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Economic Issues in Divorce

Economic Issues in Divorce. Property Maintenance (Alimony) Child Support. Property at Dissolution. Classification Valuation Division. Characterization Who owns the property?. An Individual?. The Marriage?. Two Property Schemes. Common Law. Community Property.

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Economic Issues in Divorce

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  1. Economic Issues in Divorce Property Maintenance (Alimony) Child Support

  2. Property at Dissolution Classification Valuation Division

  3. Characterization Who owns the property? An Individual? The Marriage?

  4. Two Property Schemes Common Law Community Property

  5. Community Property Systems The Marital Community Husband Wife

  6. Community Property Keys: • Three title possibilities • Governs property ownership and control during marriage, at death and at dissolution • Includes all property acquired during marriage except gift inheritance & bequest

  7. Common Law Property Systems Joint Title Husband Wife

  8. Common Law Property Keys • Creates Two Title Possibilities • Governs property ownership during the marriage and at death • Has been abandoned as a method of characterizing property at dissolution in all states

  9. Modern Common Law Property Systems at Dissolution Marital Property Husband Wife

  10. Factors in Classification When acquired How acquired

  11. All Property Earned Marital Property Given Marriage Divorce

  12. Acquired During the Marriage Earned Marital Property Given Marriage Divorce

  13. Acquired During MarriageExcept Gift, Devise, Inherit. Given Marital Property Earned Excluded by Agreement Marriage Divorce

  14. Missouri’s Property System: Mo. Rev. Stat. §452.330 • Deferred Community Property: Marital Property is all property acquired during the marriage except: • Gift, bequest or inheritance • Exchanged for separate property • Acquired after legal separation • Excluded by valid agreement OR • Increase in value of separate property unless there is a marital contribution

  15. 2. Valuation When to value? How to value?

  16. 3. Division Equal division or Equitable division

  17. Equitable Distribution Factors • Contribution • Economic need • Custody of children/ family home • Need for rehabilitation • Conduct of Parties

  18. Discretion & Property Of these three issues, which one allows the most discretion?

  19. Find the Discretion Character Value Division

  20. Find the Discretion Character Value Division

  21. Missouri’s Property System Deferred Community Property But Presumption of Marital Property

  22. When does marriage begin? • The engagement ring (Brown v. Thomas) • The home purchased in contemplation of marriage • The joint money market account during cohabitation

  23. When does marriage end? Separate & Petition? Decree? Apart? DISCRETION?

  24. General principles • Marriage is an economic partnership • Property division is to be used to address post-divorce economic circumstances • Property division should sever economic ties of the couple

  25. IMPORTANT MO. RULES • Presume all property is marital • Earnings during marriage are marital • Separate property stays separate • Passive increased value of separate property is separate • Active increased value of separate property (due to spousal contributions) is marital • Income from separate property is marital • Character of property is determined by character of acquiring funds: If “acquired” with both separate and marital funds, source of funds calculation is used to determine proportions.

  26. Some easy calls… • Earnings • Savings & Investments • Real & Personal Property purchased with marital funds • REGARDLESS OF TITLE Marital Property

  27. REMEMBER… in common law states • DURING MARRIAGE, • OUTSIDE OF MARRIAGE, and • AT DEATH Common law property system determines who owns property THERE IS NO MARITAL PROPERTY IN THESE SETTINGS.

  28. Kirchberg v. Feenstra • Case involves control of jointly owned property DURING the marriage. • Mo. resolves this by declaring joint management but does not require joint decision-making; one party may make decisions subject to the consent, agreement or acquiescenceof the other spouse

  29. BUT…. AT DIVORCE Imported “community property” notions apply to the determine who owns property. PROPERTY CAN BE SEPARATE, MARITAL, OR SOME OF EACH.

  30. Identify the state’s approach to defining marital property Remember there are 3 methods….

  31. All Property (Ks.) Earned Marital Property Given Marriage Divorce

  32. Acquired During the Marriage Earned Marital Property Given Marriage Divorce

  33. Acquired During MarriageExcept Gift/Inherit (Mo.) Given Marital Property Earned Excluded by Agreement Marriage Divorce

  34. Missouri Statutes:Marital Property Presumption Property acquired during marriage is presumed to be marital

  35. Houses and such

  36. Problem E, p. 446 • On date of marriage John owns a home valued at $30,000 and subject to a $20,000 mortgage. What is John’s nonmarital interest or equitable position in the home? • John’s equitable position on date of marriage is 1/3 or 33 1/3 percent.

  37. Problem One • FMV of home before marriage = $30,000 • Equity in home (paid $10,000 so equity = 10,000/30,000 • So, John’s non-marital interest is 331/3% of the home

  38. New Adding on: • After John married, he and Pam add a bedroom using $10,000 in marital funds. • At the time the room is added, it increases the market value of the home from $30,000 to $40,000. • How does this affect John’s nonmarital or equitable interest in the property?

  39. New Recalculating the value • The room addition reduces John’s equitable interest in the home from 33 1/3% to • 25%. ($10,000 is 25% of $40,000).

  40. Effect of inflation? • Years later John and Pam divorce. The home is valued at $100,000 and has a $10,000 mortgage. • John retains his nonmarital interest in the home, which is what? $10,000 or 25%?

  41. The theory: • The present value of John’s nonmarital interest is the proportion his net equity at the time of improvement ($10,000 (25%)) bore to the aggregate of the value of the property on the date of the improvement ($40,000).

  42. John’s Non-marital share • 25% x 100,000 (All nonmarital) • $25,000 is set aside for John as his separate property. • Remainder of the house’s equity = • $75,000 - $10,000 mtg.= $65,000 • This equity will be subject to equitable distribution between the spouses as marital property.

  43. What about the debt? • Should each have to share in payment of existing mortgage or should they each share in proportion to their interest?

  44. Transmutation What’s Mine is Ours. • Changing separate property to marital property • Critical proof INTENT

  45. How to Prove Intent? Puts title in name of H&W? Uses marital funds to pay off mortgage? Treats house as family home?

  46. Transmutation • Suppose John mortgages house in order to pay for room addition, and changes the title to “H&W, husband & wife.” • Does John still retain separate interest in the property?

  47. Title: • Will joint title transmute character of property? • Can property be separate if jointly titled? • Can separately titled property be marital?

  48. Commingling • Will commingling separate and marital property change the character of the property? • 452.330.4 - commingling in and of itself insufficient

  49. Family Farms • Cases involving family farms are less likely to result in transmutation • Why?

  50. Ongoing Acquisition How do we determine title to property that is purchased over a period of time?

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