been on both sides of the fence on this issue, where for example one spouse has significant assets in a U.S. bank or U.S. investment fund, and then transfers money into a foreign bank account. She doesn’t disclose where the money went, and when they set forth their asset disclosure in their “net worth statement,” they don’t list that money. So, a lot of times, the opposing spouse will ask where that money went. The spouse will just shrug their shoulders and say, “I don’t know. It must’ve gotten spent.”
At that point, there is the issue of trying to trace the money and find out where exactly it went. In many instances, I advise clients to hire a forensic accountant. There are practical reasons for doing this. A forensic accountant is going to charge far less to review financial accounts than an attorney will charge. Good divorce attorneys generally charge between $400 and $500 an hour (or more) in Westchester and New York City. Forensic accountants, on the other hand, may only charge $250 to $300 an hour for their services. Moreover, a forensic accountant is going to know exactly what they are looking for because that’s pretty much all they do.
They are going to review those financial accounts much more efficiently and cost effectively than an attorney would. Furthermore, a forensic accountant can actually testify to the court, whereas an attorney cannot. So, in situations where there is an allegation of hidden or secreted assets, I tell a potential client to hire a forensic accountant and have that analysis done sooner rather than later. Those issues are going to come up in settlement negotiations, and it’s better to have that analysis ready to show to the judge or the referee in the settlement negotiations. Ironically, the sooner you prepare for trial, the better prepared you will be to negotiate a fair settlement.
The bottom line is there are a variety of ways one can divide assets in a divorce case – it’s rarely as easy as “he gets half & she gets half & we’re done.”
Asset Protection In A Divorce
Before a divorce is filed, there are no restraints as far as what a spouse can legally do in terms of asset protection.
As such, the critical date is the divorce filing date. In New York, we have automatic orders that restrain a party presumptively from moving assets after a divorce is filed. So a lot of times – especially when it comes to financial accounts and bank accounts – I’ll tell a client they may withdraw half, because s/he is entitled to half. You shouldn’t take more than half because that’s not fair, and it’s not right.
I will never tell a client to just raid a joint account; I don’t do that in good conscience. I’m simply not that kind of an attorney. Quite frankly, if a client came to me and told me they’d done that, I’d advise them to give the spouse back their one half. I always want to look like the good guy to the judge. I don’t want to look like the bad guy to the judge, and I don’t want my client to look like the bad guy either.
Selling property – even if it is in joint names – is absolutely permissible before a divorce is filed, so long as you have consent from the spouse who is going to have to sign off on the deed transfer. That’s certainly permissible and people oftentimes do that where there is no dispute and they need the money to fund the divorce litigation.
Likewise, if the property is in the name of one spouse or the other, it’s still permissible before the divorce is filed. After the divorce is filed, there has to be consent. So, either the other spouse will consent to the transfer of the property, or you have to get court permission.
Another thing that comes about is needed money to fund the litigation. The automatic orders definitely permit you to withdrawal money for reasonable attorney’s fees from mere financial accounts throughout the divorce case.
Furthermore, mere financial accounts such as bank accounts, stocks, bonds, mutual funds, or similar accounts would not be classified as a retirement account. However, if you are purporting to take money out of a retirement account (e.g., pensions, 401(k)s, IRAs) once a divorce has already been filed, you need the express permission of your spouse or you need court permission.
If someone comes to me in a situation where divorce has not yet been filed, and if they even remotely think that it’s going to be contested, I tell them if they don’t have the $10,000 they’ll need in order to do a contested divorce case, they should take it of their retirement account now. After a divorce is filed, you are going to have a problem because your spouse may or may not consent to you doing that, and then you are going to have to file a motion which is going to cost you several hundred dollars.
I have one case pending right now in which that exact scenario is playing out. The husband, who I am representing, thought his case was going to be an uncontested case, so he cobbled the money together to pay me the uncontested fee. Then, the case turned contested and I told him pursuant to your contract, you owe more money to me now because it’s a contested case. He didn’t have it – he said it was tied up in his 401(k). I had to tell him that since there is a divorce pending, I need consent from your spouse to access that 401(k). So, I went to her attorney and I said, “Look, we are willing to do a stipulation where it says my client can borrow from his retirement, but it will only be considered borrowing against his share of his retirement.” Therefore, it completely protects the other spouse because it will not be considered as money coming out of her share or her potential share of his retirement.
Without providing a reason, the wife’s attorney told me he was not willing to sign that stipulation. I tried to negotiate a further settlement, stating the situation was unreasonable. It’s going to unnecessarily cause motion practice, and a judge is not going to be happy with me having to file a motion on this issue. I tried every angle I could to pry that consent out of the attorney, and the attorney still said no. So now, at a several hundred-dollar cost to my client, I had to go ahead and file the motion and hope they will give that permission to him. If the judge does not give that permission and he cannot otherwise charge that money on his credit card, he may be left without a divorce attorney. All of this happened because he didn’t consider a contested case to be a possibility at the outset of the divorce case.
Protection from Spouse’s Debt
How someone can go about protecting themselves from their spouse’s debt involves looking at how the debt arose.
Oftentimes, I’ve faced cases in which there is credit card debt that is in joint name. You’ll have debt that’s in one name or the other, and then it’s a matter of seeing if that’s all marital debt, or if some of it is separate debt. If there is an allegation that some of it is separate debt, then we have a look at the actual credit card statements themselves and examine what charges the particular party claims belong to other spouse’s separate debt. So, separate debt means that even though two people accrued debt during that marriage, it was for their own separate purposes. For example, somebody goes to Sachs 5th avenue and puts $5000 worth of clothes on the credit card. Clearly, that was for their separate purposes, and they’ll presumably be keeping those clothes even in the event of a divorce case. Likewise, if they went to the container store and bought several thousand dollars’ worth of furniture and containers for the marital residence, and that spouse will continue to reside in that marital residence and therefore have the benefit of those belongings, then that debt should be considered their own separate debt.
If I have a client that makes that allegation, I first obtain the credit card statements going back three years or more. Then I have the clients actually sit down and go over what they believe to be separate debt. Sometimes that requires a forensic accountant, and sometimes the charges on the credit card statements are not all that clear. In that case, we have to subpoena the actual receipts themselves from the stores or restaurants in order to determine what exactly was purchased.
In regards to mortgage debt, if the mortgage was accrued during the marriage itself, it’s presumptively marital, so oftentimes there is no dispute along those lines. However, there could be disputes arising from separate property contributions, whether those are premarital funds used as a down payment on the mortgage, or a gift from a relative that one spouse wants to allege was given specifically to them and not to benefit the marriage itself.
The other consideration is whether or not there is debt wrapped up in utility bills. Oftentimes, the spouse who remains in the house doesn’t have the income to support two different houses, and the utility bills that are connected to the house fall by the way side. Then the debate becomes who pays what.
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