5 Complex Property Division Issues That Can Arise During a Divorce

 Posted on May 24, 2022 in Division of Assets

Some divorce cases may be relatively simple. If a couple does not own extensive assets, and if they are in agreement on how various issues related to the end of their marriage will be addressed, they may be able to complete an uncontested divorce fairly quickly. However, many divorces will involve complex issues that are not so easy to resolve. Disagreements between spouses can easily become contentious, especially when spouses have difficulty communicating effectively or cooperating with each other. Matters related to the division of marital property can be some of the more complex issues that divorcing spouses will need to address. By understanding property-related issues that can complicate the divorce process, a person can make sure they will be able to protect their financial interests as they work to end their marriage.

The attorneys of Weiss-Kunz & Oliver, LLC have represented clients in a wide variety of complex divorce cases, and we understand the legal and financial issues that can affect divorcing spouses. With our experience in matters related to high net worth divorce, we can ensure that all factors related to the income earned by both spouses and the property they own together and separately will be considered correctly. Our goal is to help our clients complete the divorce process in a way that will allow them to move forward successfully and maintain financial stability in the years to come.

Addressing Commingling of Property

Before a couple can begin making decisions about how property will be divided, they will need to determine whether certain assets are considered to be marital property. Generally, marital property, which includes all assets and debts acquired after a couple became married and before a legal separation, will need to be divided. Separate property, which may include assets owned by a spouse before getting married or items excluded from the marital estate by a prenuptial or postnuptial agreement, will not need to be divided, and the spouse who originally acquired these assets will be able to retain ownership.

However, there are some situations where it may be difficult to tell the difference between separate property owned by one spouse and marital property owned by a couple. When separate and marital property becomes “commingled,” a couple may need to work with accountants to trace assets back to their source and determine which assets may be considered to be separate property. If commingling of property results in separate assets losing their identity, these assets may be converted to marital property. However, if assets can retain their identity as separate property, they will not need to be divided.

As an example of how commingling may be addressed, consider a situation in which one spouse owned a home before a couple got married. While the home will generally be considered separate property, it may become commingled with marital property if the couple used marital assets to make improvements to the home and both spouses contributed to mortgage payments during their marriage. Since one spouse contributed to an increase in value of the equity in the home owned by the other spouse, the non-owner spouse may claim that some of the equity is considered to be marital property. While the spouse who originally owned the home will most likely be able to retain ownership, they may be required to reimburse the other spouse for the contributions they made to the increase in the value of this asset.

Ownership of Real Estate

Divorcing couples often encounter disputes about their family home. After living in a house for multiple years, raising children, and making the space their own through decorations and improvements, it is understandable for spouses to have a sentimental attachment to their home. Because of this, both spouses may wish to continue owning the home.

Disagreements may also arise in cases where spouses own multiple real estate properties. Couples with a high net worth may own vacation homes, apartments, or condos where they live during certain times of the year. Spouses may also need to address properties that they own and lease to residential or commercial tenants, which can not only be valuable assets, but also a source of income.

When addressing real estate property, appraisals will typically need to be performed to ensure that a couple understands the market value of these assets. If one spouse plans to maintain sole ownership of their marital home or other properties, they will need to refinance the mortgage so that they will be the sole borrower, and the other spouse’s name will need to be removed from the home’s title. The homeowner spouse will also need to make sure they will be able to pay all ongoing expenses related to the home, including mortgage payments, property taxes, utilities, and maintenance. 

If sole ownership of a home will not be financially feasible, a couple may decide that the best option is to sell the home during the divorce process. They will be able to divide the profits earned from the sale along with their other marital assets, and this may provide them both with the financial resources they need to set up new living arrangements. Ideally, a couple will want to look at what is most financially beneficial for both parties, which will help them make decisions that will allow them to maintain financial success after completing their divorce.

Valuation and Division of Business Assets

Family-owned businesses can sometimes be a contentious issue to address during divorce. When an entrepreneur has founded a business and put in the time, effort, and financial investment to make it successful, they will usually want to make sure they will be able to continue owning and operating the business after getting divorced. However, a business is likely to be one of the most valuable assets owned by a couple, and it may also be the primary source of income for one or both spouses. Determining how to divide business assets in a way that protects the financial interests of both spouses can sometimes be difficult.

To ensure that a business can be addressed properly during a divorce, a couple will want to perform a business valuation. Multiple approaches may be used during the business valuation process, including calculating the value of the business’s assets and liabilities, looking at the purchase price of similar businesses that have been sold recently, and evaluating the business’s earnings and cash flow to determine how it may grow and increase in value in the future. By understanding the true value of the business, as well as other marital assets, a couple can determine their options for dividing property in a way that will be beneficial for both parties. 

If one spouse wishes to be the sole owner of a family business, they may need to ensure that marital property is divided in a way that provides the other spouse with assets of an equivalent value. In some cases, such as when both spouses have been involved in managing and operating a company, a couple may decide to continue co-owning a business. To ensure that the rights of both parties will be protected, a couple will want to make sure they have a partnership agreement in place, and they may want to provide the option for one party to buy out the other party’s share of the business in the future. If continued ownership of a business will not be possible, a couple may agree to sell the business during their divorce and divide any profits earned.

Addressing Executive Compensation and Benefits

In cases where a spouse is a corporate officer or executive, multiple types of complex financial issues may need to be considered when dividing marital property. In addition to a significant annual income that a person earns, multiple other forms of compensation may need to be considered, especially when a person is likely to receive financial benefits in the future. Executives may participate in deferred compensation plans, and they may also need to consider bonuses, stock options, and profit sharing. An accountant may review a couple’s finances to determine both the present value of the assets they own and the future value of the forms of compensation an executive is entitled to. This will ensure that marital property can be divided in a way that provides both spouses with the financial resources they need and deserve.

Executives may also receive multiple types of complex retirement benefits that will need to be considered during the property division process. A person may be eligible for a pension, or they may save money in one or more retirement accounts. While these assets may be divided between spouses during the divorce process, the proper procedures should be followed when doing so to ensure that penalties and taxes will not apply to withdrawals or transfers made before a person is old enough to retire. In most cases, a qualified domestic relations order (QDRO) will need to be used to effectuate these transfers or to allocate pension benefits to a person’s ex-spouse. By executing these orders properly with the help of an attorney, spouses can make sure retirement assets will be divided correctly.

Determining How to Handle Marital Debts

In addition to addressing the assets they own, spouses will also need to look at the debts they owe and make decisions about who will be responsible for paying them. As with the property acquired by a couple, any debts that arose during a couple’s marriage will be considered to be mutual, and both parties will be responsible for paying the amounts owed to creditors. Multiple types of debts may need to be considered, including balances on credit cards, the mortgage on the family home or other real estate properties, and loans for vehicles, appliances, or other purchases made by either spouse.

While a couple may make decisions about how debts will be divided, it is important to understand that creditors may still be able to hold both spouses liable for the amounts owed. That is, even if a divorce settlement states that one spouse will be responsible for paying the balance on a joint credit card, if that person fails to make payments as required in the years following the couple’s divorce, the credit card company may take action to collect the debt from the other ex-spouse. Because of this, it is often recommended for spouses to pay off as much of their debts as possible before or during their divorce. If necessary, some marital assets may be sold to pay off joint debts, or a couple may work with accountants to determine whether other arrangements may be made to minimize their liabilities and ensure that they will both be able to maintain financial stability once their marriage has ended.

Contact Our Elmhurst Property Division Lawyers

In addition to the issues described above, divorcing couples may need to address multiple other concerns related to their property and finances. By working with a skilled lawyer to gain a full understanding of the value of their property, their rights regarding their assets and debts, and their options for dividing the marital estate, a person can take steps to position themselves for financial success following the dissolution of their marriage. To learn how our DuPage County asset division attorneys can help you address these issues, set up a consultation by calling 312-605-4041.

Sources:

https://www.ilga.gov/legislation/ilcs/documents/075000050k503.htm

https://www.forbes.com/sites/jefflanders/2011/04/12/understanding-how-assets-get-divided-in-divorce/