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Equitable Division

Active Appreciation vs. Passive Appreciation of Assets in Georgia Divorce

Tuesday, October 6th, 2015

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In a previous post included in our Celebrity Divorce Chronicles series, we discussed the divorce of Oklahoma oil tycoon Harold Hamm from his wife of 26 years, Sue Ann Arnall (formally Sue Ann Hamm). Ultimately, an Oklahoma court ruled that Harold Hamm, founder of Continental Resources, must pay Sue Ann Arnall a settlement of roughly $1 billion dollars. The court concluded that the $1 billion settlement represented an equitable division of the couple’s marital estate, which had been valued at around $18 billion.

Both parties appealed the trial court’s decision. Mr. Hamm contends that the marital settlement is too much. On the other hand, Ms. Arnall contends that although $1 billion is a significant amount of money, the $1 billion payment is not a fair or equitable division of the couple’s marital assets. The legal and financial concept at the heart of the couple’s dispute is active appreciation vs. passive appreciation.

Active Appreciation of Assets
Active appreciation is the increase in the value of certain assets that can be attributed, at least in part, to the contributions or efforts of either spouse. Put another way, if a person owns a company, and that company grows and succeeds because of the ideas, leadership and business acumen of the owner, that increase in value is due to active appreciation.

Passive Appreciation of Assets
Passive appreciation is the increase in the value of certain assets due to outside market forces such as supply and demand and inflation. For example, let’s say Person A bought a parcel of land 20 years ago. Upon purchase the parcel was worth $10,000. Over the alast 20 years, Person A made no improvements to the land, but the area around that parcel was successfully developed over the past 20 years. Today, due to no efforts on the part of Person A, the parcel is now worth $100,000. This is passive appreciation.

Georgia and Oklahoma are both equitable division states, meaning that marital assets are divided equitably or fairly upon divorce. Additionally, both Georgia and Oklahoma employ the concept of passive vs. active appreciation of assets similarly in the context of dividing assets upon divorce. Thus, using the Hamm’s Oklahoma divorce as an example may be particularly helpful in understanding active vs. passive appreciation in Georgia divorce.

Under Oklahoma law, the amount attributed to the active appreciation of separate, premarital assets over the term of the marriage is subject to division in divorce; the amount that passively appreciated is not. Harold started continental Resources before he married Sue Ann. Thus, although it may seem counterintuitive, it is in his best interest to argue that the tremendous success of Continental Resources was largely due to the whims of a fickle commodities market, or just good luck, not due to his active participation and decision making. Maintaining this position allows Harold to argue the success of his company was due to passive appreciation. Thus, any increase in value should be deemed separate property not subject to equitable division upon divorce.

Alternatively, it is in the best interest of Sue Ann to argue that the success of Continental was largely the result of Harold’s skills and his successful active management of the company. Because she also worked for the company, it is also in Sue Ann’s best interest to argue that the company’s success is also the result of her hard work and successful management. Sue Ann is best served by taking this position, because any increase in the value of the company attributed to active work of one or both spouses is deemed active appreciation, subject to equitable division upon divorce.

Active vs. passive appreciation is a very complicated concept in Georgia divorce law. Thus, the examples discussed above should not be relied upon to determine whether you or your spouse is entitled to the benefit of a certain asset upon divorce. If you are considering divorce, and have question regarding how the concept of active vs. passive appreciation may apply to your specific case, contact one of our knowledgeable and experienced Atlanta divorce attorneys today.

Is my Inheritance Marital Property?

Wednesday, August 19th, 2015

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Although this is a common question, it is also a very complicated one to answer, because as with many issues concerning divorce, the answer to this question depends on the specific factual circumstances in each individual case. The general rule in Georgia is that an inheritance will be viewed as separate property not subject to division upon divorce, unless the funds or property are comingled.

Some examples may be helpful:

During her marriage, wife receives an inheritance from her grandfather after he passes away. Upon receiving the inheritance, wife places the funds in a separate account, and never mixed the funds with marital assets. Two years later, the couple decides to divorce, and husband threatens to take half of the inheritance. So long as wife never comingled the inheritance with marital assets (she always kept in in a separate account in her name only), it is highly unlikely the court will deem the inheritance marital property subject to division upon divorce.

Alternatively, let’s say wife deposited the inheritance into the joint marital account, or applied the funds to a jointly held investment account. In the event of divorce, husband’s threat to seek half of the inheritance is more concerning. By comingling the inheritance with marital funds, wife has transmuted the separate asset into a marital asset. Put another way, by mixing the inheritance with marital property, the inheritance becomes marital property subject to equitable division upon divorce.

Buying a House Post-Divorce? Seek Child Support and Alimony by Check

Sunday, August 9th, 2015

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Generally, recipients of alimony and child support would be more than glad to receive their payments by direct deposit or cash. However, if you are the recipient of child support or alimony, and you are thinking about buying a house in the near future, it may be more prudent to receive child support and alimony payments by check. Why? Because when considering an applicant’s mortgage worthiness, banks require proof of income. Without a paper trail establishing a track record on on-time payments made by the obligated spouse, a mortgage lender cannot count a recipient spouse’s support as income. Thus, former spouses who rely primarily on alimony or child support for income may not qualify for a mortgage absent sufficient proof of that income.

With the above in mind, if you currently receive child support or alimony from your former spouse, and you are considering purchasing a house in the near future, seek support payments by check and make sure you keep meticulous records of the support payments you receive each month.

Studies Suggest Debt is the Most Harmful Relationship Issue

Tuesday, July 28th, 2015

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When considering the most common precursors to divorce, issues such as infidelity, abuse, lack of communicating, and unrealistic expectations often come to mind. However, in a poll conducted by, there was one marital issue that consistently outranked the previously listed issues: debt.

Although it is well know that disagreements about money can often lead to marital strife, Money’s poll pinpoints debt as the financial issue that is most associated with the breakdown of relationships and divorce. In fact, an article authored by Utah State University associate professor Jeffrey Dew seems to confirm this study. In his article, Dew discusses studies that indicate that marital satisfaction and the likelihood of divorce are directly correlated to debt levels and assets. Dew’s article reveals that as debt levels increase, and available assets decline, marital satisfaction also declines.

Despite the findings revealed by Money’s poll and Dew’s article, there is hope for couples experiencing high debt levels and financial distress. Because marital satisfaction tends to track debt levels, as a couple successfully pays down debt, marital satisfaction increases. Thus, the key for couples experiencing marital strife due to debt or other financial concerns, is to work together to set financial goals and work together to achieve them.

Divorce Myth – All Marital Property Will Be Divided In Half

Tuesday, June 9th, 2015

When a family law attorney meets with a prospective client for the first time, that attorney often has to spend time dispelling some divorce myths in order to give the prospective client a better idea of what to expect throughout the divorce process. One widely believed divorce myth is that all marital property will be divided in half. This statement is misleading for several reasons.

First, taking this statement literally does not make practical sense. The court will not make a list of each item of marital property and give 50% ownership to each spouse. There are numerous types of marital property including, but not limited to, the marital home, bank accounts, cars, and retirement accounts. While dividing a bank account in half is not complicated, this solution does not work for other marital assets. Consider the case of the marital home. It would make no sense if the court awarded 50% ownership in the home to the wife and the other 50% to the husband. Who would live in the house? What if one spouse wants to sell the house and the other does not? Rather, instead of splitting each marital asset in half and bringing up a whole other set of potential issues, the court will look at the sum of all marital property and figure out a way to divide that sum in a way that makes practical sense. Maybe the husband is not interested in keeping the martial home. In that case, the court can put the home in the wife’s “column” and give other assets to the husband to balance it out.

Further, this statement is misleading because, in Georgia and many other states, marital property is divided equitably, which does not necessarily mean equally. This means that the court will look at all relevant facts in the case to help determine how the marital assets should be divided. For example, if one party committed adultery and spent marital funds on his/her paramour, the court may give a larger amount of the marital estate to the other spouse to balance out this inequity.

When meeting with a divorce attorney for the first time, it is important to get any myths you have heard out on the table. Don’t be embarrassed if you have believed something that is not true – it certainly won’t be the first time that attorney has heard it. It is better to have any myths dispelled at the beginning of your case than to hold onto to something you believe to be true, only to find out too late that it is not.

What is a Forensic Accountant, and do I Need One?

Sunday, April 19th, 2015

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What is a Forensic Accountant?

A forensic accountant is an accountant who analyzes the bank accounts, financial records, assets, liabilities and spending habits of one or both spouses. This analysis may be undertaken for several reasons, like to determine if one spouse is hiding assets, or to determine a spouse’s true income or earning potential for the purposes of calculating child support or alimony. Once a forensic account makes findings regarding income and assets, he or she may also provide expert testimony at a final hearing or trial.

Should I hire Forensic Accountant for my Georgia divorce?

Are you concerned that your spouse is hiding assets or misappropriating marital funds? Do you believe your spouse’s income or earning potential is greater than what he or she claims of the Domestic Relations Financial Affidavit? Are you unsure how you will be able to prove you spouse’s income or assets for the purpose of equitable division, child support and alimony? If you answered one or all of these questions with a yes, then you should consider consulting a forensic accountant to assist with your divorce process. However, before you do so, it is essential that you seek the advice of an Atlanta divorce attorney first to determine if seeking the aid of a forensic accountant is indeed the best option to for your case.

Are Stock Options Marital Property?

Saturday, March 14th, 2015

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The short answer to the question posed above is: it depends. Depending on why the options were granted and when the options a exercisable by the employee spouse, stock options may indeed be deemed marital property subject to equitable division in Georgia.

Generally, stock options may be defined as a right given to an individual, such as an employee, by a corporation to purchase a set number of shares of that corporation’s stock during a specific time frame and at a fixed price. If an employee is granted stock options, that employee is not required to exercise the option to purchase the stock, but that employee has the freedom to choose whether to exercise the option. Primarily, there are three reasons why a corporation would grant stock options to an employee:

  1. To provide an incentive for the employee to remain with the company. An option granted for this purpose would represent compensation for future services;
  2. To attract new employees. If stock options are granted for this purpose, the employee is then usually paid below the going rate in return for a part of company’s future growth. Options granted in a circumstance such as this would generally represent deferred compensation for services rendered in the present.
  3. To give current employees a bonus or reward for good work in the past. If stock options are granted for this purpose, they would represent compensation for past services.

In equitable division states such as Georgia, stock options that are exercisable up to and upon the date the marriage ends may be viewed as marital property. Stock options that are not exercisable up to and upon the date the marriage ends are generally treated as separate property, and thus not subject to property division upon divorce. Put another way, stock options granted for past and present services may, depending on the specific circumstances of the case, be deemed marital property subject to property division upon divorce. On the other hand, options granted as an incentive for or compensation for future services are more likely to be deemed separate property upon divorce.

Because the classification of stock options, as marital or separate property, depends on the specific facts and circumstances of each case. Additionally, there is a complex calculation necessary to determine how stock options should be divided upon divorce should they be deemed marital property. With that said, it is important to seek the guidance of an Atlanta divorce attorney with the knowledge and skill necessary to ensure you are awardee a fair property settlement if you are seeking divorce.

Badmouthing Your Ex Can Cost You – Literally

Tuesday, February 17th, 2015

When going through a divorce, you likely do not have feelings of love, or even like, toward your soon to be ex-spouse. In fact, it can be very tempting to vent to anyone who will listen about all the horrible things he/she has done to you both throughout the marriage and during the pending divorce case. A good family law attorney, however, will advise you to keep the badmouthing to a minimum as most of the time it can do nothing to help your case. In fact, often times badmouthing the opposing party, particularly in a public forum, can be to your detriment in a divorce case.

Consider the divorce case of Ira and Janice Schacter. Ex-wife gets less in divorce of BigLaw partner because her badmouthing hurt rainmaking, judge says, by Debra Cassens Weiss, ABA Journal, April 9, 2014. Ira Schacter is a partner at a New York law firm. His wife, Janice, became upset after Ira allegedly paid $215,000 for his new girlfriend’s engagement ring while refusing to pay $12,000 for their daughter’s hearing aids. Janice then ranted and called him cheap on a popular legal blog site. The Judge in their divorce case found that Janice’s actions harmed her husband’s reputation in the legal community and caused the value of his business assets to decline. Accordingly, she was only awarded 17% of the partnership in the divorce whereas, otherwise, she would likely have been awarded 50% or close to it (depending on other facts in the case).

This case is important to keep in mind when going through your divorce. If you feel the need to vent or badmouth your soon to be ex, do it privately, to a few close friends or family members who you trust. Definitely do not scream it from the rooftops, either literally or figuratively. No good can come of it. You may think you are getting back at your ex, but you very well could just be hurting yourself, as the wife in the case above learned.

Equitable Division – Should You Ask For The House?

Tuesday, January 20th, 2015

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In many divorces, a highly fought over issue is who will get to keep the marital home. In Georgia, the marital home is subject to equitable division. This means that it is included in the split of all marital property/assets. For this reason, if one spouse keeps the home, the other spouse will usually get other marital assets to make the split equitable. But while many divorcing spouses are quick to say they want to stay in the home, there are many things to consider before asking for it as part of equitable division:

  1. Can you afford to stay in the house? – This is by far the most important consideration. As part of a divorce, your household income will decrease, sometimes dramatically. While there may be alimony and/or child support involved, this income will only continue for a limited period of time (depending on the details of your case). Not only will you have to be able to make the mortgage payment, there are other costs associated with home ownership such as homeowners insurance, utilities, general upkeep and unexpected repairs. It would be beneficial to make a spreadsheet of your monthly income and expenses to see what you can afford, before fighting tooth and nail to get the house in court or mediation. Going from two household incomes to one, or from one household income to none/looking for a job is often a substantial change and something you must consider before assuming the responsibility of the marital home on your own.
  2. Can you transfer the mortgage into your name? – Even if you compare monthly income and expenses and decide you can afford to stay in the home, your mortgage lender may feel differently. When you and your spouse applied for your mortgage on the marital home, the bank was likely considering two incomes. If you remain in the marital home after the divorce, your Final Decree of Divorce will most likely require you to refinance the mortgage on the marital home to remove your ex from liability on a home in which he/she is no longer living. Unless you were the primary breadwinner in your family, it can be difficult to refinance with a lower income. This is something you should explore with the bank before asking for the marital home in the divorce because you do not want to be stuck unable to refinance and, thus, in contempt of your divorce decree.
  3. Does it make sense to stay in the house? – It is also prudent to just take a step back and ask yourself if staying in the house makes practical sense. Often, divorcing couples are so caught up in the divorce process and “getting everything” that they may end up with something they don’t even want. Will your ex have primary physical custody of the kids? If so, staying in a huge house may not be necessary. Will staying in the house prevent you from emotionally moving on with your life? If so, moving may make the most sense for you.

After carefully considering the above, as well as anything else you deem important, it is possible that neither party wants nor can afford to keep the marital home after the divorce. In that case, the home will be sold (subject to certain conditions in the divorce decree) and the proceeds divided equitably between the parties.

What Should We do with the 529 Plan?

Saturday, January 3rd, 2015

During divorce, 529 college savings accounts are often neglected because many divorcing parents assume that the asset belongs to their child. In fact, a 529 plan, although intended to benefit the child, is actually a marital asset that must be addressed during the divorce process. Addressing the ownership of a 529 college savings plan during divorce is important because the Participant, or the parent who is named as the owner or holder of the account, is the legal owner of the account, and may dispose of the accounts assets as he or she sees fit. Thus, if there is concern that the parent named as the participant may misuse the funds, there may be conflict concerning which parent should take ownership of the account. Below are several suggestions on how to address the issues concerning 529 plan and what safeguards may be instituted to ensure the 529 plan is used for its intended purpose.

  • Split the account. As mentioned above, 529 plans have just one owner. Although this is generally acceptable while a couple is married, when a couple divorces, allowing one parent to maintain control over a 529 plan, the non-account holding parent may have less of an incentive to contribute the account. However, if the account is split between divorcing parents, each parent will have a stake in their child’s education.
  • Freeze the account. Freezing a 529 plan has two main practical effects: 1) no more deposits may be made to the account, and 2) the money already in the account may only be used to fund the education of the designated child. Freezing a 529 account may be a workable solution for divorcing parents, because it prevents the participant parent from using plan assets for purposes other than funding the child’s college education, and it keeps the participant parent from using plan funds to fund the college education of a child from a new marriage.
  • Stipulate the use of 529 plan funds. Instead of splitting the plan, parents may also opt to stipulate or agree on how plan funds are to be used. Specifically, parents may include a clause in their Marital Settlement Agreement stating that 529 plan funds may only be used for their child’s college costs. Although such an agreement may not actually prevent one parent from abusing the plan funds, because the terms of Settlement Agreements are incorporated into Final Divorce Orders once divorces are finalized, if one parent does misuse 529 funds, the other parent may seek court intervention to enforce the Settlement Agreement.
  • Interested party statements. Most 529 plan have authorization forms that allow an “interested third-party” to receive regular statements and all notifications of changes to investments, sales, purchases and distributions from the account. In cases where the parents agree to allow one parent to maintain control over the 529 account, the other parent may keep track of how that parent is managing the account with interested party statements. Although this may not prevent abuse of account funds, the non-participant spouse will at least be aware of any abuse as soon as it occurs.
  • Specify successor owners. Upon divorce, the non-participant parent should be named as the successor participant. This is important, because if the participant-parent dies unexpectedly, the successor participant parent may immediately assumes ownership and control of the account.
  • Agree on future funding. Post-divorce, it is often unclear how ex-spouses will share their child’s college expenses. By outlining and agreeing on how much each parent will contribute to the plan post-divorce, questions concerning how parents will share college expenses will be resolved.

Determine what to do with any excess. One issue that is often overlooked is what to do with any money left over in the account once the child has completed his or her education. This may be the case because parent often assume that any funds in the account will be completely exhausted funding college expenses. But, what if money is left over? Marital Settlement Agreements should address how the parents will share or use any excess. Some options include using any excess to fund a sibling’s education or using the excess to fund a parent’s return to school.