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Property, How Will It Be Divided

By: Carol Ann Wilson

 

Dividing property almost always takes some finesse. Itís not as simple as taking the total value of marital assets and just divvying them up. Emotions, perceived value, even not wanting a spouse to have something because, well - just because - it all plays a part.

Letís look at an example of how a case can play out. Marilyn and Tom Baxter have been married for 35 years. Sheís a homemaker caring for their four children and has not worked outside of their home for pay. Tom earns $150,000 per year and has started a business in the basement of their home. He expects the new business to create revenues after he retires. Their home is worth $135,000 and mortgage-free. His pension is valued at $90,000. Their joint savings is $28,000. Tom estimates his basement business is worth $75,000. Their combined assets total $328,000. If you assume a 50-50 property split, each would receive $164,000.

Here are the Baxtersí assets at the time of their divorce:

House

$135,000

Pension

90,000

Savings

28,000

Business

75,000

Total

$328,000


Splitting the property and assets down the middle is often not the most equitable division. In this scenario, Marilyn wants the house. The value of the house will remain in her column on a typical property settlement worksheet. Tom wants what most men want in the distribution of assets, the pension. Weíll put the pension in his column.

Tom also has some other thoughts. With the demands of his growing basement business, he needs cash. He wants the $28,000 savings account. Add the savings account to his column. Since Tom feels the business in the basement is his, he wants it all as his property. Put the business in his column.

The division now looks like this:

   

Marilyn

Tom

House

$135,000

$135,000

 

Pension

90,000

 

90,000

Savings

28,000

 

28,000

Business

75,000

 

75,000

Total

$328,000

$135,000

$193,000


Her assets total $135,000 and his assets total $193,000. If we were to look at a 50-50 property split, he would owe her $29,000. Although Tom has a large income of $150,000 a year, he does now want to give up any of the business or pension or savings.

Property Settlement Note

We could even out this division with a property settlement note. Tom could pay Marilyn $29,000 over time, like a note at the bank. He can make monthly payments with current market interest. Or, he can borrow funds directly from the bank, since he has assets, including a savings account comparable to what he would owe. A property settlement note is an agreement to pay a specified amount for an agreed-upon length of time with reasonable interest. It is still considered division of property, so the payer does not deduct it from taxable income. The payee does not pay taxes on the principal - only on the interest. It is important to collateralize this note, meaning that the payer should pledge something of value to guarantee it, in case the payer doesnít pay on the note.

If no other asset is available, it is possible to collateralize this note with a qualified pension by using a qualified domestic relations order (QDRO), a legal document that directs the administrator of a pension plan as to what amount (either percentage or dollar amount) is to be given to a non-employee spouse. If the payer defaults on the payments of a property settlement note, then the payee can collect pursuant to the terms of the QDRO agreement from the pension. A QDRO can be used to collateralize a property settlement note.


Suppose Marilyn does not like the settlement suggested. She believes she is owed the house and wants half of her husbandís pension because, in their 35 years of marriage, she helped him earn his pension by caring for their children and managing their household. She also wants half of the savings, because she doesnít want to be left without any cash. But she agrees that the basement business is Tomís.

Adjust the columns, keeping the house in Marilynís column; splitting the pension, putting $45,000 in each column; dividing the savings, placing $14,000 in both columns; and c





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