Division of Property & Debts RETURN TO “ALL ABOUT” SERIES SLIDE Scott Baroway Mediation Partners

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Equitable Distribution Defined 3 The division of marital property, “without regard to marital misconduct, in such proportions as the court deems just and equitable after considering all relevant factors...” May consider economic fault in very limited circumstances Colorado not a community property state Division is not necessarily or equal “Dual Property” Equitable Distribution State

Marital Property For Distribution 4 Real property Bank accounts, certificates of deposit Vehicles Tangible personal property Personal Injury recoveries Frequent Flier Benefits Stock, stock options, bonds Pensions, profit sharing, retirement plans, IRAs, 401(K)s, etc. Businesses, partnerships, professional practices Life insurance (cash surrender value) Other Mortgages on real estate Other long term debts Revolving charges Other short term debt Legal liabilities - lawsuits Contract liabilities to third parties (leases, rental agreements) AssetsLiabilities

What is considered “Marital Property”? 5 All property acquired by either spouse subsequent to the Marriage regardless of which spouse holds title regardless of whose name debt is in presumed to be marital subject to 5 exceptions

Five Exceptions To Marital Property 6 Gift, bequest, devise or gift Acquired in exchange for above or Pre-marital property (which has not been commingled) --HOWEVER for these three – increase in value is marital property— Acquired after a decree of legal separation issued Property acquired by valid agreement of parties.

“Commingling” 7 “Separate property” can become marital property if “commingled” “Commingled” defined as – Mixing of separate property with marital property i.e. - Third party gift to one spouse put into a joint bank account Adding spouse’s name to inherited property Sale of premarital property used to buy marital property

3-Step Process in evaluating property of marriage 8 Classify as Marital or Separate Value the property Equitably divide property based upon fair market values at time

Equitable Division Factors 9 The Court may consider any or all of the following in determining an “equitable division” of the property: Contribution of each spouse to acquisition of property, INCLUDING contribution as homemaker Value of property set apart to each spouse Economic circumstances of each at time of division – includes right live in home for reasonable period to raise kids Increase or decrease in value of separate property during marriage Depletion of the separate property for marital purposes ANY OTHER FACTOR COURT DEEMS RELEVANT (other than marital fault or misconduct)

Examples of Other Factors 10 Duration of Marriage Age, physical and emotional health of parties Income or property brought to the marriage Standard of living established during the marriage Any written agreement made by the parties before or during the marriage concerning an arrangement of property distribution Economic circumstances of each party at the time the division of property becomes effective. Income and earning capacity of each party, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children, time and expense necessary to acquire sufficient education or training to enable the party to become self-supporting at a standard of living reasonable comparable to that enjoyed during the marriage

Other Examples 11 Contribution of each party to the education, training or earning power of the other Tax consequences of the proposed distribution to each party Present value of the property Debts and liabilities of the parties Need for creation, now or in future, of a trust fund to secure reasonably foreseeable medical or educational costs for a spouse or children Extent to which a party deferred achieving their career goals Any other factor the Court deems relevant.

Valuation Of Marital Property 12 Some assets have stated or easily ascertainable value Bank accounts, certificates of deposit IRAs, 401(k)s Stock (publicly traded), bonds Some assets may need independent valuation Vehicles Real property Personal property Defined benefit pension plans Businesses, partnerships, professional practices

Valuation Methods 13 Publicly available information Vehicles – NADA Used Car book, Internet sources Sales of comparable real estate in your neighborhood Use of neutral experts Real estate appraisers Business valuation experts Pension appraisers OR MEDIATED AGREEMENT OF THE PARTIES

Marital Home 14 Colorado recognizes “desirability of awarding the family home or right to live therein for a reasonable period of time to the spouse with whom any children reside the majority of the time.” However, may be cost prohibitive Spouse not awarded house my be obligated to pay or assist in paying mortgage and delay equity cash value until future date. Spouse in home – forced to reduce standard of living to keep home Options Sell home Keep home Offset against other assets or obligations Buy-out over time Deferred sale and deferred distribution of equity First $250,000 of gain per spouse/former spouse from sale of primary residence is tax exempt provided home used as primary residence 2 out of last 5 years

Stock Options Can Be Marital Property 15 Possible scenarios Options acquired and vested during marriage Options acquired but not vested during marriage Options for past performance Options for future performance Options acquired after marriage but granted for performance during marriage

Social Security Benefits 16 Not marital property subject to distribution Can be considered as an offset against other marital assets Protected from most creditors Exception for payment of child support or alimony You’re entitled to your own benefits and may be entitled to benefits as a former spouse if - Married for at least 10 years and divorced for 2 years Both parties at least 62 years old Not married when you apply for benefits Not receiving Social Security spousal or survival benefits based on someone else’s employment history Need to talk to specialist on this subject as law changes

Pensions Often Marital Property 17 Retirement benefits earned during marriage deferred compensation for past employment Marital property part earned from employment during the marriage, AND increased value during marriage Military pension benefits earned during marriage subject to special division rules

Pension Plan Valuation 18 Defined contribution plans value easy to determine comprised of the spouse’s contributions plus those of the employer Defined benefit plans value more complex to determine value is defined by the plan and not the employee’s contributions

Date Of Valuation 19 Date of permanent orders hearing or date of decree Spouses can agree on different date(s) Increases/decreases due to market conditions Usually realized by both parties at time of actual distribution or sale (Major Issue now with Economy)

Distributing Pension Benefits 20 Two methods Immediate offset – determine present value of benefit and offset against other assets being distributed Deferred distribution – non-pension spouse receives benefits when pension spouse is eligible for his/her benefits Qualified Domestic Relations Order (QDRO) Judicial device for distributing pension benefits Specialized and need expert to prepare Usually an added cost to mediation of $350-$500 per pension plan being divided.

Immediate Offset v. Deferred Distribution 21 Immediate offset Pros Completely resolves pension issue Cons Based on assumptions Deferred distribution Pros Actual pension benefit distributed Share risk associated with benefit Taxes apportioned appropriately Cons Issue not resolved until future date Benefit contingent upon pension spouse living to receive pension Plans options must be considered

“QDRO”s Qualified Domestic Relations Order 22 A court order requiring a retirement plan administrator to disperse benefits to you or your spouse pursuant to divorce agreement Used for both defined benefit and defined contribution plans State, local government and military pensions are not covered by QDROs; However, there are similar court orders that apply. Very complicated. Separate expert needed to prepare.