Minnesota Divorce and Dividing Property

In Minnesota, divorce courts divide property “equitably.”  This that means property is divided fairly, but not necessarily equally.

For property that has high value – real estate, a business, or other investments – generally an appraiser is hired to determine the property’s value.  Often the appraiser is neutral, meaning that both parties agree to the appraiser and they both agree to accept the appraiser’s determination of property value.

Certain kinds of property, including real estate, are fairly easy to value.  Other kinds of property, a business, for example, can be difficult to value.

A business can be difficult to value because there are a lot of assumptions about the business and the market that the appraiser has to make. When asking the question “What would an arms-length purchaser pay for the business?” there is a lot of estimating about the future prospects of the business that can make it difficult to arrive at a specific value.  Different assumptions produce different results.  While a home can be compared with other similar homes that have sold in the area in the past six months, often, businesses are unique and their success is driven by the individuals who own and manage the business, as well as the nature of the business, the market for the business, etc.

If you are getting divorced and you, or your spouse, owns a business, you need to retain a divorce attorney who has experience with divorces involving businesses.  Feel free to call Minnesota divorce attorney Daniel M. Fiskum and Minnetonka Family Law, P.A., at (952) 270-7700 to set up a free initial consultation.  We are located in Minnetonka, Minnesota, at the intersection of Highway 494 and Highway 394, in the Carlson Towers.

Attorney Daniel M. Fiskum has experience with divorces involving businesses.  He is a graduate of the University of Minnesota School of Law and has been named a Super Lawyer by the Minnesota Journal of Law and Politics.  He is a member of the American Bar Association, Family Law Section, and the Minnesota State Bar Association, Family Law Section.  Daniel M. Fiskum has practiced divorce law in Minnesota for over twenty-five years.

 

 

 

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Divorce and the Early Neutral Evaluation Process

Most counties in Minnesota offer something called Early Neutral Evaluation (also known as “ENE”).  There is an ENE process for custody and parenting time issues, and an ENE process for financial issues.

Early Neutral Evaluation is similar to mediation, but there are major differences.  At an ENE, each party spends a half hour or more talking about the issues from his or her perspective.  If it is a custody and parenting time ENE, the parties talk about the children and the arrangements they believe will be in the children’s best interests.  If its a financial ENE, the parties talk about their finances and how they believe the finances should be addressed.

Then the evaluators take a break, they confer privately, and return in about 15 to 20 minutes.  The evaluators will have specific recommendations.  The recommendations are confidential, meaning they cannot be repeated to the court.  The purpose of the recommendations is to provide the parties with a view of what is likely to happen if the case went to trial.  Often, equipped with that knowledge, the parties can then reach an agreement.

After providing an evaluation, the evaluators then switch to settlement mode to see whether they can help mediate a final agreement.  Sometimes the process is reversed.  Sometimes the evaluators try to reach a settlement first, and then provide their recommendations later.  This depends on the approach of the particular evaluator.

The evaluators are on a list of court neutrals and are appointed by the court. In Hennepin County, the custody and parenting time evaluators work for court services and their offices are on the second floor of the Hennepin County Family Justice Center.

It is extremely important that your attorney prepare you carefully for an ENE.  You need to know not only “what” to say, but “how” to say it so that you do not alienate the evaluators.

If you have questions about this, feel free to call attorney Daniel M. Fiskum, at Minnetonka Family Law.  The number is (952) 270-7700.  Daniel M. Fiskum has practiced divorce and family law for over 25 years.  His office is conveniently located in the Carlson Towers at the intersection of I 494 and I 394.

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The Role of Mediation in Minnesota Divorce

As I have written about in the past, mediation is an important component of the divorce process in Minnesota courts. There is also another process that is similar, but different. This process is known as “Early Neutral Evaluation.”

What is the difference?

In mediation, the role of the mediator is to help the parties reach an agreement. The mediator tries to understand each party’s position, and why it is that the party has that position. The mediator then tries to help the parties come to an agreement by making a bargain that gives each party at least part of what it is they would like to achieve.

Mediation is confidential, which means that the things that are discussed are not allowed to be brought up in court. And, if mediation is unsuccessful, the mediation is concluded without comment by the mediator.

The Early Neutral Evaluation process adds at least one element that mediation does not have. If, at the end of the session, the parties have not reached an agreement, the evaluator will give an opinion as to what he or she believes that court would likely do, if the case came to trial. This opinion is also confidential. It cannot be discussed in court. It is intended to give the parties the benefit of the perspective of an unbiased third party.

There are two kinds of Early Neutral Evaluations – “Social” Early Neutral Evaluations, which deal with custody and parenting time, and “Financial” Early Neutral Evaluations, which deal with support, maintenance, and division of property.

Sometimes a couple who is divorcing will go to both kinds of ENEs, and sometimes they will only go to one. It depends upon what their issues are.

I am an attorney licensed to practice law in Minnesota. I have practiced family law for over 20 years. I have been named a “Super Lawyer.” My own thoughts about mediation and ENEs are as follows:

1. I think that if you are going to mediation or to an ENE, you need the advice of an attorney. You cannot bargain effectively unless you know what the law is, and how the law will be applied to your facts. Mediators and ENE evaluators will not practice law for you, they will not give you legal advice, and if you give up more than you need to, they will not care, as long as the case is settled.

2. Sometimes mediation is appropriate. Sometimes the ENE process is appropriate. Sometimes neither process is appropriate. I have been involved in cases in which the opposing party is very angry and wants to punish his or her spouse. That party may use mediation solely as a way to cause the other spouse to spend more money than he or she needs to spend (mediators and ENE evaluators need to be paid). This unethical, but it is fairly common and there is no effective remedy.

3. Especially before financial mediation or a financial ENE takes place, you need to know everything that can be known about yours and your spouses finances. You and your attorney need to review bank statements, check book ledgers, paycheck stubs, and tax returns. You need to know what your retirement assets are worth. If there are pre-marital components to your assets, you need to know what these are worth. Otherwise, mediation and the Financial Early Neutral Evaluation can be a waste of time.

4. Most importantly, you need to have a sense of “proportion.” In other words, how much do you want to spend – in mediation or litigation – to achieve your goals? If you have a marital estate worth 5 million dollars, then it makes sense to spend an adequate amount of money to trace marital and non-marital claims, and to assert your rights during the divorce process. If you have a marital estate that is worth 5 thousand dollars, you should not be spending a lot of money on attorneys fees, or on mediation or an ENE. Its that simple.

If you have questions about this, please feel free to call me directly at (952) 270-7700. My name is Daniel Fiskum, I am a Minnesota Divorce Lawyer, and I would be happy to help you.

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Divorce and Joint Tax Returns

Around this time of year we at Fiskum Law are often asked about whether a divorcing spouse should file a joint tax return with the other spouse.  Our answer is “it depends.”

When you sign a joint tax return with a spouse, you become jointly and severally liable for the tax debt owed.  This means that if there is money that is owed and your spouse does not pay it, the IRS will make you pay it.

What if your spouse misrepresents his or her income?  What if he or she failed to report some income, and when the income is reported later, it results in a significant tax debt?

If that happens, the IRS can make you pay the debt.  If you sign a joint tax return for 2012, you become responsible for any and all taxes and penalties owed in connection with any amended 2012 tax returns.

Can the divorce court enter an order directing your spouse to pay the debt?  Yes, it can, but if your spouse doesn’t have any money and you do, the IRS will take it from you.

So, you need to be careful before you sign a joint return.  There are benefits, including a lower tax rate, but you need to make sure that there has been full and honest disclosure of all income and debts so that you know what you are committing to.  I have developed language that I use in proposed Judgment and Decrees that, to the greatest extent possible, protects a spouse in this circumstance.

Feel free to call me, attorney Dan Fiskum, at (952) 270-7700 to schedule an in-person divorce case analysis.  My office is conveniently located in the Carlson Towers at the intersection of Highway 494 and Highway 394 in Minnetonka, Minnesota.

Divorce and Business Valuation

When a person owns a business, divorce can pose special problems.  There is no “one-size-fits-all” solution, and a business owner who is going through a divorce (or a spouse of a business owner) needs competent and experienced legal representation to address valuation and tax issues.

Usually  in the context of a divorce, it is necessary to establish a value for the business in order to fairly include it in the property division spreadsheet.  And, usually a business appraisal is performed by a professional appraiser.  The appraiser seeks to answer the question – what would the average buyer pay to acquire the income stream.  There are various formulas that an appraiser might use, and the capitalization rate that he or she selects can vary from business to business.  Counterintuitively, the appraiser does not ask what an actual buyer might pay,  but, in light of the formula, what would an average buyer pay.

When valuing a business from the perspective of the outside spouse (the “outside spouse” is the person who does not run the business, and to whom the business itself is probably not going to be awarded) it is important to look at the spending patterns the business has engaged in in in the past.  Is the business paying the personal expenses of the owner?  For, example, is the business providing the owner with an automobile, is it paying his or her automobile insurance, and is it paying other expenses which could be considered personal to the owner?  Who owns the property that the business is situated on?  Is the business paying the owner rent?  Or, if the business is an office building or an apartment building, is it fully leased?  What are the durations of the various leases?

This information is probably not found in the business’s tax return.  An expert may have to review the business’s accounting ledgers, including sub-ledgers that provide details on individual expenditures.  There are many other kinds of documents that provide valuable insight into the inner-workings of a business entity, and you should select an attorney who knows what these are and who knows how to get access to them.

Sometimes a business owner has an ownership interest in a business in the form of stock shares or partnership shares.  While these have value, typically there are share transfer restrictions placed upon them when the business was formed.  A share transfer restriction places a restriction on who may own stock in the company.  Usually, when a share transfer restriction is in place, the only person who can buy stock is another shareholder, or someone else who is approved by the directors and/or shareholders.  A share transfer restriction can reduce the value of the stock because the stock is not freely transferrable.  Shares of stock that are publicly traded on a stock exchange do not have share transfer restrictions, and anyone can buy them.

Sometimes shares of stock are held in an Employee Stock Ownership Plan.  These, too, can be the subject of share transfer restrictions.

It is also important to obtain information about the equipment and fixtures owned by a business.  And, if the business owns intellectual property (trademarks, copyrights, patents, secret recipes, etc.) these also need to be valued.

If you are going to be involved in a divorce proceeding in which the disposition of a business is an issue, you should call attorney Dan Fiskum at (952) 270-7700 for more information and a free divorce case analysis.

 

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