Barbara and Michael married in 1970 after graduating from Boston College.  They moved to Columbia, Maryland, where Michael got a job as a mathematician for the Department of Defense.   They had two children.  Michael left his government job for a lucrative position in sales for a computer company.  The couple lived off their income and invested Michael’s bonuses.

After 12 years of marriage, however, the parties encountered marital difficulties, and separated.   They divorced in 1984.

One of the issues in their divorce involved the valuation of two of their investments, namely limited partnership interests in real estate ventures.  The managing partner testified that one of the investments was worth about $50,000 and the other was insolvent and owed more than it was worth.  The court valued Michael’s share of the first partnership at about $11,000 and the second partnership at a negative value of approximately $15,000.

This was erroneous the Court of Special Appeals ruled.  The trial court has to value each item of marital property separately and there is no provision in the statute for deducting a loss on a bad investment from other marital property.  Therefore, the court could not assign a negative value.  The lowest value marital property can have is zero.

Green v. Green, 64 Md. App. 122; 494 A.2d 721 (1985)

Guest Author Bio: Elizabeth Roque is an in-house writer for Franklin Debt Relief. She presents information about debt relief programs, credit card debt reduction and getting out of debt on a variety of financial sites online.

Divorce is a difficult decision in and of itself but after the decision has been made, there are a lot more considerations that must be taken into account.  One of these considerations is what to do about the marital assets, namely the house.  Keeping or selling the house is not just about whether or not you “want” to keep it; there is a lot more to it than that.  If you are considering keeping the home, can you afford it?

The question on whether you can afford it is a two pronged question.  It includes (1) whether or not you have the assets or individual cash flow available to cover half of the value of the equity in the house that must be paid to your spouse if you decide to keep the house and (2) whether or not you can afford to maintain the home.  If you do not have the assets necessary to cover half of the value of the equity of the home, there is still a chance that you can keep the home but the division process is significantly more complicated.  Your ability to split the marital assets equally will play a big role in whether or not the house should be sold and the profits split or whether you will actually be able to keep it.

Next, take a realistic look at your finances and determine if you have the funds to maintain the home and pay all of the taxes and fees necessary on a yearly basis.  If you decide to keep the home, you will have to update all of your marital loan, title, tax records, and homeowner’s insurance information to reflect the change in ownership.  You must be able to afford the costs of updating these documents.  You should also be able to cover routine and unexpected maintenance when necessary.

Evangeline bought a house on Brandywine Street in D.C. in 1967 for $26,950.  In 1974 she married David and he moved into her house.  David paid the mortgage during the marriage until 1986.

At their divorce Evangline claimed the property was all hers under D.C. Code § 16-910(a) (1981), which provides that property acquired prior to the marriage is the sole and separate property of the spouse who originally owned it and must be assigned to that spouse upon divorce.

The trial court awarded David a 50% interest in the house.  Evangeline appealed and the DC Court of appeals reversed in part.  The statute it said prohibits the divorce judge from giving David a legal interest in the house.  The court could not transfer title to premarital property and therefore, it must remain in Evangeline’s name.  However, the judge could give David an equitable interest in the house.

The court then instructed the trial judge to determine a dollar amount of that interest, not a percentage, based on David’s contributions and appreciation during the marriage.   Yeldell v. Yeldell, 551 A.2d 832 (1988)

Glenn Phillips of Birmingham, Alabama, is the founder of Forte, Inc., a software consulting business, who went through a contentious divorce, as reported by Deborah L. Cohen of Reuters.

In addition to legal fees, support and property division, he estimates his divorce cost him more than $200,000 in lost business.  He said he was regularly pulled away from work for meetings with lawyers, producing documents in discovery, and settlement negotiations, which took up more than a year.

“It was painful, it was costly,” said Phillips, “I wasn’t there to lead and direct.”  Phillips was able to keep his business and turn things around eventually but divorce can have hidden and indirect costs for small business owners.

Henry Silverman, 68, of New York, married Nancy Silverman, 66, in 1978.  In their 30 years of marriage, Henry built Cendant Corporation into a multi-billion dollar company that provides car rentals, travel reservation services as well, real estate brokerage and hotel franchises.

Then he got a divorce in 2008 and soon after became engaged to yoga instructor Karen Hader.  In dividing up the marital assets, Henry submitted that he was an innate genius and Nancy had no part in his financial success.  He alone, through his unique personal traits, was responsible for accumulating a $450 million fortune during the marriage.  To support his theory, he submitted affidavits from three psychologists who would testify at trial about his intelligence.

State Supreme Court Judge Laura Drager rejected the evidence, saying that although “the husband brought to his work innate abilities and acumen that helped cause the business to succeed, ” the wife also contributed by “managing the couples’ domestic and social life and raising their daughter, and the social introductions and other efforts she claims to have made that assisted the husband in business.”

Read more.

In the Lasater case, Nancy said that John deceived her for many years about his income and expenditures.  He lost his temper and yelled at her blaming her for the family’s financial plight.

This made her ill and gave rise to a claim in her lawsuit that John intentionally inflicted emotional distress on her.

The court said that one of the elements of this tort is extreme or outrageous conduct.  It found that John’s alleged actions, if true, did not rise to the level of extreme or outrageous conduct required.

In the Lasater case, Nancy claimed that John spent money from their joint checking account, including money she deposited from her inheritance, for his own private use.

This was not authorized by her, and she said, amounted to conversion.

The court, however, found that once moneys were deposited in the joint account, they were commingled with other money that belonged to both parties and could not be separated out.  You cannot convert money which already belongs to you, so the conversion claim was denied.

Nancy Lasater and John Guttmann of Maryland were both attorneys who had been  married to each other for 27 years before their divorce.  John handled all the family finances.  They had a joint checking account where their paychecks were deposited.  They both wrote checks on the account.  Statements came to the house, but Nancy never looked at them.

When she finally did look at their finances, Nancy says she discovered that John had mismanaged them and spent all their money on bad real estate investments and other expenses (including a large collection of compact disks).  She sued John for the torts of conversion, intentional infliction of mental distress, breach of fiduciary duty and fraud.  John moved to dismiss Nancy’s lawsuit, and filed his own complaint for divorce.

The court granted John’s motion to dismiss, saying that, even if it happened the way Nancy says it did, her claims failed as a matter of law.  We’ll be taking a look at each claim and the law and the facts surrounding them in the next series of blogs.

Let’s say you have a 401(k) plan worth $200,000 and you and your spouse have $200,000 in equity in the family home.  Should you trade your spouse the house for your pension plan?

No because the equity in the house is tax free.  You will pay a tax of about 35% when you start taking your pension.  That makes the pension worth 65% of $200,000 or $130,000.

Would you let your spouse keep $10,000 in the joint checking account if you can keep $10,000 in joint IBM stock?  The bank account is tax free.  Any capital gains on the IBM stock will be taxed when you sell it.  So you won’t get $10,000 in cash.

Trades that look equal on paper, aren’t necessarily equal once you take taxes into account.

Several years ago a New York judge ordered Brian McGurk to pay his wife, Dorothy McGurk, $850 a month in lifetime alimony and gave her the marital residence because of her disability.

Recently Brian saw an entry on her blog that she was now belly dancing.  Furious, he took her back to court.

Dorothy claimed that her doctor had prescribed belly dancing as therapy for her injuries in a 1997 car accident.  The doctor however did not support that claim in court.

The judge reduced alimony to $400 a month, ordered her to pay her husband’s attorney fees of $5,000 and to give him 60% of the proceeds from the sale of the house.

As Shakira says, “Hips Don’t Lie”.