How Do I Use a MARITAL BALANCE SHEET to Figure Out How to Best DIVIDE OUR PROPERTY?

Q. I am considering filing for divorce, and am beginning to pencil out what the division of our assets and debts might look like. What is a good way to go about this?

A. Prepare a Marital Balance Sheet. This will give you an idea of how your property could be divided in a dissolution or legal separation, and to allow you to try out different combinations of division.

Its usefulness will depend the accuracy of your assumptions. Often times more information or outside opinions are required to do this with any degree of correctness. Sometimes the outside opinion that is required is the judge's decision on a disputed issue. Marital balance sheets can range from being exquisitely simple to exceedingly complex. Remember that it is the duty of the Court to divide the community estate equally - this division means an equal division in dollars, not that you divide the family residence with a chain saw.

The format itself is simple. You want two columns, one for you and one for your partner or spouse. You will categorize, value, and assign the community property between each of you. Some categories might be listed on a different balance sheet, like pensions.

Here are some suggestions for drafting a Marital Balance Sheet you can work with.

This is just a starting point and is valuable as a roadmap to get you thinking about what needs to be done to conclude the divorce. Once you discipline yourself to begin to overcome any paralysis you might feel, the marital balance sheet will speak to you about what is important for you, what the issues are, and will give you some idea of what important paperwork you need to obtain to evaluate your interests now or in the future. Get that paperwork at once. You are going to have to do this exercise anyway once a legal action is filed.

This the some of the information that you must provide in your Declarations of Disclosure. It is an efficient idea to use those forms from the beginning. These California Judicial Council Forms include:

Getting started on this early will make any meeting with a family attorney cheaper and far more useful then if you've not even thought about these things.

To the extent you can determine values or ranges of values, add up the net equity in your column for the community property you want or get, and subtract 100% of the debts that are to be assigned to you. Again, chances are there will be categories where you can't put a number on the items. But if you had the numbers, then after totalling the total net to the other party, subtract the two net numbers. One of you will show a higher number. This number will reflect the over-credit amount to that person which needs to be equalized between you. Divide this number by 2, and the person who netted more owes that resulting number to the one who received less. This amount is called an "equalization payment."

This is just one way to do a marital balance sheet. Often times there is no money to pay the equalization payment because all or most of the community is held in the form of personal and real property. An equalization payment is no good to you unless you can collect it. Perhaps you can get a promissory note secured by a deed of trust on the family residence that is awarded to the wife. That is usually a bad idea - you don't want to become a bank, with all the attendant risks of default and depreciation.

Another option once you have these numbers are pencilled out is to go back and rethink how the property was divided. Maybe you should take those Peter Max lithographs after all. Maybe the residence or that vacant lot must be sold to raise money for the equalization payment. It is frequently seen in Stipulated Judgments or Marital Termination Agreements. It is not common in litigated judgments because courts generally must equalize the division at the time of trial, not in the future. This is why property may be ordered sold to ensure an equal, current division of the estate.

If defined contribution pension plans exist these are a good place to find the money to assure the equalization payment is actually honored. But a 401k with a net asset value of $100,000 might only be worth $80,000 after penalties and ordinary income taxes are charged on it. Pensions can be divided without tax consequences (QDRO's) but if you are owed a $100,000 equalization, creating a new pension in your name and transferring $100,000 from the other party's interest in it is like being handed a check for $80,000.

T.W. Arnold, III, C.F.L.S.