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? Schedule 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.

What Are the Discretionary Factors in Property Assignment, and How Do They Work?

Sam and Sally are going through a divorce. For years, Sam worked outside of the home while Sally stayed home to care for the couple’s children. Sam was responsible for the acquisition of most of the couple’s property. He now wonders whether the court will consider his contributions in deciding how to divide marital property. Conversely, Sally wonders if her contributions as a homemaker will be considered by the court in property assignment.

In short, both parties’ individual contributions will be considered in this situation. The Massachusetts Probate and Family Courts use a process called equitable distribution for property assignment 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, most of them mandatory for the court’s consideration and analysis.

In addition to the mandatory factors, the court may also consider some discretionary factors:

• the 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.

The fact that these factors are discretionary means, of course, that the court does not have to take them into consideration. However, these factors are still important and cannot be ignored by the court in the case of property assignment.

In one case, where the husband was responsible for the acquisition of most of the parties’ property, the Supreme Judicial Court held that the trial judge property considered the parties’ contributions and the sources of the marital property in property assignment. The Court noted: “an equitable, rather than an equal, division of property is the ultimate goal…To that end, a judge is required to consider the respective contributions of the parties to the marital partnership, and a disparity in contributions may be reflected in the distribution of the inherited and gifted assets. A judge may also consider, as the judge clearly did in this case, the source of the assets, each parties’ role in managing the assets, and whether the assets in question had been kept separate or commingled with the couple’s jointly owned property. In light of these considerations, and in light of her conclusion that the husband’s contributions to the marital estate greatly exceeded those of his wife, the judge’s determination to award the inherited and gifted assets to the husband, while awarding the wife the bulk of the jointly produced assets, was well within her discretion.”

If you have any questions about issues of divorce, custody, or support, 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.

Future Income and Property Acquisition in Dividing Marital Property

Zelda and Zack have been married for ten years and are undergoing a divorce. Zack recently found out two things: first, that Zelda has won a professional award which will likely allow her to increase her income substantially in the future; and second, that Zelda is likely to come into a large inheritance from her mother, of which Zack had no idea. Zack wants to know if the Massachusetts Family Law Court is likely to take these two things into consideration when dividing the marital property and ordering alimony.

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. Massachusetts General Laws, chapter 208, section 34 defines the factors the Court will use in determining how marital property should be divided. Under the statute, the Court may include in its analysis the opportunity for the parties to acquire future income and property.

The opportunity to acquire future income and property is a comprehensive factor: it includes the likelihood of earning future salaries, bonuses, royalties, and other sources of income. It also includes family trusts, inheritances, and other property which may befall one of the parties in the future.

In one Massachusetts case, the Court considered the effect of the husband’s Nobel prize on his future acquisition of assets. As the Appeals Court explained upon appeal:

In explaining her division of assets, the judge relied “heavily” upon the statutory factor of the “ability of the parties to acquire future income and assets.” The judge concluded that the husband’s ability is excellent, as he retains a retirement asset in which his employer “matches his future contributions dollar for dollar,” and his “receipt of the Nobel prize opens wide new horizons for his income potential.” The wife’s future prospects were found to be “paltry and stagnant by comparison.” The judge found that the wife had “no likelihood of acquiring significant future assets or increasing her earned income.”

The Appeals Court affirmed, holding that the trial court properly considered the above factors in computing the parties’ opportunity to acquire future income. “The husband’s and wife’s ability to acquire future income and assets are therefore strikingly different and justify the judge’s heavy reliance on this factor,” the Court noted.

In the case of future property acquisition, however, the Court will carefully consider whether there is a realistic prospect of receiving the future income or property, or whether future acquisition is merely expected. If it’s the latter, the Court may not include it in its consideration of assets. In one case, the courts considered a husband’s future interests in many different family trusts and other property. In some trusts, the husband was deemed to have a present, enforceable right, and those trusts were ordered by the court to be considered as opportunity for future acquisition of capital assets and income in determining alimony and child support. In some other trusts, however, the husband’s interest was deemed too remote or speculative, and those trusts were not considered to be part of the marital estate.

If you have any questions about issues of divorce, custody, or support, 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.