How are assets and debts valued in a Minnesota divorce?
Valuing Assets and Debts in a Minnesota Divorce: What You Need to Know
Divorce is a complex legal process, and often one of the most critical aspects is the division of assets and debts. In Minnesota, the courts follow the principle of equitable distribution, meaning that marital property is divided fairly but not necessarily equally. Understanding how assets and debts are valued can help divorcing spouses navigate the process more effectively.
Marital vs. Non-Marital Property
Before discussing valuation, it’s essential to distinguish between marital and non-marital property. Marital property includes assets and debts acquired during the marriage, regardless of who holds title. Non-marital property consists of assets acquired before the marriage, gifts or inheritances received by one spouse, or property excluded by a valid prenuptial agreement. Only marital property is subject to division in a divorce.
How Are Assets Valued?
Valuing assets in a Minnesota divorce requires an accurate and fair assessment of their worth. Common assets include:
1. Real Estate
Real estate, including the family home, rental properties, and vacation homes, is typically valued through:
Professional appraisals
Comparative market analysis (CMA) by a real estate agent
County tax assessments (though less accurate)
A recent and accurate appraisal is usually the best way to value real property, although in some cases the court will make a determination based off of other evidence if there has not been a recent appraisal. In some cases, the parties to a divorce can agree on the value of the property. However, in other cases the parties may use competing appraisals to argue that the court should favor their position.
2. Retirement Accounts and Pensions
401(k)s, IRAs, and pensions are valued according to their current balance and potential future growth. A financial expert or actuary may be required to determine the present value of a pension or defined benefit plan. Division of retirement assets often requires a Qualified Domestic Relations Order (QDRO).
It is also important to consider tax ramifications when valuing retirement accounts, and it can often be useful to enlist the aid of a tax professional to calculate the after-tax value of such assets.
3. Business Interests
If one or both spouses own a business, it must be accurately valued through:
Income-based valuation (capitalization of earnings)
Market-based valuation (comparison to similar businesses)
Asset-based valuation (total assets minus liabilities) A business valuation expert is often necessary for an objective assessment.
Depending on the business, it may be useful to have a business valuation expert to testify or provide a report as to value. Without such expert valuation, the court may have difficulty ascertaining the true value of the business.
4. Personal Property
Cars, jewelry, artwork, and collectibles are valued through:
Appraisals (for high-value items)
Blue Book values (for vehicles)
Sales comparisons (for collectibles and antiques)
Again, expert witnesses can be useful to testify as to personal property value - particularly in cases where there are high-value items such as artwork or expensive jewelry.
5. Bank Accounts and Investments
Checking accounts, savings accounts, stocks, and bonds are valued based on their balance or market price at the time of valuation. Any outstanding loans or liabilities attached to these assets must also be considered.
How Are Debts Valued?
Debts incurred during the marriage must also be assessed and divided. Common debts include:
Mortgage and home equity loans: The balance due on a mortgage is subtracted from the home’s value to determine net equity.
Credit card debt: Typically assigned to the spouse who incurred the debt, unless it was for family expenses.
Student loans: Generally assigned to the spouse who benefited from the education unless marital funds were used for repayment.
Medical debt: If incurred during the marriage, it is usually divided equitably between the spouses.
Key Considerations in Asset and Debt Valuation
Date of Valuation: Courts generally use a valuation date near the time of divorce filing or trial. Fluctuating market conditions may impact asset values, particularly for investments and real estate.
Hidden Assets: Spouses must fully disclose all financial holdings. If one party attempts to conceal assets, forensic accountants may be necessary.
Tax Consequences: The tax impact of asset division must be considered. Selling assets may trigger capital gains taxes, and withdrawals from retirement accounts may have penalties.
Reaching a Fair Settlement
Divorcing couples can agree on valuations through mediation or negotiation, but when disputes arise, the court may require expert testimony or financial documentation. Consulting a family law attorney with experience in asset valuation is crucial to ensuring a fair and equitable outcome.
Conclusion
Valuing assets and debts in a Minnesota divorce is a detailed process requiring careful assessment and, in many cases, professional expertise. Understanding these principles can help divorcing spouses protect their financial interests and achieve a fair settlement. If you are facing a divorce, consulting a skilled attorney can help you navigate the complexities of asset and debt valuation with confidence.
If you are, or may become, involved in a divorce in Minnesota, schedule a free consultation with Attorney John E. Roach to discuss your options.