Are Gifts to Married Children Considered Marital Property?

In Colorado, when a parent or third-party buys a house or pays down a mortgage on a home, and the home is titled in both the husband and wife’s names, the law presumes the money is a gift to the marriage and subject to equitable distribution in the event the couple divorces.

An unresolved issue, however, was whether this legal presumption had to be overcome by clear and convincing evidence or could be overcome under a lesser standard of preponderance of the evidence.

Recently, in the case of In re the Marriage of Krejci, 2013 COA 6. No. 11CA2345, the Colorado Court of Appeals was faced with this very question. In Krejci, during the marriage, the wife’s mother paid off the mortgage on the marital home that was jointly owned by the parties. During the divorce the wife argued that when her mother paid off the mortgage, she was giving her a gift, and therefore that portion of the equity in the home was not part of the marital estate that had to be divided with her soon to be ex-husband. The Court of Appeals determined that when the mother paid down the mortgage on her daughter’s marital home, it was presumed that the payment was a gift to the marriage and held that the presumption could only be overcome by clear and convincing evidence.

If you have questions regarding the Division of Marital Property, contact an experienced Denver family law attorney at Divorce Matters.

What You Need to Know About Money in a Divorce

When you or your spouse decides to divorce, one of the first concerns that will come to mind is money. It’s likely you and your spouse have had comingled finances for some time. How will you divide that? What’s fair? How will distribution of both income and debt be decided?

Money is always an important””and often contentious””consideration in any divorce. And in today’s economy, it is even more so.

Here are a few steps to take to reduce the amount of friction around finances as you move through the divorce process:

  1. Step back and take a look at your current financial situation. Understand your assets and debts. Which are in your name? Which in your spouse’s name? Are your accounts joint or separate? When reviewing your current situation, try to be as realistic as possible. The courts will divide your assets and debts in an “equitable” fashion, but that does not always mean a 50/50 split. Try to get a clear picture of what’s yours, what’s your spouse’s, and what’s shared.
  2. Create a budget for life as a single person. Living on one income will likely be an adjustment for you and may require some life changes. Drafting a budget””even if you do not know all the exact dollar amounts””will help you get a better picture of what a divorce will mean to your individual financial situation.
  3. Collect your previous year’s tax information. Make copies of your most recent tax returns. During the divorce process, you will be required to give full disclosure of your complete financial situation. Have these collected and copied while you have easy access to them.
  4. Start establishing your own credit. Opening your own credit card while divorcing may seem counter-intuitive when your financial situation seems most precarious. However, this is an important step if you have only had joint credit card accounts for a long time. You will need to establish credit separate from your spouse’s history.
  5. To the extent possible, keep the lines of communication with your spouse open. This might be the hardest “tip” to try. In some ways, your spouse may be the last person you feel like talking to. Your emotions may be up and down on an hourly basis, and you’re likely dealing with anger, sadness, bitterness, or all of the above. But this is a very important step. The financial decisions you make now will affect you for the long term. For example, if you own a house together, how will you move forward? Which of you will claim the children in taxes? The house? These tough choices should be made now, if possible.

Conclusion

In this economy, finances are stressful before you add divorce into the mix. When facing an imminent divorce, knowing your finances is just that much more important. Planning ahead and making smart decisions can make a painful and difficult process a little easier.

Dealing with the Family Business During Divorce

Recently, I spent some time talking to a couple currently in the process of having their family business valued. This couple, together for 15 years, is divorcing””having worked together at the business for much of their time together. Both spouses want their fair share of the business’ value.

Now they face having to appraise the business and figure out what’s next””from keeping the business with a sole owner to selling it and allocating sale profits among involved parties. What’s more, both have a vested interest in keeping the business running and maintaining profitability during the divorce process, until sound decisions about the future are secured.

This story is not uncommon. Divorce can be damaging to small business owners, particularly if both parties involved in the divorce were also highly ranked in their business. How do you decide what’s fair, when both of you have been heavily involved in this family venture?

Here are some tips on how to keep your business going, even after you’ve divorced:

Make decisions

Consider every level of potential effect from the divorce””from potential lost revenue to communicating with employees. Some potential questions to ask in regards to how you will handle the business include:

  • Are you planning to sell or keep the business?
  • Will you both continue to work there, or will one of you buy out the other?
  • Can you afford to buy out your spouse, if that is your interest?
  • How will you manage and run the business during the divorce process?

Make these decisions early in the divorce proceedings. In addition to getting the buy-out-or-sell decision out of the way, it may also provide you some piece of mind and security during your divorce.

Get a business valuation

Regardless of which above decision you make, you will need to know your business’ overall value. Hire a neutral third party””an accountant, business appraiser, or financial analyst who specializes in business valuation””to walk you through the steps. A business valuation takes into account all assets of the business, including the “intangibles.” Often, both spouses in this situation will hire their own valuation expert for comparison purposes.

In today’s economically challenged world, property values and future earning potential may both be considerably lower than years past, which is one reason why it is particularly important to have an accurate business valuation completed. The business valuation will take into account all aspects of the company””assets, liabilities, earning potential””to anticipate how lucrative the business’ future looks. To help the process along, have available tax returns or loan applications that you have filed as a business.

Conclusion

In the state of Colorado, a jointly owned business is considered marital property and will be split “equitably.” If the business is owned by one or the other it may not be considered joint or marital property, but it still may be affected if both of you played a major role in running the company.

The court will take into account the valuation of the business and the roles that each of you played in running and maintaining the business to make its decision on who will get what in the divorce. The court may order a buy-out from one of you to the other. If the two of you can’t come to an agreement, the court may decide to order that the business be sold. The court may also be open to the two of you continuing to work together if your divorce is amicable.

When Divorce Means Selling Your House

Every once in a while, I hear someone comment that the Denver housing market isn’t suffering as much as other states.

That may very well be, but with single-family home sales dropping an average of 19.6% since last year and median home sales prices down 3.4%, I have also seen how hard it can be for divorcing couples to sell their home for their asking amount.

For that matter, it can be hard for Denver couples to sell their home in a timely manner at all.

Selling a house can take a long time””sometimes months or even more than a year. As of May 2011, the average length of time that a single-family home stayed on the market before being sold was about three and a half months””a month and a half longer than this time last year. That number may also rise depending on the price of your house. The more expensive your home’s listing price, the longer it may take to sell. A house that you owned with your spouse can rapidly become an albatross around your neck if you are still paying mortgage on a relationship that has ended.

So what do you do if you want to move forward with your divorce sooner rather than later, but your house isn’t selling immediately?

  1. Transfer mortgage over to one person’s name ”“ If one of you can afford to pay for the mortgage, you can refinance the house into that person’s name. Pro: Reduces some urgency, giving you more time to sell the house. Con: Requires legal and financial paperwork as well as negotiation for a fair and equitable buy-out.
  2. Joint mortgage responsibility ”“ During the process of your divorce, you can determine a fair division of the mortgage so that both parties remain responsible for the house payments. Pros: The entire mortgage payment will not fall solely onto one person. Con: Your finances and obligations will be tied to your ex until the house sells””potentially long after the divorce has been finalized.
  3. Consider short sale ”“ A short sale is essentially selling your house very quickly for less than the mortgage amount. It requires an agreement with your lender and is frequently easier to accomplish if the couple has good credit. Pro: Enables you to break ties with your (soon-to-be-former) spouse in a quick manner, without defaulting on your loan. Con: House will sell faster, but neither of you will make money from the sale. Research has also proven that short sales may be just as damaging to your credit as a foreclosure. Consider this option carefully.

Conclusion

I know that a house””or any jointly owned land or property””can be one of the biggest challenges in any divorce, outside of children. While Colorado’s housing market has fared better than some, it is still slow, and selling your house can be both an expensive and drawn-out process.

While it may seem overwhelming or painful to deal with right now””as you are eager to start the next phase of your life””the decisions you make regarding your joint property now will stay with you for the rest of your life.

Each individual and couple has different needs and obstacles to face when selling your house, so there isn’t necessarily a right or wrong path to choose. Hopefully the information I have provided has left you with the comfort that it’s not hopeless, and there are options available to you.

Moving On: Relocating in the Middle of a Divorce

In today’s economy, many families facing divorce also face another potential source of upheaval: the need to relocate due to employment, economic circumstances, and family support. If either one of you may need to relocate for your job, to move closer to family, or to decrease expenses post-divorce, anticipating this possibility at the outset of divorce proceedings is essential.

It’s also important to understand relocating doesn’t necessarily mean moving out of state. It could be that you will need to move from Denver to Colorado Springs. Regardless of how far you or your spouse may end up moving, addressing the potential””especially if your divorce involves children””will save stress, money, and heartache in the long run.

Rules for Relocating

Relocation is an issue the Colorado courts have reviewed numerous times. In 2005, the Colorado Supreme Court issued two rulings that dealt with relocating parents who share children.

In one ruling, the Court distinguished between relocation of a parent during the initial divorce and relocation of a parent after parenting time has been established. The Court determined that in an initial custody proceeding, it would be easier for a parent to move, and the parties would have to address change during their initial parenting plan.

But after initial parenting time is established, the Court determined that more stringent standards for relocation should apply because the parties and children would already be accustomed to a parenting time schedule, and the children would have established a different relationship with the majority time parent that did not exist at the time of the initial proceeding.

In a case involving modification to an existing custody agreement, the Court found that three competing interests must be considered: the majority time parent’s right to travel; the minority time parent’s right to parent; and the children’s best interests.

The Supreme Court ruling mandated that 21 factors be considered to determine if relocation is in the children’s best interests. The factors include the reasons for the relocation, educational opportunities in each location, and the past involvement of each of the parties with the children.

Children’s Best Interest

During a parenting time procedure modification, both parties are required to actively present information and facts demonstrating how the children’s best interests will be served by relocating or by remaining in place. Even if you are not the moving party, you will still have to present evidence of what parenting plan or parenting arrangement will best serve the children and why.

Moving to a Different City

As we mentioned earlier, relocation does not necessarily mean you are moving from Colorado to another state. You are relocating whenever you move your children “to a residence that substantially changes the geographical ties between the child and the other party.” A move from Denver to Durango or Denver to Colorado Springs would certainly change those ties, but what about a move from Englewood to Erie? Many courts would say this is also a substantial change.

Relocation is a complex issue and comes with a myriad of emotional and social implications for you and your children. Consult an attorney for guidance during this challenging time, as modification of existing agreements is often as much of an emotional minefield as the initial proceedings were.

Relocation of any kind may require written permission from the other parent and/or negotiation with the other parent and their attorney. It will also require a revised modification agreement to be filed with the court, which can bring you back into the complex world of filing deadlines, due dates, and requirements that can wreak havoc with the delicate balance you’ve forged post-divorce.

Conclusion

Anticipating the potential need for relocation during your divorce process””describing how it will be handled, what will be considered, and what criteria and steps will need to be taken””specifically in your divorce documents will help decrease costly and stressful post-divorce modifications if the situation arises in the future.

The reality is that sometimes relocation happens””and it’s happening more and more as people have to go elsewhere for work. Whether it’s moving closer to an ailing family member or accepting a job in another state, life brings changes, and your children’s welfare should be your top priority at all times. Think about how you want to handle relocation ahead of time, so you’re not scrambling for a solution late in the game when emotions are running high.