Month: August 2019

Connecticut Divorce Differences

This Week’s Blog by Jaime S. Dursht.

Connecticut Divorce Differences

Is Property Division in a Connecticut Divorce Different from Other States?

It is commonly assumed by people who are contemplating divorce that particular types of assets will be considered separate and will not included in the marital estate, and thus not shared with one’s spouse.  Divorce laws differ from state to state, and Connecticut’s approach to property division happens to be unlike that of the majority of states that do characterize certain property as separate from the outset of a divorce.

What is the Court’s Approach to Dividing Property in a Connecticut Divorce?

In Connecticut, a three-step analysis is applied by courts to equitably divide property.  First, the asset is classified to determine whether it is property within the meaning of Connecticut General Statutes 46b-81. Second, the value of the asset is considered, and what the appropriate valuation method is.  Third, the equitable distribution of the property is decided.

Although this system of property division is referred to as an “equitable distribution” scheme, as it is in many other states, there is a significant difference in that Connecticut does not “limit, either by timing or method of acquisition or by source of funds” the property that is characterized as marital and subject to the court’s power to divide.  Krafick v. Krafick, 234 Conn. 783, 792, 663 A.2d 365 (1995).

Thus, property is not automatically classified as separate, regardless of when the property was acquired, whose name it is titled in, or the method of acquisition.  Below are common examples.

Are Premarital Assets Considered Separate Property in a Connecticut Divorce?

Property acquired prior to the marriage will not automatically be characterized as separate.  If you owned a house, an art collection, or your own business before you married your spouse,  these assets will not be set aside as nonmarital property, they will be considered part of the marital estate.  Depending on the overall marital estate, a court may or may not award the premarital property to the original owner.

Are Retirement Accounts Considered Separate Property in a Connecticut Divorce?

The 401(K), the IRA, pension, restricted stock units, or any other type of employment related benefit that you acquired before your marriage will be included in the marital estate regardless of sole legal ownership.  Depending on the sufficiency of the collective assets to meet the needs of the parties, a court may allocate solely titled retirement assets to the titled owner to reduce the number of account divisions especially if transaction fees are involved. However, it is very common to divide all retirement accounts 50/50.

Are Inherited Assets Considered Separate Property in a Connecticut Divorce?

Inheritances, whether real property or stock accounts, are not designated as separate property in Connecticut as they may be in many other states.  Inherited assets are included in the marital estate in Connecticut.  There may be equitable reasons to allocate one’s inheritance to the titled owner, but not until the entire marital estate and statutory factors of Conn. Gen. Stat. 46b-81 are considered.

Are Future Inheritances Considered Part of the Marital Estate in a Connecticut Divorce?

Anticipated future inheritances expected from people who are alive are not considered property within the meaning of C.G.S. 46b-81.  Courts cases addressing this issue have determined that the marital estate does not include interests that are unvested or merely expected.

When Are Assets Valued in a Connecticut Divorce?

Unlike other states, in Connecticut, assets are valued on or as close as possible to the date of dissolution rather than the date the action was filed.  This is based on the principle that financial awards and orders should be based on the current financial circumstances of the parties.

How are Assets Equitably Divided in a Connecticut Divorce?

Connecticut courts have wide discretion to allocate marital assets to either spouse so long as   statutory criteria is considered.  “When deciding to whom to assign property to, the court shall consider the length of the marriage, the causes for the … dissolution of the marriage … the age, health, station, occupation, amount and sources of income, earning capacity, vocational skills, education, employability, estate, liabilities and needs of the parties and the opportunity of each for future acquisition of capital assets and income.”  Conn. Gen. Stat. 46b-81.

The court is not required to give equal weight to each factor, nor is the court required to provide its reasoning as to which factor may have influenced its decision in making an equitable division.  Caffe v. Caffe, 240 Conn. 79 (1997). The courts have also refused to adopt a presumption of equal division.  Rivnak v. Rivnak, 99 Conn. App. 326 (2007).  Thus, each divorce is determined on a case-by-case basis according to its facts and it is important not to draw conclusions based on broad information derived from sources that are not specific to Connecticut.

Broder & Orland LLC, with offices in Westport and Greenwich, concentrates in family law and divorce.  Our attorneys are very experienced with the financial issues faced by individuals in a divorce, and understand the importance of accurately identifying assets and methods of valuation to optimize financial circumstances moving forward.

  

“Double Dipping” Considerations in a Divorce When a Business Interest is at Issue

This Week’s Blog by Andrew M. Eliot.

“Double Dipping” Considerations in a Divorce When a Business Interest is at Issue

In some divorce cases, a business (or an interest in a business) that is owned by one spouse, and from which he or she receives income, also constitutes an asset to which a value must be ascribed so that the asset can be distributed between the parties in some manner as part of an overall division of property. In instances where both the value of a business interest must be divided, and an award of alimony in favor of the non-titled spouse might also be appropriate, the concept of “double dipping” must be carefully considered in order to avoid potential inequities that could otherwise result when resolving the two separate, but sometimes interrelated issues, of property distribution and spousal support.

What is Double Dipping Generally

Generally speaking, the concept of “double-dipping” refers to a situation in which one spouse is unfairly paid twice for a single asset; once in the context of property division and a second time as part of a spousal support award.

How Can Double Dipping Occur when a Business Interest is Being Divided?

When the value of a business interest must be divided in a divorce, there are a variety of valuation methodologies that can be employed to determine the value of the interest for property distribution purposes. While an exploration into the various valuation methodologies is beyond the scope of this article, one common valuation approach that is employed in the divorce context (and stated in very simplistic terms) is for the value of the business interest to be calculated as a function of the entity’s future stream of expected income.   It is in this context that “double-dipping” issues are most likely to arise.

Specifically, double dipping concerns can arise if the same cash flows that are used to determine the overall value of a spouse’s business interest are also considered a component of that spouse’s income for purposes of calculating spousal support. Stated differently, when a business is valued based upon the entity’s expected income stream, it would constitute double dipping to both distribute the value of the business and then also base spousal support on the full amount of income the business produces.

How Can Double Dipping be Avoided

While there is a variety of ways to address double dipping concerns that may arise when a business interest is being valued and divided, one common methodology is for a “reasonable compensation” or “replacement compensation,” figure to be attributed to the business owning spouse. This figure represents the hypothetical amount that the business would pay to an unrelated person to perform the same function as the business owning spouse. Then, in determining what amount of income earned by that spouse is available for spousal support purposes, only the “reasonable compensation” amount utilized, which would necessarily be some amount less than the business owning spouse’s total earnings. Relatedly, in determining a value for the business interest, the “reasonable compensation” amount is subtracted out from the business cash flows that are used to determine the overall value of a spouse’s business interest. As a result of this process (commonly referred to as “normalizing income”), the higher the reasonable compensation figure attributed to the business-owning spouse is, the lower the value of the business will be for distribution purposes and, conversely, the lower the reasonable compensation figure attributed to the business-owning spouse is, the higher the value of the business will be for distribution purposes.

Are Forensic Experts Utilized Where Double Dipping Issues Might Arise

Yes. In cases where business valuation and/or potential double dipping issues arise, it is crucial to involve a business valuation expert with expertise in these areas. Such experts can assist clients and attorneys in wading through and understanding these often complex and thorny issues.

Cases involving distribution of business interests and double dipping concerns are often complex and, in order to be handled properly, require a great deal of expertise and attention. At Broder & Orland LLC, we have extensive experience handling matters involving these issues and are poised to help clients achieve favorable and fair results when these issues arise.