Getting a divorce can be a complicated process under the best of circumstances: custody, visitation (called “parenting time” in Minnesota), support of children, spousal support, even who will take the family’s beloved pet all can become thorny issues to settle as part of the final decree. But when there are substantial assets to be divided, this can result in a complex divorce.
“Substantial assets” can mean many things ranging from assigning a value to a business or professional practice and deferred executive compensation and stock option plans to real estate holdings other than the marital home, investment accounts, fine art, trust funds, intellectual property, and dividing debts accumulated during the marriage.
Under Minnesota law, assets and liabilities are to be divided “equitably” during a divorce which does not always mean divided “equally.” When a couple has more than just a bank account and credit cards, the home or condo where they have lived as a married couple, one or two cars and personal property, unwinding a couple’s assets and obligations equitably can be both complicated and cantankerous.
When the assets are great and diverse, a typical way of having them valued is to select a neutral evaluator with experience in the areas requiring valuation. This means that the parties to the divorce agree that they will use on “neutral” professional to value an asset, such as a business for example. Another option is for each spouse to hire their own professional evaluator. If the valuations of each evaluator diverge significantly and the difference cannot be reconciled, a third evaluation may be done.
If the asset is a business or professional practice, an investment fund or real estate, the task is somewhat easier than for things such as fine art or rare antiques where assigning a value can be more subjective – and where the value may fluctuate depending on trends and the current tastes of buyers. Still, the process is roughly the same by using appraisers from auction houses that handle high-value works of art and so-called “priceless” antiques.
Being able to provide proof of the item’s provenance can help with the evaluation. Besides art and antiques, here are some of the most-common complicated assets that may not be easily divided in a divorce.
Valuing and Dividing a Business
The first step is to have the business valued by a recognized appraiser who is a neutral third party. Then the couple needs to reach an agreement on what will happen to the business after the divorce. If they can’t reach an amicable solution, a court is likely to do one of three things:
- Order the business be sold and the proceeds divided,
- Direct one spouse to buy out the other’s interest, or
- Tell the couple to continue to operate the entity together.
Valuing and Dividing a Professional Practice
This can be especially nettlesome because unless both people are, say, doctors or lawyers, the non-professional can’t be a practitioner in the operation. Moreover, the relationship between a professional and their clients or patients is extremely personal.
Dividing Retirement Plans and Investment Accounts
While the exact value is easily determined, how the assets are to be allocated between spouses is a matter of negotiation. Plus, once an agreement is reached, if the plan is my client’s, I must inform the plan administrator or the firm administering the account that it is being divided and how.
Valuing and Dividing Investment Real Estate
Appraisers and valuation experts may establish what the property is worth. Sometimes, a court will order the asset sold and the proceeds divided; at other times, the court may award the property to one of the spouses who then pays the other spouse half of the value.
Deferred Compensation and Stock Options
For a fair division of marital property, complicated assets such as deferred compensation plans, unvested stock options or restricted stock units, and executive bonuses all come into play.
These can be tricky, especially if the fund belonged to one of the spouses before marriage, but appreciated in value and was utilized for living expenses while the couple was married. Lawyers rely on documentation from a trustee to help determine what portion was non-marital property and what came after the marriage.
Dividing Marital Debts
Many couples with complicated, high-value assets also have high levels of debt: one or more mortgages, credit cards, lines of credit and business loans, current and back taxes owed, even student loans with outstanding balances. As with property, the law requires dividing debts equitably.
High asset divorces often are complex. Because outside experts usually are needed to assign a fair value, the overall cost is likely to be higher than for a divorce where there are relatively few assets that are more easily valued. At Maxim Smith, we know respected accountants, appraisers, and evaluators who will provide an impartial assessment on even the most unusual assets.