This article was written by Karen Webber, CPA, CPE & Kaitlin Accardi, CPA
Divorce is usually an emotional and confusing time that a couple may face. A significant part of that process is the division of marital assets. When determining what each spouse will walk away with, there are two categories of property (or debt) to consider: Marital and Separate.
In New York, any real or personal property existing prior to the marriage is considered separate assets belonging to the individual who owned it, while marital assets are typically any type of property acquired, by either spouse, during the period of marriage such as wages, investment appreciation, house and cars, or even debts. Regardless of which spouse earned or received earnings or assets, it is anticipated that each spouse has some right to such assets, however not always equal. In New York State, the Equitable Distribution Law indicates that the division of assets among spouses can be impacted by various factors, which are discussed in further detail below.
There are certain instances where assets that are acquired after marriage are deemed separate property. One exception to the rule is if one spouse received a gift or inheritance from a third-party and maintained that property separately, i.e., not co-mingling in joint accounts. Another exception is related to assets or property acquired using only assets previously considered separate, such as the purchases of a car or investment in a business interest using already deemed separate funds. However, if the spouse subsequently contributed to the new (or existing) asset in non-monetary ways that generated or increased income or resulted in the appreciation such asset, a portion of the value may be considered marital. Finally, wages and benefits received resulting from an injury are also deemed separate.
In amicable divorces or marriages, with minimal separate property, basic sources of income and simple acquisitions of property, dividing assets can be simple. However, if this is not the case, further analysis and calculations are often necessary to equitably separate the assets and the use of a forensic accountant can be beneficial.
When property is contested in a divorce case, Bonadio’s Fraud and Forensic team can assist the parties and their counsel with their case.
Pre-marital Investment Accounts
One area that often requires special attention is the division of brokerage or retirement accounts. Often, an individual enters into a marriage having a preexisting amount of money invested in these types of accounts. Once married, any contributions from marital monies that are made, and any transaction resulting from that money that increases (or decreases) the value of the account, is considered marital property. This creates a more complicated situation when those funds need to be divided. To do so, it is important to know the number of shares owned by either individual at the date of marriage. After that, any shares purchased with marital contributions are divided equally and added to each spouse’s portion of shares. Any time a dividend, gain, or interest is awarded on a fund or fees are charged, it is allocated to each spouse based on their proportion of shares on that date. In addition, funds are frequently sold, rebalanced, or transferred. In these instances, the value of the transaction would be allocated to each spouse based on their proportion of the shares at the transaction date. As the number and type of transactions increase, so does the complexity of the calculation.
Prenuptial Agreements
While Prenuptial agreements in theory should keep the division of marital assets simple, it often creates more complex analysis and calculations to determine what each spouse is entitled to, especially if the contract is contested. Forensic accountants often look at the sources of income and assets, especially in instances of newly acquired property, business interests, or appreciation of existing investments and other assets. Terms of the prenuptial agreement are then analyzed and compared to actual property and interests belonging to either spouse to determine how to appropriately separate the assets.
Wasteful Dissipation of Marital Assets
In some cases, one or both spouses can be accused of “Wasteful Dissipation” of marital assets. This act can include deliberately spending, concealing, destruction of, or disposing marital property, using marital assets for purposes unconnected to the marriage, or depriving the spouse of shared marital assets. This can happen in the anticipation of divorce or separation or throughout the period of the marriage. Examples of this can include any monies or assets used or spent in connection with infidelities of one spouse, concealed gambling, or other addictions, hiding assets in unknown accounts, etc. Forensic accountants can be used to analyze financial statements and other relevant documents to trace the funds leaving marital accounts to determine their disposition.
Other Circumstances
As mentioned above, New York’s Equitable Distribution Law also can result in the need for further analysis. The law states that marital property should not be automatically divided 50/50, but rather other various factors should be considered. Other than those discussed in the previous sections, additional factors can include, but are not limited to:
- Length of marriage, age, and health.
- Property and income of each spouse.
- Loss of health benefits.
- Court-ordered maintenance (alimony or child support).
- Future financial circumstances.
- Tax consequences.
- Market value of existing property.
- Custody arrangements.
Forensic Accountants can help with many of the above listed factors such as financial projections, valuation of property, tax consequences, and alimony or child support calculations, among other things.
Every divorce and financial situation is unique to the couple’s circumstances. Bonadio’s Fraud and Forensic Team of professionals can provide further analysis and support to help divide assets and property in the most equitable and suitable way for both parties.
If you need further guidance or have any questions, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.