Dividing Assets: Determining Marital Asset Value During Divorce
Getting divorced is stressful. You have a lot to do, including dividing assets. This is a tedious process during which arguments can erupt about who gets the house, who keeps what furniture, or who keeps the antique jewelry. These conflicts can disrupt the divorce process and cost you more money. Learn more about how courts value property and the process of dividing assets in this article.
Colorado courts distribute marital assets equitably, but it’s possible to end up on the wrong side of ‘equitable’ if you are not careful.
In this Guide:
- What is Marital Property?
- Dividing Marital Property Under Colorado Law
- Valuation Methods
- Other Factors When Dividing Assets
Hire a Divorce Attorney for Help with Dividing Assets
Our experienced Family Law Team can guide you through the financial disclosure process and the steps of dividing assets so you receive an equitable portion. Call 303-688-0944 for your free case assessment.
What is Marital Property?
Marital property is all property and assets acquired during the marriage. It doesn’t matter who acquired the property or to whom you and your spouse agreed it should belong. If it was obtained during the marriage, the courts put it on the roster of items to be divided between you and your ex-spouse.
Marital assets can include, but are not limited to:
- your house and other real property
- home furnishings
- jewelry and clothing
- collectibles, such as a stamp collection
- sporting equipment
- business assets, owned either whole or jointly
- financial accounts, including checking and savings, stocks, and bonds
- pension accounts, including IRAs
- life insurance plan benefits
Whatever your net worth, it’s important to know the type and number of assets you have and when you accumulated them.
Create a List of Your Assets if You’re Getting Divorced
This is a crucial step in the divorce process. Create a comprehensive list of your and your ex’s assets and debts for the court to divide. Also, provide the current fair market value of each asset and listed property. If you are unsure about an item’s value, have it appraised. Expert guidance from an experienced divorce attorney can help you here.
As you and your attorney assemble the list, consider:
- Which assets are part of the marriage and which are separate?
- How much are the assets worth?
- Should you challenge your spouse’s assets valuations or designations?
- Is your spouse disclosing all of his or her assets, and if not, what should you do?
- Which assets are so important that you will fight for them in court?
Try to be thorough and transparent with your list. Unless the parties are cooperating or working with a mediator, your ex-spouse will be advised to take their own inventory.
Which Assets Aren’t Marital Property?
Anything owned separately by you and your spouse before the marriage is considered non-marital property. This also goes for any valuables gifted or bequeathed specifically to either of you during the marriage. Non-marital assets can include:
- gifted and inherited assets
- real estate purchased with money obtained by selling property owned or acquired before the marriage
- assets obtained by either spouse after a decree of legal separation
- property specifically excluded by a binding agreement between both parties
Sorting out non-marital property can be complicated as many valuables get commingled over the course of a marriage. Sometimes it’s necessary for the court to divide even non-marital property during the divorce.
When Non-Marital Assets Become Marital Property
If you’ve purchased investment assets, such as real estate, with money you had before getting married, it can become marital property in a divorce. Let’s look at an example of how this can happen:
Let’s say you inherited a sizable trust fund before getting married. After tying the knot, you cashed in your trust fund to buy a new family home. Your and your spouse’s names are on the title. Since both of you lived in and contributed to the house, it can become divisible property even though you purchased the home solely with funds you brought into the marriage.
Dividing Marital Property Under Colorado Law
Colorado is an equitable division state when it comes to dividing assets. This means courts seek fairer asset distribution based on a number of relevant factors, such as each spouse’s contributions and liability.
Under the Colorado Revised Statutes (C.R.S. 14-10-113) the court divides the marital estate while noting the following factors:
- overall value of the property
- contributions each spouse made in acquiring the property, including a homemaker’s efforts to support their partner
- each spouse’s economic circumstances
- standard of living the couple enjoyed during the marriage
- effective child custody arrangements
- debts and liabilities either party owes
The court also considers the fair market value of the property on the day the divorce decree is signed. If a property disposition hearing becomes necessary, the court will rely on the property value on that hearing date.
Note: The court’s determination of an asset’s fair market value needs only to be reasonable in light of the evidence presented to avoid appellate review. Also, the court can base its asset valuation on limited evidence, such as each spouse’s testimony and financial affidavits, if that’s all it has to go on.
Since most divorces are not the same, neither are the methods or considerations needed to ensure an equitable division of property. Asset division can be completed more fairly and efficiently when each party is willing to cooperate.
Both parties in a divorce should provide the court with information about the current value of marital assets and property. However, the court is not necessarily bound by this information. In fact, it can disregard values provided by one or both spouses and make its own determination.
Various methods can help determine the value of specific marital assets. However, no single method covers every type of property.
Colorado courts use several accepted methods to value marital property based on the asset and available information.
Comparable sales are also referred to as a market comparison approach. It’s frequently used for real estate valuation. This method compares the asset in question to recent sales of identical or similar assets.
This approach has its drawbacks, including the timeliness of recent sales and how the evaluator defines comparable sales.
For real property, it’s best to use real estate agents to determine the property’s value. Never rely on tax appraisals or outdated valuations.
If real property is claimed as separate property, a historical valuation is needed to determine its value prior to the marriage because a property’s appreciation can be considered a divisible asset.
Colorado statutes define how and when the government values real property such as homes, undeveloped land, and some personal property — for tax purposes. This is known as the property’s assessed value.
Assessed values are not often used in divorce cases. This is because the assessed value can be based on outdated information and tends to ignore actual market conditions.
Liquidation is most applicable to business interests. It assumes the business will be dissolved in the divorce proceeding and that its assets will not be sold together as an ongoing operation.
Liquidation frequently results in a lower total value because many items with higher value in an ongoing business would be difficult to sell for more than scrap or salvage value.
Capitalization of Earnings
Capitalization of earnings is another business-interest valuation method. It assumes the business will be sold as a whole and will possibly remain in business after the sale.
The business’s market value is determined by multiplying its average net earnings by a capitalization factor. This reflects a reasonable rate of return after considering current interest rates and the risk associated with the business’s market.
The liquidation method almost always requires expert testimony.
Book value is another business-interest valuation method. The owner’s net equity is determined by subtracting the business’s liabilities from the value of its assets.
The use of this method has several disadvantages in a divorce:
- Business record inaccuracies can result in erroneous asset valuations or liability amounts.
- The value of tangible assets is generally determined by subtracting an asset’s tax depreciation deduction from its purchase price. However, the depreciation deduction rarely corresponds to an asset’s actual decline in value.
- It frequently excludes substantial intangible assets, such as goodwill.
Book value is most used by a party to minimize a business’s value.
The valuation of assets in a divorce is not unlike determining their value in other settings, such as selling homes or businesses. There are no legal formulas or algorithms like you see in child support and spousal maintenance instances. Courts are simply looking for reliable methods and accurate, current values.
Other Factors When Dividing Assets
Agreeing to a Stipulated Value
In some instances, the parties may agree to some or all the assets’ fair market value. This is called stipulating value.
An Upside of Stipulating Values
Stipulating the value of assets can avoid the cost and time required to go to court to argue the value of the assets. However, if you decide to take this route, the agreed upon value must be current so it meets the court’s duty to value the assets as of the decree date or disposition hearing. In other words, you cannot over- or under-value the assets.
What Stipulated Value Does Not Mean
The value of certain assets might be all you and your ex-spouse agree on. Stipulating to the value of, say, a vacation property does not mean you’re in agreement over who contributed more to its purchase, upkeep, or appreciating value. You may still dispute whether the asset is separate or marital property and how it should be divided.
Valuing Separate Property
Property presented as separate property must be valued as part of the court’s determination of the equitable division. The asset’s value prior to the marriage should be compared to its current value to determine any increase in value, if any.
While the asset itself may be the separate property of one party, the increase in its value during the marriage may be included in the marital estate.
A spouse dissipates marital property when they intentionally waste or squander assets to deprive the other spouse of benefitting from them after the divorce. A dissipation claim can be made if one spouse squandered or misused marital money as the marriage was breaking down. A classic example: a husband uses marital money to maintain an expensive affair with his mistress.
If the spouse accused of dissipating assets cannot prove the funds were legitimately spent, a judge can adjust how assets are divided to counterbalance the misused money.
Get Help Dividing Assets in Divorce
It’s important to protect your interests as you work through your divorce. Our knowledgeable and compassionate divorce attorneys can help you through the financial disclosure process to ensure all your property is accounted for and that it’s appropriately valued. Call 303-688-0944 for your free case assessment.
*The terms asset and property are used interchangeably unless the property is referred to as real property, which indicates real estate, such as houses and land.