Getting all of your financial ducks in a row is one of the keys to a successful divorce. In a previous post (“Getting organized is key to a successful divorce”), I described how you should inventory your assets by taking pictures or video, and making a list. In this post, I’ll describe taking the next step in the process.
The statutes require that both parties disclose all of their assets and liabilities to each other and to the court. If you fail to disclose an asset and the court determines that you did so intentionally, you will have to deal with a cranky judge, which is not a good thing, and it could lead to painful consequences. So, be honest and disclose everything—the risk of doing otherwise is not worth it, and more importantly, it is just plain wrong to do otherwise. I have seen situations where people failed to disclose assets because of a mistaken belief that it was not an asset. However, there is an old legal maxim, “ignorance of the law is no defense.” Although that usually applies to criminal matters, it applies here as well, because everyone is held to the same rules regardless of whether they represent themselves or have legal counsel. This is one of the reasons I get frustrated when dealing with an unrepresented (we call them pro se) party in a divorce, and another reason why I think everyone going through a divorce should have a lawyer.
Ok, so let’s start with your assets. In your ledger book or computer spreadsheet, create a new workbook. Make three columns. Label the columns as follows: “Assets,” “How Owned,”, and “Market Value.”
Under Column A, “Assets,” list all of the different categories of Assets. I use these basic categories:
Automobiles & other motor vehicles
Certificates of deposit
Life insurance policies
Cemetery lots or other burial property
Under each category, you may have to insert more than one row. For example, if you own your residence and a vacation property, you would have two lines below “Real estate,” one for each property. However, do not drive yourself crazy listing every piece of furniture—think of it as an aggregate category.
If anyone owes you money, you should consider that an asset, and list it. For instance, if you loaned your brother-in-law money to help him start a business, and you expect him to repay that debt, list the loan as an asset. Remember to include any securities, stocks, bonds, certificates of deposit, stock options, Treasury notes and bonds, and commodity accounts that either of you own, jointly or individually.
If you have an ownership interest in a business, you should obtain a balance sheet from your accountant, and have him or her perform a business evaluation of your interest for you. If you don’t have an accountant, you should consult with your attorney, who should be able to recommend several to you. Most of the time, your attorney will recommend accountants with whom they have worked in the past. A good accountant can help immeasurably in helping you construct your true financial picture. I remember a recent case involving a medical professional who was in a partnership with other physicians. On paper, his ownership interest initially looked like it was worth millions of dollars. The accountant found, however, that after paying for overhead, taxes, and deducting other legitimate business expenses that the value of his interest was much less than that. Although he was not a pauper by any measure, he was not as wealthy as his wife initially believed, which had a huge impact on how we negotiated their settlement.
In Column B, “How Owned,” indicate whether the asset is jointly owned (“J”), owned individually by husband (“H”) or wife (“W”). In Wisconsin, virtually everything is marital property, which means just about everything is jointly owned. That is a whole other subject that I will address in another blog post. For now, if you have any question, talk to your lawyer or err on the side of caution and indicate “J.”
In the last column, “Market Value,” make your best estimate of the value of the asset. I tell people to estimate what they think someone would pay for the asset at an auction. You can look up the value of your house on a website, such as Zillow.com. At some point, you may have to get an appraisal, but for now, your best estimate will be sufficient.
After you have finished listing everything you own of value, turn to a new ledger page or scroll down your worksheet, and list your liabilities. This time make four columns: “Liability,” “Secured or Unsecured,” “Who Owes,” and “Balance Due.” Here is the basic category listing that I use:
Property taxes outstanding
Secured loans, any source
Unsecured loans, any source
Secured credit cards
Unsecured credit cards
Federal Income Taxes
State Income Taxes
Business Taxes (Fed & State)
Ask yourself a basic question: to whom do you owe money? Start with the big items first: mortgages, student loans, credit cards, car loans, and other secured loans, including loans against your retirement fund. Don’t forget unsecured loans from banks, credit unions, finance companies, and individuals (include friends and relatives who lent you money and expect to be repaid). It is just as important to disclose all of your liabilities as it is your assets. Under the law, if you fail to disclose a debt, then you will be solely responsible for it, even if your spouse could have otherwise been equally liable. Identify the creditor in the left column of the ledger. If the loan is secured by any property—like a car loan, for instance—indicate that in column B, “Secured or Unsecured.” Credit card debt may be secured or unsecured. Most department store cards are secured, while most bankcards are not. For example, if you bought your Kenmore washer and dryer using your Sears store card, that is a secured debt. However, if you purchased them with your Capital One Visa, the debt is unsecured.
In the third column, indicate whether the debt is a joint debt, where you and your spouse are equally responsible for repaying it, or if it is one of your individual obligations. Make it simple: enter J for joint, H for husband, and W for wife. For example, both of you are probably obligated to pay your mortgage, but your college student loan is probably your own responsibility. The basic test whether an obligation is a joint or individual responsibility is if one or both of you signed the contract creating the debt. If you both signed the promissory note for the car, even if your spouse drives it most of the time, that debt is your joint responsibility. There are exceptions, however. For example, if you bought a car, and signed the note alone, in some states your spouse could be equally liable for the loan even though they did not sign the note if the creditor provided proper notice to the spouse regarding the loan. The usual test is whether the loan was for a “family purpose.” A “family purpose” is usually defined as that which benefits both spouses or your dependents. Check with your accountant or future lawyer to see if your state has this exception. In Wisconsin, if the creditor sent a notice to the other spouse, then both of you are liable for that debt even if only one of you signed the contract.
In the last column, enter the balance owed. Use the latest statements available, or, if you do not have one, contact the creditor and find out how much you owe. Then add the total, and subtract it from the total value of your assets. This will give you your net marital estate value.
Finally, print the worksheets or copy your ledger pages, pour yourself a glass of wine, and sit back and relax on a job well done. Then, call me if you want some experienced representation!