An FENE involves a half-day session (or two, or three, or four) with a court-appointed neutral. This neutral typically is an experienced family law attorney, or a CPA familiar with the financial issues involved in a divorce. The parties, and their lawyers, sit down with the evaluator very early in the case - in an effort to catch people before they become too embroiled in conflict, or stuck in their position.

The process begins with the exchange of information, to ensure that there has been a full and fair disclosure of all income, assets and liabilities. A balance sheet is often created, which defines the universe of assets and debts, attributes value, provides a basis for the value, carves out any non-marital claims, and then allocates the relevant item to one of the parties. Once all allocated assets and debts are added up for each litigant, the cumulative value for each should be equal. This is typically the least controversial portion of the FENE, but can take some time.

The more controversial portion of the FENE involves the issue of spousal maintenance. With the assistance of the evaluator, the income and budgets of the parties will be scrutinized. A range of possible outcomes may be discussed, and recommendations may be made by the evaluator concerning the amount, and duration, of alimony in the event that the judge is left to decide the issue. Settlement discussions begin with that opinion as a backdrop.

Why does FENE work so often? A few points:

• The parties have direct conversation with one another, and the evaluator, in a natural way. A far cry from the robotic "question and answer" method of introducing evidence during a trial.
• The rules of evidence go out the window at an FENE. Any issue is up for discussion, empowering participants to voice their real-life concerns.
• Emotions may be taken into account at an FENE. Issues concerning "fairness" and "hurt" may be addressed as part of the process. Frankly, the law of "no-fault divorce" precludes alot of this in the courtroom.
• The process can be therapeutic. People feel like they can speak their mind, and they are listened to. Sometimes all a party needs is to be heard by someone. 
• Spouses have to look each in the eye as they discuss the issues. Very different from sitting 25 feet apart in the courtroom, facing front.
• There is a real sense that the parties can "get it done" during the process. Litigants believe that closure has real value, and may be worth a compromise.
• The process is a respectful one. Most evaluators know how to keep tempers from flaring.
• The evaluators, not the lawyers, control the agenda. Both parties feel they are on a level playing field. 
• Opinions matter. Litigants afford substantial weight to the perspective of the evaluators. They know the evaluator has no stake in the outcome, and the experience to back up their opinions.
• The neutrals are forced to "show their work." What I mean is that the parties are literally walked through each of the elements of the case, together, and hear the same thing at the same time. They see how the opinions of the evaluator are created right before their eyes, giving them more credibility.
• The surroundings are comfortable. There are no robes, no gavels, no court reporters, and no security. Just people sitting around a table, with their favorite beverage, talking.

As time goes on, I suspect the FENE process will gain statewide acceptance. Most of the counties in the Twin Cities metro area have adopted such a program. Why wouldn't they? With a 3/4 reduction in divorce litigation, everybody wins....except those lawyers whose practice model is based on "dog fight" mentality. But, who's feeling sorry for them anyway?

Every case, regardless of the age, income or educational level of the litigants, will involve an analysis of the relevant property interests of the couple - even if they've only been married for a short time.

Topics discussed in this podcast include the concealing of assets, tools for uncovering assets, the difference between marital and non-marital property, and the general rule of an equal division of assets and debts, despite the relevant statute requiring a "just and equitable" distribution.

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Alimony payments are considered income for the person to whom the payments are made, and are deductible to the person who's making the payments. If the parties are in different tax brackets, the government may wind up subsidizing part of the alimony payment.

In contrast to alimony, child support payments are not considered as income to the person receiving the payments, nor are payments deductible to the person making the payment. As a result, child support payments do not have any tax consequences at all. Important, however, if alimony is also an issue, to run the child support numbers and compare available cash - as opposed to gross income - in determining need versus ability to pay.

The sale of the marital homestead does not typically involve a taxable event. Capital gains up to $500,000 from the sale of the homestead will be not subject to taxation, if you have lived there for two of the last five years.

If you choose to transfer title to the residence, allowing your spouse to retain the equity, no taxable event occurs. Many clients will opt to use the home equity as an offset against alimony payments, avoiding tax issues altogether.  

However, if you want to adjust the property division in a way that allows both partners to retain equal equity in assets, there may be sizable tax consequence to consider. For example, if one spouse retains the marital homestead and offers the other a retirement account in exchange for his/her share of equity in the house, the resulting settlement may not be fair to the one who takes the retirement account. That's because if this spouse wants to access his retirement account funds, they cannot do so without incurring a tax liability. As a result, when you factor in the tax liability, the person who received the retirement account could actually end up with a lower settlement.

Simply put, a dollar of equity in a home is worth a dollar on the street. A dollar in a 401(k) plan is worth, perhaps, 70 cents on the street. For that reason, we always consider the net value of a particular asset in creating an equal property settlement.

CNN Headline News featured the Divorce Cost & Prep iPhone App created by Dallas Divorce Lawyer Michelle May O'Neil and Fort Worth CPA Bryan Rice. The story originally ran on CBS11 in Dallas on Wednesday night, but by Friday The Morning Express with Robin Meade Show on CNN HLN picked up the story and it spread throughout the US and the world.

According to O'Neil, the app serves two purposes. First, a person contemplating divorce can assess the hidden and direct costs of divorce, such as the cost of providing two houses, two wardrobes for the children, or transportation costs for exchanging the children between houses. Second, the app gives divorce clients a list of information and documents to gather for their lawyer to assist preparation of their divorce.

Divorce Cost & Prep is available on iTunes for $4.99. Lots of apps for lawyers to use, but only a limited number geared toward clients. Congrats to Michelle and Bryan for their creative success.

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.

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.

• 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.

• 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.

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.

Suppose you are 40 years of age and your union pension indicates that at present you qualify to receive $1,000 per month at age 55. Those benefits, despite the fact they are not yet realized, have an economic value. It is the job of an actuary to calculate that value. Clients are often shocked to realize that their pension interest, in terms of present dollars, totals several hundred thousand dollars.

If the pension interest was accumulated during the marriage, it is subject to equal division. This may be done by a cash off-set or an award of future benefits to each party. If the cash buy-out is contemplated, then we must know the present value of the benefit. An actuary typically charges a couple hundred dollars for their services.

If custody is a contested issue in your case, a custody evaluator will be appointed by the court. This individual typically possesses a degree in psychology or social work. The custody evaluator will meet with each party individually, and meet with them in the presence of the children. They will gather documentation such as medical and school records involving the children. Custody experts often speak with counselors that might be involved with the family. Parents will often refer the evaluator to several acquaintances who can speak of their ability to affectively parent the children.

The process of completing a custody evaluation typically takes several months. Once all of the necessary information is gathered by the evaluator, a report is generated that addresses the information gathered in relation to the standard for an award of custody in Minnesota – the best interest of the child. These reports are often twenty (20) or thirty (30) pages in length and may include painstaking detail about the family situation. The final part of the evaluator’s report includes a series of recommendations. Most often, the court will adopt the recommendations of the evaluator.

There are two types of custody evaluators in Minnesota: court appointed and privately retained. There is no legal distinction between the two, but a private evaluator will typically charge more than $10,000 for their services. In some situations, a private custody evaluation will be done much more quickly than an evaluation conducted by court services. If court services performs the evaluation they, too, charge a fee. But it is typically much less than the fee associated with a private evaluation. 

We frequently employ business appraisers to ascertain the present value of a business owned by one or both of the parties to a divorce. There are a number of ways that a business appraiser calculates the market value of a particular business. The evaluator will look at the overall business revenue, profits, assets and marketability of the business.

The cost for a particular appraisal varies depending upon the nature of the business being valued. In most situations, a business appraisal will cost between $5,000 and $10,000. Once the appraisal is concluded, the evaluator will present a written report. The report will include the various formulas utilized for determining market value and offer an expert opinion concerning the value of the business based upon dozens of factors that have been taken into account.

In cases involving spousal maintenance, we often employ a vocational assessor. This individual is asked to evaluate a spouse’s capacity for employment and potential annual earnings based upon their educational background, skills and the market place. The person being evaluated will be asked to spend the day with the vocational assessor. An interview takes place and the individual is asked to complete a series of psychological tests, including the MMPI and other skills tests.

Once the evaluator has opportunity to get to know the individual, they will generate a report that discusses the skills and abilities of the individual, along with a host of potential careers that are available to them. The assessor we retain will take into account market conditions specific to the Minneapolis area. A vocational assessment typically costs approximately $1,500. The conclusions drawn by the assessor provide significant evidence for the court to consider in light of a request for spousal maintenance.

The foregoing experts are the most frequently retained individuals to assist our clients through the divorce process. Certainly there are others, such as vehicle appraisers, psychological experts, chemical abuse experts, accountants and others. The costs associated with retaining many experts is substantial. For that reason, we work very closely with our clients to balance the costs of the involvement of an expert against the benefit that we hope to realize in retaining that individual.
 

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.

• 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.

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.