How to Prepare a Marital Balance Sheet | California Property Division

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.

Use net value numbers, i.e., equity in homes and automobiles. Secured debt is subtracted from fair market value - it is not divided as unsecured debt would be. If you take the house, you take 100% of the mortgage.

Be sure to use realistic fair market value numbers. Don't make your final decisions based on Zillow. If your assumptions are flawed, your balance sheet analysis will be of limited use.

Use wholesale Kelly Blue Book values for cars or at least make sure whatever yardstick you use is consistent for both parties.

Obtain accurate and current pay-off information as to debts. Typically that will be the value of the debts on the date they are assigned, as adjusted for Epstein Credits.

Don't treat apples and oranges as apples. For instance, list pension assets as a class separate from other assets - the present value of IRA's, 401k's, and other defined contribution plans is always different than the present value of a bank account. These pension accounts are not valued in real dollars but must be discounted, and that may require a pension forensic or CPA.

Don't include separate property (the other spouse may dispute that characterization). Pure SP doesn't go on the marital balance sheet.

Assign the debts, placing those numbers in parentheses to ensure they are subtracted and not added in your running total. Remember that it doesn't matter in whose name a credit card is parked. If a debt was incurred during marriage the general rule as between spouses is that each owes 50-50.

Separate property debts don't go onto the balance sheet because they don't get evenly divided and if they were listed you may inadvertently charge yourself for half.

Use total values rather than 1/2 community values. These numbers get divided as one of the last steps.

Don't include support or support arrears.

Include Epstein credits.

Calculate and note Watts' and Jeffries' claims

List professional practices and businesses but realize you probably have no practical way to put a number on them, would be entirely guessing as to their value, and would probably be wrong anyway. Understand that business are worth more than the sum of their balance sheets or book values.

If you share this document with your spouse, be sure to write "Confidential Evidence Code section 1152 Materials" on it, which makes them inadmissible as evidence against you. Otherwise you may find yourself stuck with your preliminary numbers when that is not what you intended.

Realize that if you share this document, no matter how preliminary it is, with your spouse you will be creating in them expectations concerning value or division that they may become stuck on.

Be careful how you treat negative equity on property. For instance, if you own a car that is worth $15,000 but you owe $25,000 and want that vehicle awarded to you, the other party will not be charged for one-half of the $10,000 in negative equity.

Leased vehicles should be identified but have no value. I believe it is a good idea to list everything that you own or owe whether or not it has a value or can be valued at that time, since this list becomes an important road map for you and your lawyer.

Make a note of alleged breach of fiduciary duty claims, but don't value them.

Don't include your separate property. Include their separate property if you claim it to be all or partly community, but understand those aren't real numbers until a judge rules.

Don't leave the document lying around where someone else might find it.

If property is held in one spouse's name alone but a mortgage or taxes were paid during marriage, or if it was improved or refinanced during marriage, understand that the community probably has some Moore-Marsden interest in that property but that you will have great difficulty figuring out what that is without expert assistance.

Similarly, if one spouse owned property (i.e, real estate) prior to marriage and the other was placed on title during the marriage, note to yourself that the property has community and separate property attributes and understand you will need more information or help to value those competing interests.

Make a note of all separate property contributions you made for the acquisition or improvement of any property. These are called Family Code section 2640 reimbursement credits.

List all other reimbursements due to the community. For instance, there are many situations where the community property is used to pay one party's separate obligations (i.e., child support from a previous marriage) and if you know to assert the claim the community may be entitled to a reimbursement.

List consumer goods like furniture at garage sale prices unless there is something truly special about the items. Nothing is valued at its purchase price or even its replacement cost new.

Be sure to include loans from parents, work, or family members that were made during the marriage and assign those that relate to your family or work to you.

Make a note of any gifts to one or the other of you alone that were used to purchase or improve community property, whether they were received before or during the marriage.

Look at your bank balances at the date of separation and assign those balances appropriately. If your husband emptied the savings account the day before he walked out, list the amount he took under his column.

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.

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