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?

Many twenty-pound books have been written about the methods of valuing, and dividing, retirement interests. In fact, some lawyers make their living handling only the orders associated with slicing and dicing retirement plans, for two key reasons. First, this stuff is rather confusing, even to the most qualified divorce attorneys, making specialization critical. Second, many family lawyers don't wish to test the strength of their malpractice coverage by lurking in dark places. 

A few key terms to understand:

• Qualified Domestic Relations Orders (QDRO): An order drafted after entry of a divorce decree that splits ownership of a retirement plan. The plan administrator will have sample language to follow. Learn more about Qualified Domestic Relations Orders.
• Certified Judgment and Decree: A copy of a final divorce decree that contains the seal of the court administrator, validitating authenticity of the decree.

In an effort to help you get your arms wrapped around retirement interests, we offer the following: (1) common plan descriptions; and (2) method utilized to divide them:

• 401(k) Plan: An employee contributes a percentage of income to the plan, pre-tax. The employer may match the contribution of the employee in part, or full. Withdrawals are taxed as ordinary income. Withdrawal before 59 1/2 usually results in additional penalties. Divided pursuant to a QDRO. Learn more about 401(k) plans. 
• 403(b) Plan: Similar to a 401(k) plan, but offered by public education organizations and other non-profits. Divided pursuant to a QDRO. Learn more about 403(b) plans.
• 457 Plan: Similar to a 401(k) plan, but offered by some government employers. Divided pursuant to a QDRO.  Learn more about 457 plans.
• Deferred Compensation: A portion of an employee's income is paid at a future date, tax-deferred until payment is received. Many municipal employees, such as police officers, participate in deferred compensation plans. Divided pursuant to a QDRO. Learn more about deferred compensation plans.
• Employee Stock Ownership Plan (ESOP): A portion of the employee's salary is used to purchase company stock. The company holds the stock, in trust, for the employee. The employee receives cash, or shares, at time of termination of employment. Divided pursuant to a QDRO. Learn more about ESOPs.
• Profit Sharing Plan: The employer makes a contribution to an employee's account, if the company yields a profit, based on a formula. Divided pursuant to a QDRO. Learn more about profit sharing plans.
• Pensions: Arrangement in which a retired employee receives periodic payments from their former employer, whether a private company, union, the military or government agency. Divided pursuant to a QDRO, or non-qualified DRO. Learn more about pensions.
• Roth IRA: Individuals contribute to an account held in their name, on a post-tax basis. Growth on investment distributed tax free. Divided pursuant to a certified Judgment and Decree. Learn more about ROTH IRAs. 
• Simple IRA: An employee contributes a pecentage of income to the plan, pre-tax. The employer may match the contribution of the employee in part, or full. Similar to a 401(k), but less expensive to administrate. Divided pursuant to a QDRO. Learn more about Simple IRA accounts.
• Simplified Employee Pension (SEP): An employee contributes a pecentage of income to the plan, pre-tax. The employer may contribute to the plan. Divided pursuant to a certified Judgment and Decree. Learn more about SEP plans.
• Social Security: Individuals receive periodic payments from the government when they reach a specific age. Benefits are non-marital and, therefore, not subject to division among the parties. Learn more about social security benefits.
• Thrift Savings Plan (TSP): Defined contribution plan for federal civil service employees. Similar in nature to a 401(k) plan.  Divided pursuant to a QDRO. Learn more about TSP.
• Traditional IRA: Individuals contribute to an account held in their name, on a pre-tax basis. Divided pursuant to a certified Judgment and Decree. Learn more about Traditional IRAs.

Any number of other plans may be available to a particular employee, but these are by far the most common. If you have a question about another type of plan, such as a deferred annuity, TSA, money purchase plan or SARSEP, I invite you to contact me at your convenience.

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.

Run Time: 13:24

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.

Judge Halsey's post entitled Post-Decree Modification of Maintenance: Pension as Income or Property caught my attention as I was reviewing the posts of others today. Judge Halsey writes:

A recent unpublished Court of Appeals decision, Hemp, 2010 WL 1657024, is worthy of review by family law practitioners and judges as it considers once again which portions of a maintenance obligor's pension may be considered as income or property when a motion to modify maintenance is brought. The Court discusses Lee, 775 NW2d 631 (Minn.2009), which held "a district court may include in its calculation of an obligor's ability to pay maintenance the portion of an obligor's monthly pension payment exceeding the amount the obligor is entitled to receive each month as marital property."

The Court of Appeals in Hemp approved the district court's apportionment of the monthly pension benefit between what is marital property and what is not. The district court, however, erred in its interpretation of the valuation method used in the original dissolution decree.

I think one lesson to be learned is that counsel and the court should make detailed findings of fact in the original decree as to the valuation method agreed-upon by the parties or as ordered by the court so that such method is clear to the court hearing post-decree motions on maintenance.

In a good number of the cases we handle, the issue of spousal maintenance is front and center. From my perspective, the most important part in settling a maintenance claim involves agreeing to a specific timetable for payment. A client may pay a bit more than they like, but the fact that there is a cap on their future liability is usually worth it. The benefit to the recipient? These timetables usually accompany a non-modifiable (even if their ex's income drops significantly) maintenance award.

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.

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.

The Wisness' 30-year marriage was dissolved by a stipulated judgment and decree on September 17, 1993. The stipulated judgment and decree resolved the vast majority of the issues in their case, including alimony. As a result of the parties' agreement, husband was ordered to pay respondent $1,450 per month in permanent spousal maintenance.

Three years later, at age 56, husband had an opportunity to take early retirement from his employer. He moved the district court to terminate or reduce his spousal maintenance obligation. The retirement package that he was offered provided for a 50% reduction in income until he turned 62. The district court denied husband's motion, stating that while appellant could take advantage of the retirement opportunity, he could not avoid his obligation to pay support by voluntarily reducing his income. Despite that decision, husband opted for early retirement.

In 2007, then 67, husband moved the district court to eliminate his spousal maintenance obligation. He had remarried and was then working part-time as a school-bus driver, earning annual wages of $3,271 and $1,481 per month in social-security and Medicare payments. Despite a finding that husband retired in good faith, the district court declined to fully eliminate his alimony obligation:

It is fair and equitable to reduce [appellant’s] spousal maintenance obligation by approximately 50%, in light of both parties[’] present ability to meet their ongoing living expenses. Both parties will have to curtail their expenses or dip into their marital property to make up for the shortfall they each will sustain as a result of this modification of spousal maintenance.

Husband appealed. The Minnesota Court of Appeals affirmed, opining  that findings of fact concerning spousal maintenance must be upheld unless they are "clearly erroneous." The court found that the district court considered the statutory factors of wife's financial resources relative to her ongoing expenses. Relying heavily on the "standard of living" element of Minnesota's maintenance statute, Judge Halbrooks determined that wife's projected rent, medication expenses and health insurance expenses were reasonable.

Husband argued that he should not have to pay spousal maintenance because his ongoing monthly expenses were $183 less than his monthly gross (pre-tax) income. However, the court affirmed that, despite the shortfall, a mere reduction (as opposed to elimination) was appropriate and that the district court gave weight to the fact that both parties will have to curtail expenses or dip into their marital property in order to satisfy their monthly expenses.

At the end of the day, Wisness makes it clear that a maintenance obligor who retires in good faith may still be obligated to pay spousal maintenance to their ex. The safe bet for an obligor who has agreed to pay permanent spousal maintenance? Establish a specific timetable for termination of the obligation, if possible.

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.

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.
 

Today, a party to a divorce in Minnesota must merely demonstrate that there has been an "irretrievable breakdown" in the marital relationship. One spouse must simply acknowledge as much, and the court will grant their request to dissolve the marriage. A relatively low threshold - and a tough pill to swallow for those who feel that there is no "justice" in their case unless the court takes into account marital misconduct.

Potential clients often ask, "Should I fight the divorce?" Yes, if you intend to do so outside of the legal arena through counseling or therapy. Once it is obvious that the marriage cannot be saved, your resistence should be limited to that which is necessary to obtain a favorable court order. Not wanting the divorce can be used as leverage against your spouse if they are anxious to conclude matters. Often, the impatient spouse will buy a quick resolution by making an extremely attractive settlement offer. This strategy should be balanced against overdoing it. If you are fighting the dissolution process out of anger or spite, you are likely to cause significant economic and emotional harm to you, your spouse and your children.