The basic definition
At its simplest, a marital estate is defined as everything a couple owns and everything the couple owes. In accounting (and legal) terms, the marital estate is the assets and liabilities of the couple. That is, it is the assets of the couple minus the liabilities as shown in the following equation:
+ Everything that is owned (Assets) – Everything that is owed (Liabilities) = Net Marital Estate
All courts dealing with marital estates use this formula, whether or not it is recognized as an accounting equation, put in number format, or written out in paragraphs of text.
Start with full disclosure
Preparing a summary of the marital estate begins with the full disclosure, by both parties, of all of their assets and liabilities. Disclosure can be obtained by the legal discovery process, mutual agreement, or a mandate from a divorce manager. The form is not important. Also, at the beginning, considerations of whether or not an item is marital, its true value, who gets it, or any other consideration should be stridently ignored. The important element at the beginning is completeness. There are two key reasons for this:
- Some localities have penalty provisions associated with failure to disclose. For example, they may provide that any hidden asset may be given to a damaged spouse in its entirety if it is discovered after the divorce.
- Trust and credibility are important. A negotiated settlement requires a minimum level of trust between the parties for an agreement to evolve. The discovery of hidden assets during the course of a divorce will minimize the chances of a peaceful resolution. In addition, a judge who learns that the reason he is listening to a couple argue about table lamps is that one party tried to hide assets may have very little sympathy for that party.
Identify preliminary values
After disclosure, a preliminary value is placed on the assets and the liabilities. Initial values may have been provided with the disclosure of assets and liabilities and can be used as a starting point in the summary.
Identify what is included in the marital estate
Items can be deemed as part of the marital estate either as a point of law or agreement (stipulation), and then divided by the couple or kept out of the marital estate and given to one of the parties. It is possible that determining the value of an item that is to be excluded from the marital estate is unnecessary. Therefore, the next step in constructing the marital estate is to make a preliminary determination of whether or not the items disclosed are part of the marital estate or not. For example, a couple may agree that an antique gold watch given to the husband by his grandfather will not be part of the marital estate. Consequently, having the watch appraised is unnecessary. In another case, the husband may admit that he had incurred gambling debts and agreed that they were solely his own. The existence of the debts is disclosed in the divorce, and the assignment to the husband recognized, but a determination of value is not made. If the inclusion or exclusion of an item from the marital estate is in question, it is tentatively left in the marital estate summary, and valuation of the asset or liability is undertaken. This is to determine the relative importance of the item in the equitable division of the estate and absolute materiality. Simply put, if the item is relatively unimportant in the total picture or has small value, the parties may recognize that the item is not worth arguing about and make a provision for its disposition quickly.
Determine values or remaining assets and liabilities
After preliminary exclusions of the marital estate have been made, the values of the remaining assets and liabilities are determined. Valuation procedures are undertaken to reduce the marital estate to economic fact. They are applied in proportion to the risk of an item being materially misstated and the contentiousness of the couple. Consequently, the breadth and depth of the valuation process is dependent upon the circumstances. For example, if the marital estate of a couple consists only of a vehicle each and joint credit card debt, the valuation procedure may consist of getting retail values of the vehicles from the Internet and having the couple show their most current credit card statements. The couple may agree that they have little to contest and the divorce can be completed very quickly. However, if the parties own many pieces of real property including rentals, have significant debt, and are highly contentious, then the valuation process may take extensive work, including the gathering of information and the involvement of several outside experts to reduce the emotional opinions of the couple to economic reality.
Proportion the process to meet the needs of the parties
Proportioning the valuation process to meet the needs of the parties (or, if necessary, a judge) is a matter of amassing evidence. Essentially, evidence is gathered, refined, and/or paid for until the parties accept the value in question. It can be viewed as a progression or set of tiers from the least credible to the most credible. For example, the valuation of a house may progress through stages from the least credible evidence to the most credible:
- Least Credible – Representations of the parties. Each party to the divorce states, without any support, what they think the house is worth.
- More Credible – Market analysis. A realtor or other person knowledgeable in real estate places a value on the house.
- More Credible – Appraisal. A person trained in real estate appraisal is paid to assess the value of the house.
- Most Credible – Sale of the house. The most reliable determination of value for marital estate division purposes is the sale of the property on the open market.
For litigation purposes, an attorney will want the most credible evidence possible to support his or her client’s position. The higher the tier of evidence, the more likely it is that the court will accept the value presented. However, in a mediation or collaboration, the only tier of evidence necessary is that level which will satisfy both parties. For example, if both parties agree on a value for the residence, then that value is entered into the marital estate. If the parties do not agree, then a higher tier of evidence is required. Consequently, a mediator may suggest that the parties obtain a market analysis when they do not agree on a value. The parties may need to move up the credibility scale when they do not have significant knowledge of the value in question. A decision based on wholly inadequate information could create an inequitable division.