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Minnesota law categorizes property as marital or non-marital.

Marital property is usually divided equally while non-marital property is allocated entirely to the party who maintains the non-marital interest. Non-marital property involves the interest a party has in property accumulated prior to a marriage or property received as a gift or inheritence by one spouse, individually, during a marriage. Marital property involves any property that the parties accumulate during their marriage, including home equity, retirement assets, business interests, bank accounts, investments, motor vehicles and other property of value.

In order to ascertain the value of property, experts are typically retained. These include real estate appraisers, actuaries, business valuators and other individuals with specialized knowledge in determining the market value of various assets.  These experts can be retained by one or both of the parties.

Once all property interests are valued, a balance sheet is put together to reflect the allocation each party will receive.  Naturally, one party will receive more property than the other as items are divided.  When this occurs, a cash payment (equalization) is typically made from the spouse receiving more property to the spouse receiving less property in order to equalize the cumulative value of the assets they receive as a result of the dissolution of marriage.

Debts are typically treated the same way as assets.  Quite often, the court will allocate all debts incurred during the marriage equally.  Debts that remain from a time preceding the marriage are typically allocated to the party incurring the debt.  The same is true for debts incurred post-separation. The value of a particular debt is usually verified through a recent statement. Typically, if the party is allocated an asset they will take any debt that accompanies it.  A prime example involves an automobile.  If one spouse takes a car, they will likely have to accept responsibility for the debt associated with it.

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In a published decision entitled Alam v. Chowdhury, the Minnesota Court of Appeals has found that marital property involves acquisitions or increases in value during the marriage itself (not beyond) - even if one party commits fraud upon the court. Judge Hudson wrote for the majority.

The parties were married in 1979. Husband filed a Petition for divorce in 2001, serving Wife and showing her a proposed Marital Termination Agreement. She failed to provide an Answer and Husband moved for default judgment. The district court granted default judgment and signed a Judgment and Decree that was consistent with Husband's proposed Marital Termination Agreement.

In January of 2006, Wife moved to re-open, based upon allegations that Husband misrepresented the value of assets, claimed pre-marital assets that he could not trace and referenced an inheritance that Wife "was to" receive in the relevant Agreement. The district court found that husband committed a fraud upon the court and valued his retirement plan as of January of 2006 - five years after the dissolution of the marriage. Husband appealed.

While the court of appeals found that the court did properly re-open, it also found that the district court improperly applied Minnesota's valuation statute, which reads:

[t]he court shall value marital assets for purposes of division between the parties as of the day of the initially scheduled prehearing settlement conference, unless a different date is agreed upon by the parties, or unless the court makes specific findings that another date of valuation is fair and equitable. If there is a substantial change in value of an asset between the date of valuation and the final distribution, the court may adjust the valuation of that asset as necessary to effect an equitable distribution.

Judge Hudson wrote:

Here, it is undisputed that the parties’ marriage was dissolved in 2001. Thus, during their post-dissolution cohabitation, they were not living in a marital or purportedly marital relationship; accordingly, property acquired during that cohabitation was not marital. Because the district court’s application of the presumption of marital property ignores the part of the statute requiring a marital or purportedly marital relationship, the district court’s application of the presumption runs afoul of the requirement that “[e]very law shall be construed, if possible, to give effect to all its provisions.”

The court of appeals reversed, and ordered the district court to value and divide the account appropriately.

In his dissent, Judge Worke opined that "[b]ecause disregard of legal process and lack of due diligence in objecting to the dissolution weigh heavily against reopening the judgment and decree after so much time has passed, I part from the majority, and determine that the district court abused its discretion by vacating the judgment and decree."

Troubling to many clients is the fact that the court will often value assets as of the date of the first pre-trial conference. This hearing is the final hearing to take place before trial and often occurs more than a year following the service of the Summons and Petition. It seems to me that the standard would be just if the date of service of the initial pleadings served as the valuation date. That way, litigants wouldn't be deterred from purchasing property, placing money into retirement accounts or saving money for the difficult future they face.

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Time Magazine's Belinda Luscombe recently published a piece entitled "Will the Market Kill Your Marriage?" So much of her article rings true in these tough economic times. I highly recommend reading it in it's entirely. She does a nice job laying things on the line.

Here are of a few excerpts:

Recession and divorce, it is said, go together like carriage and horse. Those who labor in Splitsville have several explanations for why that might be. There's the lawyer theory, that money provides the soft fatty tissue that insulates the marital skeleton; once it's cut back and people get a good look at the guts of their relationship, they want out. And there's the marriage-counselor theory, that couples who were never quite on the same page in the checkbook finally get pushed off the ledger by endless bickering over their dwindling resources. And the therapist theory, that financial worries cause stress, stress can cause depression, and depression is a total connubial buzz kill. 

The two assets that typically need to be divided are 401(k)s and the family residence. But suddenly 401(k)s aren't worth as much, and that home whose mortgage was the mother of all argument starters is not an asset at all. It can't be sold - or at least not for a price that provides money to start over. Instead of working out who owns what, lawyers and mediators are trying to figure out the fiendishly trickier conundrum of who owes what. "We're negotiating debts - not assets," says Henry Gornbein, a family-law attorney in Oakland County, Mich. "Two, three years ago, I'd be telling you that houses had equity, and you'd either be doing a buying out or selling the house and splitting whatever the proceeds were. Now it's the reverse. You go into court; the judges just don't know what to do."

Therein lies the dilemma.

Not long ago, people had lots stuff (equity in homes and retirement accounts) to divide. No more. The vast majority of homes involved in a divorce are mortgaged for more than market price (perhaps 80% of our present clients find themselves in this situation) and retirement assets are worth one-half of what they worth a year ago. Tax what's left (oh, and penalize another ten percent for early withdrawal), and then begin to discuss the $20,000 marital credit card debt outstanding. Not a pretty picture.

The good news for families (children in particular) is that we are seeing a sharp increase in a more respectful, uncontested approach to divorce. I don't know if that's because there's nothing to divide, or because people don't have the resources to litigate.

Couples seem to be in the mood to work together. Some agree to keep one spouse in the home, but both continue to split the mortgage payments and ride out the market. They might be able to sell and break even (or even yield a profit) in a few years. Others remain business partners, in a sense, renting out their home when they vacate with a plan to sell when the market picks up. Others are agreeing to let the home go into foreclosure and banking money along the way. Still others are working with the lender to arrange for a short sale.

Elsewhere in our Blog, you will find information concerning property division, home foreclosure, bankruptcy and uncontested divorce. Always best to learn as much as you can about your options going forward.

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Judge Halbrooks has been busy at the Minnesota Court of Appeals. She recently issued three dissolution decisions, none of which were published. Two cases involved property allocation issues, one involved a joint physical custody award and two involved child support calculations:

• Popel v. Popel: Minnesota Court of Appeals (Unpublished). Judge Halbrooks held that the district court did not abuse its discretion in awarding joint physical custody to the parties but remanded for a recalculation of child support and reallocation of non-marital interests.
• Blaeser v. Fiscus: Minnesota Court of Appeals (Unpublished). Judge Halbrooks opined that the district court did not abuse its discretion by failing to modify child support following the emancipation of appellant's oldest child. 
• Murphy v. Murphy: Minnesota Court of Appeals (Unpublished)  Judge Halbrooks found no error in the district court's unequal allocation of marital property.

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The Minnesota Court of Appeals recently rendered three family law decisions, none of which warranted publication. One case involved child support issues, another custody and child support and the third property valuation and division:

• Donovan v. Donovan: Minnesota Court of Appeals (Unpublished). Judge Shumaker held that a child support bonus provision was unambiguous and that the doctrine of laches is inapplicable to child support cases.
• Adler v. Espinosa: Minnesota Court of Appeals (Unpublished). Judge Lansing opined that the district court appropriately determined physical custody and child support obligation.
• McCormick v. McCormick: Minnesota Court of Appeals (Unpublished)  Judge Halbrooks found no error in district court's valuation of real estate and denial of fee award, but reversed district court's award of 100% of the marital equity in the homestead to wife.

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Three family law appellate decisions for review this week: one adoption opinion from the Minnesota Supreme Court, one published interstate child support opinion from the Court of Appeals and one unpublished divorce opinion from the Minnesota Court of Appeals.

• C.O. v. Doe: Minnesota Supreme Court. Justice Page held that due process required an evidentiary hearing to take place before termination of adoption contract.
• In re the Welfare of S.R.S.: Minnesota Court of Appeals (Published). Judge Klaphake opined that Minnesota courts lacked subject matter jurisdiction to modify father's child support obligation.
• Baumgartner v. Baumgartner: Minnesota Court of Appeals (Unpublished). Chief Judge Toussaint found no abuse of discretion in disproportionate award of marital property and no error in valuation of marital property.

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Minnesota divorce statutes distinguish between marital and non-marital property. Marital property involves property acquired during the marriage, while non-marital property involves an asset that was brought into the marriage or received as an inheritance or gift to one spouse but not the other during the marriage. I'm often asked how Minnesota law treats a personal injury settlement. The answer rests in the nature of the recovery.

In Minnesota, an injury survivor can recover damages for a host of "losses," including past and future wage loss, past and future medical expenses and pain and suffering.

Because wages are considered marital property, the past wage loss portion of an injury settlement is deemed marital in nature. The same is true of proceeds received to pay for past medical expenses: a marital liability. As a result, this portion of the personal injury or worker's compensation award is subject to division among the parties.

However, an award for future wage loss and payment received for future medical care is non-marital. Earnings realized following a dissolution of a marriage remains the exclusive property of the earning spouse. Similarly, a debt incurred by a spouse following divorce must be paid by the person who incurs the obligation. Therefore, these portions of an injury settlement are non-marital in nature and are not subject to division.

Similarly, payments made for pain, suffering and loss of enjoyment of life are not subject to division. In a literal sense, your body is non-marital in nature. You brought, for example, your hand into your marriage. Your hand is not subject to division if the marriage dissolves. If you lose your hand in an accident, you have lost a non-marital asset. Compensation for the lost non-marital asset is non-marital as well.

Difficulty rests in the fact that most personal injury cases are settled before trial. The parties will sign a release form. However, that release form does not typically break down the award into neat categories, leaving room for argument on both sides. A jury verdict form, however, will break down the portion of the award given for wage loss, medical bills and pain and suffering.

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Thanks to Mark Wortman, a top Kansas City divorce lawyer, for his recent post surrounding the "dance" between bankruptcy and divorce. In his Missouri Divorce and Family Law Blog, Wartman writes that it may be better to file bankruptcy before the divorce, in light of the following:

• Federal bankruptcy law will allow married couples to file jointly, eliminating the need for two separate bankruptcy filings and two separate attorney fees after the divorce;
• The parties can exempt (protect) double the amount of property if they file jointly;
• Most married couples have joint debt. Even though the divorce court can divide the debt, it cannot alter the contract with the creditor, meaning that if the spouse ordered to pay doesn’t, creditors are going to come after whoever’s name is on the account. Then the only remedy is a contempt of court proceeding, which is time consuming (up to a year) and costly. All the while, the other spouse has to make the payment or suffer the credit consequences. Joint bankruptcy can eliminate the debt all together and avoid the problem of who pays who;
• Joint filing before the divorce will eliminate the need to litigate issue of debt in the divorce, which reduces the time and expense of the divorce, and avoids the result described above. Remember, a divorce decree is just a piece of paper, enforcing it is a whole different matter;
• Although the bankruptcy law will not allow a divorcee to discharge debts ordered in the divorce, the problem of collection and contempt may cause greater credit problems than the bankruptcy itself;
• Joint filing before divorce will allow for a higher income threshold for Chapter 7 qualification (means test avoidance);
• It most likely (almost guaranteed) that you can rebuild and re-establish your credit much faster than you could ever have paid off the debt, while at the same time getting the past problems behind you and truly getting a “fresh start”; and
• Bankruptcy is not the end of the world. It can be an effective solution to a real problem that real people have during these times.

Well thought advice. Of course, you should speak with a bankruptcy lawyer about these issues if you are really serious about filing in the midst of divorce. Bankruptcy is a niche practice and few divorce attorneys (including, admittedly, this one) have a strong command of the nuances of bankruptcy law and procedure.

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We've posted a number of entries concerning the benefits of settling a divorce as opposed to litigation. Even if you need to litigate, more than 95% of cases will settle before trial.

The following settlement checklist will come in handy as you attempt to figure out if you've got all of your bases covered:

1. Legal Custody: Joint or sole legal custody?
2. Physical Custody: Joint or sole physical custody?
3. Routine Access Schedule: Where will the children be on a given day?
4. Vacation Access Schedule: How many weeks of uninterrupted vacation time with the children?
5. Holiday Access Schedule: Who do the children celebrate with in a given year?
6. School-Year Breaks: Where will the children spend spring break or President's Day, for example?
7. Telephone Contact: What are the rules concerning communication with the children by phone?
8. Transportation: Who will transport the children for parenting time exchanges?
9. Basic Child Support: What is the amount of guideline support to be paid?
10. Medical/Dental Child Support: Who will insure the children and how will uninsured costs be allocated?
11. Child Care Support: How much will each parent pay for daycare?
12. Security for Support: Should one or both parents secure life insurance, naming the other as beneficiary for the benefit of the children?
13. Income Tax Exemptions: Who claims the children on their income taxes?
14. Spousal Maintenance/Alimony: How much and for how long?
15. Medical Insurance: Will each party cover their own?
16. Marital Property: What is a fair and equitable way to value and divide marital property?
17. Non-Marital Property: Does the holder of a non-marital interest retain that interest?
18. Pre-Separation Debts: How is the marital debt divided?
19. Post-Separation Debts: How are debts accrued after separation divided?
20. Fees and Costs: Will one party pay, or each responsible for their own attorney fees and costs?
21. Name Change: Does either spouse wish to change their name?
22. Ongoing Conflicts: Will the parties agree to mediate or use a parenting time consultant if future problems arise?
23. Documents: Do each agree to execute all paperwork necessary to transfer property interests?
24. Non-Disclosure: Does the court retain the ability to re-open the case if it is revealed that one party has hidden assets from the other?

Naturally, there are many other issues that will need to be addressed, but the 24 items listed above will give you a general framework for discussion.

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The Minnesota Judicial Branch has published an exceptional brochure entitled "From the Judges of Family Court: What to Expect...Divorce in Minnesota." In reviewing, it appears to serve as a "reality check" for the litigants. Much of it I endorse. Here is some of what the Court has to say:

A divorce can be a painful and difficult experience, but if you understand the functions and limitations of the legal system, the process becomes less frustrating. It is our hope, as Judges of Family Court, that this pamphlet will give you a better understanding of the process, and help you get through your divorce with realistic ideas and goals.

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Many of our clients are worried about the fact that they believe their spouse is hiding assets or won’t provide the information necessary to move a case along. The Minnesota Rules of Civil Procedure give divorce attorneys a series of tools that allow us to gather information in a number of ways, including:

• Interrogatories;
• Requests for Production of Documents;
• Requests for Admission;
• Depositions; and
• Subpoenas

The first tool that we utilize involves a series of written questions to your spouse. These are called interrogatories. Your spouse must provide us with written answers to all of our inquiries within thirty (30) days. The answers must be sworn to and signed before a notary. Interrogatories are an effective tool to use in gathering financial information.
 

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Depending upon the facts and legal issues involved in your divorce, a number of experts may play a role in your case, including a home appraiser, actuary, custody evaluator, business appraiser and vocational assessor.

The most common expert we employ is a home appraiser. In most cases the most valuable asset for division is the marital homestead. If one party elects to remain in the homestead we must calculate the equity in the house to determine the value of the property settlement. Naturally, the first step to establishing equity involves the determination of the market value of the property.

A typical homestead appraisal costs around $350. They take approximately one (1) week to complete. Many clients ask if a realtor’s market analysis can substitute for an appraisal. If the parties agree, a market analysis is sufficient. However, a realtor’s market analysis does not hold the same evidentiary weight as a certified real estate appraisal. For that reason, the appraisal is usually preferred.

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One of the more common questions I face from a potential client involves title to property - whether a car, boat, house, ATV, business, bank account or otherwise. They ask, "My spouse says that because my [insert the property interest] is not titled in my name, I am not entitled to any of it. Is that true?"

One highly unique aspect of family practice is the fact that the litigants, unlike basically all other lawsuits, often continue to speak with one another (and even live together) during litigation. Sometimes that can be productive - if the parties are discussing issues in good faith. Other times, one spouse is simply trying to play games and get inside the head of the other. My suggestion? Don't get your legal advice from your soon-to-be ex.

Here's the answer: Title to property is essentially meaningless in divorce court. Minnesota law defines marital property as anything accumulated by the parties during their marriage. Marital property is subject to equal division. The timing of the purchase, not the title, dictates the ownership interest for purposes of a divorce.

Of course, the law recognizes non-marital property, which is not subject to division. Non-marital property has a very specific definition. For the sake of this post, understand that nowhere in the definition of non-marital property is the concept of "marital title" addressed. Unless a piece of property was brought into the marriage by one spouse or received as a gift to one spouse but not the other during the marriage, the property at issue will likely be divided equally among the parties.

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Yesterday, the Minneapolis Star Tribune published part one on a series outlining the deteriorating housing market in the Twin Cities. Written by Chris Serres, Jim Buchta and Glenn Howatt, Minnesota’s New Ghost Towns offers a surprising and depressing look at the current status of suburban real estate in Minnesota. 

We have seen a drastic shift in thinking over the last five years in terms of real estate and its sale during a divorce. Not long ago the concept of a short sale or foreclosure was rarely discussed (perhaps once in 300 divorces). In today's market, however, we frequently discuss with potential clients their options when their mortgage exceeds the market value of their property.

For most parties, dividing assets is the easier part of the equation. People are often eager to receive something of value. More and more, however, we are handling disputes that involve nothing but an allocation of debt. Many seem not to have the incentive to step up to the plate and take on their equitable responsibility under the law - leaving the other to incur more debt, in the form of attorney's fees, just to make things happen.
 

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You and your spouse agree to sell the house (or other real estate) and divide the money from the sale 50%-50%. Here are some of the issues that come up in many divorces:

• While the house is listed for sale, who can live there?
• How will disputes over accepting an offer for the house be resolved? 
• Who will pay the mortgage, insurance, and taxes until the house is sold?
• What if the roof gets a leak? Who will pay for that?
• What does it mean to divide the sale money 50%-50%? What expenses and costs come out first?
• If the house is not sold before the divorce is final, how should the house be awarded in the divorce decree?
• Should the spouses remain "joint tenants" or each own half, as "tenants in common" or something else?

A good divorce attorney will ask about your situation and needs, and can advise you how to best protect your interests during a pending sale of the marital homestead.

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You owned a house before the marriage. You paid $15,000 cash, and took out a mortgage for $110,000. You made mortgage payments of $800 a month for 2 years before the marriage. Before getting married, you made substantial improvements to the house, increasing the value. After 5 years of marriage, you are getting divorced and you want to keep the house. The real estate market has been good for sellers, and the value of your house has risen to $180,000. Your spouse agrees you can keep the house but wants $90,000 (half the value.) What is your response and how do you support your position under Minnesota law?

This is an example of an asset that is part "marital" and part "non-marital". "Marital" assets are divided in a fair and equitable way (usually 50/50). Generally, non-marital assets are not divided - they are awarded to the spouse who owns the non-marital asset.

With this house, you need to figure out what part of the $180,000 is marital and what part is non-marital. The $15,000 downpayment, the mortage payments for 2 years before the marriage, the improvements you made before the marriage, and part of the increase in value of the house are "non-marital."

On the other hand, the mortgage principle spend down and increase in market value applied to that spend down is "marital." The process of running these calculations is know under Minnesota law as the Schmitz formula - named after a MInnesota Supreme Court decision that established the applicable standard. These determinations can become quite complicated, especially when, as in recent times, multiple refinances of a particular piece of property have occurred since marriage.
 

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The Minnesota Court of Appeals has opined that experts retained on a neutral basis by the parties to an action for dissolution of marriage are not entitled to quasi-judicial immunity (they are not immune from being sued for malpractice).

In Peterka v. Dennis, appellant sued respondents, an accountant and his employer, asserting that the accountant committed malpractice, for which his employer is vicariously liable, in evaluating businesses in connection with appellant’s dissolution action. Because the accountant was retained as an independent neutral evaluator of the businesses and a Hennepin County District Court Order required appellant and her husband to cooperate with and pay for the evaluation, respondents moved for summary judgment asserting quasi-judicial immunity. The district court granted summary judgment, holding that court appointment and public policy required that respondents be protected by quasi-judicial immunity. Because it concluded that respondent's accountant was not retained or appointed to perform a "judicial" function, the Minnesota Court of Appeals opted to reverse and remand.

The Court held that Dennis’ evaluation of business assets did not involve an "exercise of authority that is essentially judicial in nature." Dennis’ function was to apply sound accounting principles to develop factual bases supporting his expert opinion on the value of businesses in which appellant and her husband had an interest. Dennis had to exercise the same skill and judgment required by those in his profession; but exercise of that judgment did not equate to performing a judicial function. Dennis was retained, whether by appellant and her husband, or by the court, to give his expert opinion on the businesses’ value, not as a "decision-maker to determine competing claims" of appellant and her husband. For these reasons the Court concluded that even if Dennis was a court-appointed neutral, he was not appointed to perform a judicial function, and therefore is not entitled to quasi-judicial immunity. Because Dennis is not entitled to such immunity, Baune Dosen is therefore not entitled to vicarious quasi-judicial immunity.
 

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