One of the main issues in every divorce is how to divide assets.
Equitable Division of Marital Assets
Georgia is an equitable distribution state. Equitable does not mean equal. It means fair. Generally, courts begin from the position that equitable distribution is 50/50 of the marital estate unless there is a reason to give one spouse a greater portion of the marital property. In Georgia, only real property, personal property and debts acquired during the marriage are subject to equitable division. Any property acquired by either spouse prior to the marriage is not subject to equitable division and remains the premarital and separate property of the respective spouse. In addition, separate property can also include property acquired during the marriage if it was received by inheritance or an individual gift to one spouse.
When Assets are Marital and Non-marital
In some cases an asset may have a marital and non-marital component. The most common instance of separate property having a marital component is when one spouse purchases real property (house) prior to their marriage and then the parties use marital funds to continue paying for the house during the marriage. The Supreme Court of Georgia developed a very specific formula to determine how this issue is to be resolved typical referred to as the Thomas Calculation. Thomas v. Thomas, 259 Ga. 73 (1989). The Thomas Calculation allows for an equitable division of the marital portion of the asset.
The Thomas Calculation, as stated by the Court is:
“A spouse contributing nonmarital property is entitled to an interest in the property in the ratio of nonmarital investment to the total nonmarital and marital investment in the property. The remaining property is characterized as marital property and its value is subject to equitable distribution. Thus, the spouse who contributed nonmarital funds, and the marital unit that contributed marital funds, each receive a proportionate and fair return on their investment.”
As an example, let’s say a spouse purchased a house three years before getting married for $200,000. The purchasing spouse made a downpayment of $50,000 and paid $10,000 towards the principal of the house prior to the marriage. The purchasing spouse has contributed $60,000 prior to the marriage. The purchasing spouse then gets married and pays $40,000 towards the principal of the house with marital funds during the 14 year marriage. The marital unit has contributed $40,000. The total contribution, prior to the marriage and during the marriage, toward the house is $100,000.
Let’s assume the house has increased in value to $250,000, which leaves $150,000 in equity in the house. The purchasing spouse’s premarital portion of the equity is 60% ($60,000/$100,000; premarital contributions/total contributions) and that portion remains separate property. The marital portion of the equity is 40% ($40,000/$100,000; marital contributions/total contributions). Therefore, 40% of the $150,000, or $60,000, would be subject to equitable division by the court.
What is Equitable Division Really?
When dividing assets there is no specific formula used by the court. You will not receive 50% of each asset. Rather, you will receive about 50% of the entire marital estate, property and debts. Just because a marital asset is titled in one parties’ name it does not mean that party is entitled to the property.
Courts consider a number of factors when determining how to divide marital property. The factors courts consider include, the length of the marriage, the conduct of the parties, contributions to the marital property, contributions to the family unit, intent of the parties, and a parties separate assets. These factors may give a court a reason to award a greater portion of the marital property to one spouse.
Marital Assets
Only assets and debts acquired during the marriage are divided. Name on title does not control ownership.
Equitable Division
Marital Assets are divided fairly, not equally. Courts try to award a fair portion of the entire marital estate to each spouse.
Having an attorney that understand equitable division can help in the division of your marital assets. It is important to tell your attorney about all of your assets and when they were acquired.
High Asset Divorces
In some cases, parties may have significant assets that make division of marital property more complex. Assets that can make divorces more complex include ownership of a business, trust accounts, intellectual property ownership, royalties, stock options, and property in other states/countries.
Equitable Division of a Business
The Georgia Supreme Court has made it clear that a business is subject to equitable division. Not only may a business that was formed during a marriage be subject to equitable division upon divorce, but a business that was started prior to marriage or started using pre-marital resources may also be subject to equitable division if the value of the business increased due to the efforts of both spouses. The more complex issue of division of a business is determining the value of the business. Business valuation can be a costly process which may require the services of forensic account or business valuation expert.
In contrast, if a business was formed prior to the marriage and the value of business increased solely due to market forces, rather than efforts of spouse during the marriage, it will remain pre-marital property. Thus, the key factors considered by courts in determining whether a business formed prior to marriage may be subject to equitable division are, the increase in value, if any, of the asset during the course of the marriage and that any gain be the result of spousal effort, either separately or in conjunction with the other spouse.
Once it is determined that a business is marital property and it has been assigned a value, the division of the marital business may occur in a number of ways. If the divorcing couple owns multiple business interests, the court may order one spouse to retain some interests and the other spouse to retain the remaining interest. Alternatively, a court may award a marital business to one spouse and order that spouse to pay or “buy out” the other spouse for his or her interest in the business.
Trusts and Stock Options
Trusts, Stock Options and the exercise of stock options can be complex issues in a divorce. Often times stock options may vest prior to a marriage but the options are exercised during the marriage and marital funds are used to purchase the stock. Trusts can create complexity depending on when a trust was formed, who formed the trust, and who is the beneficiary of the trust. Typically, trust assets are not subject to equitable division of property. However, there are some exceptions.
A court may be able to equitably divide trust assets when a spouse is both the sole settlor and sole beneficiary of the trust. Courts may invalidate such a self-settled trust to prevent a person from placing assets into a fund where a person is the sole beneficiary, effectively shifting the settlor’s assets from one pocket to another. If parties avoid such obvious self-dealing, then the body of the trust typically will not be divided.
Even though a court may not divide a trust, a spouses’ interest in a trust can be an asset that is relevant to the determination of alimony and child support.
In Payson v. Payson, 274 Ga. 231 (2001), the Supreme Court explained how stock options are equitably divided. In Payson, the Wife had a stock account which contained Home Depot stock she owned prior to the marriage, Home Depot stock she received after exercising stock options that had vested prior to the marriage, Home Depot stock that was marital property, and the entire account had appreciated in value.
The Court said that interest in the Home Depot stock the Wife acquired prior to the marriage and the Home Depot stock she received after exercising stock options that vested prior to the marriage were not marital property subject to equitable division since it was not generated by the marriage or accumulated during the marriage. However, the stock acquired during the marriage was subject to equitable division. The appreciation in value of a non-marital asset during the marriage is a marital asset subject to equitable division if the appreciation is the result of the efforts of either spouse or both spouses, but to the extent the appreciation is only the result of market forces, it is a non-marital asset and therefore not subject to equitable division.