Valuing Partnerships and Professional Practices in a Divorce

How is a share in a partnership valued in a divorce? How are professional practices valued in a divorce?

People facing a divorce are often concerned about their financial futures. One such financial concern regards how shares in a partnership are valued in a divorce. Parties may also wonder how professional practices are valued in a divorce.

Say, for example, that Taylor and Alex have shares in a financial management business. Also, Taylor owns a medical practice. Now that they are divorcing, Taylor and Alex want to know how their assets will be divided, and specifically, how the shares in the financial management business and the medical practice will be divided.

In Massachusetts, assets are divided on an equitable basis.[1] A judge’s decision as to what is equitable will not be reversed unless “plainly wrong and excessive.”[2] A court may assign all or any part of the estate of the other, including, but not limited to, retirement benefits, military retirement benefits, pension, profit-sharing, annuity, deferred compensation, and insurance.[3] The definition of estate is broadly defined, however.[4] In fact, Massachusetts courts allow the division of premarital property and post-marital property on a case-by-case basis.[5] With regard to the division of shares in a partnership, courts will generally interpret G.L. c. 208 § 34 to include partnership assets within the scope of the possible assets that may be divided in a divorce.

Shares of a partnership and business practice interests are part of the marital estate and may be valued by a valuation expert to assess the market value of the asset. A professional practice, like a medical practice, is considered in Massachusetts to be subject to division during the divorce process.[6] Massachusetts courts may order one of the parties in a divorce to relinquish their share of ownership in the business and receive payment either as a lump sum or in a series of installment payments. A court may order that the business be sold and the spouse receives the profits. One spouse could buy-out the business from the other spouse or offset the business with other assets.

During the valuation process, there are generally three valuation methods: the market approach (estimates business value by comparing the business to a similar business that is recently sold); the income approach (estimates business value by converting economic benefits into a value); and the asset approach (estimates business value based on the assets and liabilities of the business).

In the above example, Taylor and Alex have several possible options afforded to them. A Massachusetts Probate and Family Court will divide the estate equitability based upon the parties’ needs and what is most equitable based on their individual case.

Want to speak with a divorce lawyer about your case? Shedule a free consultation with our office and you’ll learn how the law applies to your facts and circumstances. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.

[1] Adams v. Adams, 459 Mass. 361, 371 (2011) (citing to Bowring v. Reid, 399 Mass. 265, 267 (1987))

[2] Adams, 459 Mass. at 371 (citing to Redding v. Redding, 398 Mass. 102, 108 (1986))

[3] M.G.L. c. 208 § 34

[4] Rice v. Rice, 372 Mass. 398, 400 (1977) (holding that an estate is all property to which the party holds title, however acquired.)

[5] Moriarty v. Stone, 41 Mass. App. Ct. 151, 156 (1996) ; Brower v. Brower, 61 Mass. App. Ct. 216, 218 (2004)

[6] Goldman v. Goldman, 28 Mass. App. Ct. 603, 613 (1990).

Valuing Automobiles and Personal Items During Divorce

During the divorce process, most parties want to ensure that the end of the marriage won’t result in the end of their preferred lifestyle. How are automobiles treated during property division? How are other personal items of value, such as jewelry and antiques valued in a divorce?

Say, for example, that Alex and Jamie were married for twenty years and have filed for divorce. They appreciate their belongings and want to know how their material items will be divided. Alex is a collector of antiques and also owns two expensive automobiles. Jamie drives the family van and also owns jewelry. Because they cannot agree on the division of their property, they want to know how the antiques, vehicles, and jewelry will be divided by a Massachusetts family court during the divorce process.

If the parties in a divorce agree to their own division of property, the courts in Massachusetts will usually support the fair and reasonable distribution of their agreement related to the property division. However, if the parties cannot agree, Massachusetts courts will make the determination as to how assets should be divided. This division is known as an “equitable division.” Equitable does not necessarily mean that each party is entitled to “equal” or 50/50 division of assets. Instead, the courts will use several factors to determine the fair division of assets. Although the list is not exhaustive, courts determine what is fair by examining the following factors[1]:

  • length of the marriage;
  • conduct of the parties during the marriage;
  • age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of the parties;
  • opportunity of each for future acquisition of capital assets and income;
  • amount and duration of alimony;
  • present and future needs of dependent children of the marriage; and
  • contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates and the contribution of each of the parties as a homemaker to the family unit.

If one former spouse believes that she is entitled to more property than a judge initially awarded, another judge may order that without a clear and adequate explanation for the amount of property awarded between the parties, the division of property may not be equitable.[2]

If they cannot agree, Alex and Jamie would experience the Massachusetts court-imposed “equitable division” standard. Their twenty years married, their conduct during the marriage, and the personal items and property shared between them, including the antiques, cars, and jewelry, would be evaluated and divided.

The value of the personal items is dependent on the circumstances which arrant division of property in recognition of the marital partnership concept [. . .][3] Therefore, Alex’s and Jamie’s tangible property could be valued at a fair market value rate, which means that the amount that the property would sell within an open market. If the amount of an item cannot be determined, a judge could look to professional appraisals, receipts, and other material documentation to reach the property monetary amount.

If you have any questions about the divorce process or assignment of property, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.

 

[1] Mass. Gen. Laws ch. 208 § 34

[2] Bowring v. Reid, 399 Mass. 265, 268 (1987) (remanding a decision so that a judge may articulate the rationale for the Section 34 alimony and property awards, especially because the plaintiff alleges that the defendant was unfaithful and abusive and the plaintiff’s contribution to the marriage, her needs, and her sources of income were not considered.); See, Redding v. Redding, 398 Mass. 102 (1986).

[3] Davidson v. Davidson, 19 Mass.App.Ct. 364, 370 (1985) (citing to Inker, Walsh & Perocchi, Alimony and Assignment of Property: The New Statutory Scheme in Massachusetts, 10 Suffolk U.L.Rev. 1, 8 (1975))

Property Attachment and Divorce

A property attachment is a possibility during divorce: either spouse, under Massachusetts divorce laws, may attach the other spouse’s real and personal property to ensure suitable support for the attaching spouse and children in his/her care and custody[1].

Consider the example of Betty and Bob, who made their marital residence a ranch home Bob purchased in his name before their union. When the marriage dissolved, Bob tried to sell the home, despite a restraining order that prohibited him from putting the home up for sale. In such a scenario, a writ of attachment filed in the Registry of Deeds of the county in which the couple resides will notify any would-be buyer that title to the property is not clear because of pending litigation. This includes Betty’s spousal lien, which preserves her rights to distributable property in the separation agreement.

A writ of attachment, signed by the applicable Probate Court clerk under the Commonwealth court’s seal, must include the following information:

  • the parties’ names and residences;
  • the divorce complaint date;
  • the name and address of the plaintiff’s attorney, if any; and
  • the name of the justice granting the attachment and the approval date[2].

The writ directs the applicable county sheriff or deputy, or other individual duly authorized by law, to attach the defendant’s targeted real or personal property in the court-approved amount and return the process to the court.

The spouse seeking the property attachment must file the complaint for divorce, along with a motion for attachment backed by an affidavit containing facts based on the spouse’s own knowledge or belief. The defendant spouse must be given notice of the application for the attachment, which, after hearing, a justice may grant only after finding “a reasonable likelihood that the plaintiff will recover judgment, including interest and costs, in an amount equal to or greater than the amount of the attachment over and above any liability insurance shown by the defendant to be available to satisfy the judgment[3].” Attachment must be made within 30 days of the writ’s approval.

A property attachment may be made by a court-ordered injunction that would enable a party to attach in equity stock shares and other property unreachable in actions at law. Alternatively, attachment may be made by trustee process, under which service of a summons is made on a trustee notifying the trustee to attach designated goods, effects and credits of the defendant in the trustee’s hands[4].

Another form of encumbrance is a lis pendens, whereby a party makes a claim of right to title to real property or its use and occupation. If, after a hearing, a judge approves the motion, a memorandum is filed in the appropriate registry of deeds identifying the court where the case is pending, the date of the writ, and a description of the property and town where it is located.

Attachment of property in a divorce action may also be made by a counterclaim, cross-claim or third-party complaint. The rules allow one party to seek an attachment “ex parte.” A court must find reasonable likelihood of recovery by the plaintiff and circumstances such as not having jurisdiction over the defendant spouse or evidence that the defendant will destroy, conceal or try to unload the targeted property if notified in advance of the attachment action.

If you have any questions about issues of divorce or property assignment, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.

[1] M.G.L. c. 208 §12; Mass. Dom. Rel. Proc. Rule 4.1 (a).

[2] Mass. Dom. Rel. Proc. Rule 4.1 (b).

[3] Mass. Dom. Rel. Proc. Rule 4.1 (c).

[4] M.G.L. c. 208, §13; Mass. Dom. Rel. Proc. Rule 4.2.

Unvested Stock Options: What Constitutes “Double-Dipping?”

May the calculations for alimony payments include a spouse’s unvested stock options, particularly if those options were not considered to be part of marital property for purposes of equitable distribution? This question was recently answered by the Massachusetts Supreme Judicial Court. In Ludwig v. Lamee-Ludwig, the Court said yes. [1]

At issue was a practice colloquially known as “double-dipping,” which brings up “the seeming injustice that occurs when property is awarded to one spouse in an equitable distribution of marital assets and is then also considered as a source of income for purposes of imposing support obligations.” [2] As an example, double-dipping would occur where a party’s unvested stock options were divided equitably during the divorce, and later, when vested, counted as the party’s income for purposes of calculating alimony payments.

In the case at hand, the parties were divorced in 2014. Under their separation agreement, the wife was awarded alimony based on a portion of the husband’s annual base salary, and also awarded additional alimony based on a sliding-scale calculation of the husband’s bonuses and other forms of compensation. The trial court applied “the time rule” to this case: this rule considers the number of unvested options, as well as the length of time the employee spouse has owned those options PRIOR to the dissolution of the marriage.

The Court noted that because the trial judge did not consider the unvested stock options as part of the marital property to be divided among the parties during the divorce, no double-dipping occurred. “Here, there is no such injustice because the contested shares were not part of the equitable distribution of assets; by operation of the time rule, they were assigned to and retained by the husband outright.” [3] The source of property assignment only included options which were attributable to the marital partnership, and did not include stock options which were given for post-marital efforts. Therefore, the Court noted, those unvested options could be considered income for alimony calculation purposes.

Interestingly, the Court also pointed out that the practice of double-dipping is not prohibited as a matter of law—it may be done, so long as the trial judge considers the equities of each situation.

 

 

[1] Ludwig v. Lamee-Ludwig, No. 15-P-1177 (October 17, 2016-February 7, 2017).

[2] Id., at 5, quoting Champion v. Champion, 54 Mass. App. Ct. 215, 219 (2002).

[3] Id., at 5.

The Conduct of the Parties During the Marriage: A Factor in Dividing Marital Property

Larry and Leah have been married for a decade, during which Leah was the main bread-winner through her job as a human resources director. Though Larry has held a string of low-paying jobs, he has not managed to hold down a job for very long, and he can’t seem to manage saving any money—on top of that, Larry has spent substantial amounts of money on his gambling habit for the past ten years.

Leah has recently filed for divorce. She is concerned about the division of the property she has accumulated while she was married to Larry, particularly the marital home which was purchased with a down payment that she saved up from her job. Is the Court possibly going to order that Larry take half of the things Leah has worked so hard to accumulate and maintain, or will the Court take into consideration Larry’s lack of contribution and detrimental decisions?

Larry’s conduct during the marriage will likely be considered by the court here. The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how best to divide marital property in the fairest manner in each particular case. There are many factors that the Court considers as part of this process, and one of those factors is the conduct of the parties during the marriage.

As of the passage of the Massachusetts Alimony Reform Act, the conduct of the parties is no longer a factor in awarding alimony. However, the conduct of the parties remains a factor in the division of marital property. In what ways might it affect the judge’s decision? Past cases have looked at a slew of issues with conduct, including the following:

  • Failure to take care of the marital assets and responsibilities: in one case, the Court conveyed to the wife the primary home where the husband “did very little in house maintenance and spent much time outside the home” and the wife “was responsible for raising the children and taking care of the marital domicile.” [1]
  • Using the marital assets for a spouse’s own purposes, while relying on the other spouse to pay the family bills: in one case, where the wife contributed her money to home repairs while the husband, supported by his wealthy mother, spent his on motorcycles and a motor home, the Court considered the husband’s conduct and assigned almost all of the marital assets to the wife; [2]
  • Conveying marital property to another person in anticipation of divorce: the court in one case, where the husband obtained by fraud and coercion his wife’s permission to establish a trust to benefit his siblings, and moved marital property into that trust, the judge was able to invalidate the trust; [3]
  • Using the marital funds to “entertain” an extramarital affair; and [4]
  • Causing waste of the marital assets, such as by gambling; among other things. [5]

Typically, the conduct of the parties will be considered a factor in marital division only when it impacts the financial or economic state of the marriage. In other words, conduct which does not affect the couple’s finances or economic status—such as one spouse who is perhaps mean and condescending to the other but pulls his or her weight in maintaining the couple’s financial status—likely won’t be a controlling factor. Should that conduct impact finances, however, it may be considered by the Court.

If you have any questions about division of marital property, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

 

[1] Tanner v. Tanner, 14 Mass. App. Ct. 922 (1982).

[2] Johnson v. Johnson, 53 Mass. App. Ct. 416 (2001).

[3] Yousif v. Yousif, 61 Mass. App. Ct. 686 (2004).

[4] See, for example, the cases of Ross v. Ross, 385 Mass. 30 (1982) and McMahon v. McMahon, 31 Mass. App. Ct. 504 (1991).

[5] See, for example, Yee v. Yee, 23 Mass. App. Ct. 483 (1987).

In What Ways is the Age of the Parties Considered in Property Division?

Ellen and Earl have been married for more than twenty years, making the age of the parties more relevant in a divorce. During the marriage, Earl worked full-time as an engineer, while Ellen stayed home to care for the parties’ two children. Ellen, who has a high school education, went back to work part-time at a retail store once the kids learned how to drive.

However, Earl’s recent Complaint for divorce has thrown Ellen for a loop. She has few skills that would make her employable—on top of that, she is in her fifties and worries about attempting to go back to work full-time. Ellen wonders if her age will have anything to do with how the Court will divide the marital property. Will the Court consider her plight in allowing her to keep her marital home, for example?

The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how to best divide marital property in the fairest manner in each particular case. There are many factors that the Court considers as part of this process, and one of those factors is the age of the parties. Together with other factors such as employability.

Typically, the older the parties are, the more important their age becomes when factoring it into the Court’s decision regarding assignment of the marital estate. In particular, if one party is elderly and has devoted a large part of his or her life to homemaking, and if the couple had a long-term marriage, then those factors coupled together will pose an important consideration for the Court. By contrast, if the couple is fairly young, with good prospects for employability, and had a fairly short marriage, then the age of the parties will become a much less important factor in dividing property.

In one case, the Appeals Court considered the advanced age of the wife (in her sixties) who had stayed home with the children, ran the household, and assisted the husband in his medical practice during a 36-year marriage. The Court held that the wife was unlikely to become financially independent, and that the trial court’s decision to award alimony and property to the wife was fair and equitable.[1]

If you have any questions about property division issues, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

[1] Serino v. Serino, 6 Mass. App. Ct. 926 (1978).