Divorce and Dividing Property During the Coronavirus Outbreak

If you are contemplating filing for divorce or at the stage of dividing marital property in a pending divorce during this turbulent time, let's examine your options. But first, some reality checks.

How the COVID-19 Pandemic is Affecting Family Law Courts and Property Values

Reality Check #1. Many courts are closed or open only for emergency hearings with some holding limited hearings via telecom, though most judges will sign agreed temporary or final orders during this hiatus. Property conflicts have a lower priority than custody conflicts regarding the best interests of children. When the courts do reopen, count on their docket schedules being swamped for weeks or months to come.

Reality Check #2. One of the first steps in a divorce is to identify all marital assets and liabilities; next is valuing them. An underlying principle of marital property division— whether by a judge after a trial or by agreement of the spouses—is determining the fair market value (FMV) of each asset. FMV is defined as what a willing seller would pay a willing buyer, with neither having to sell or buy, and with both knowing all the relevant facts. These two italicized phrases are of paramount relevance for divorce valuations today.

Reality Check #3. How a judge may divide your marital estate carries substantial weight in the minds of those engaged in property settlement negotiations. In the current economic turmoil, driven by the COVID-19 pandemic, rest assured that judges do not hold crystal balls to forecast where our economy is going to land. In ordinary times they give weight to expert opinions when valuing and dividing marital property such as real estate, retirement benefits, and business interests. These experts include real estate appraisers, actuaries, brokers, accountants, brokerage analysts and economists. Presently experts are all over the map opining about when, how, and under what constraints our economy will recover after the pandemic peak wanes. Remember that the stability and thus predictability of our economy drives marital property valuation in normal times.

Should You Finalize Your Divorce Now or Later?

If you're willing and able to wait for the dust to settle at some unknown point in the future, how do you protect your property interests in the meantime?

1. Discovery. Identify all assets and all debts so you know what type of assets you're dealing with and identify all sources of income. Discovery includes the informal exchange of documents and information along with more formal out-of-court methods such as sworn inventories, interrogatories, requests for documents, and depositions. Anticipate work-arounds for quarantines and other limitations to accessing documents.
2. Managing and monitoring. Which spouse, if not both, will be managing an asset or responsible for paying the debts? There must be a process for that person to keep the other spouse informed of any changes regarding assets and not make major decisions affecting value unless both spouses agree. Who is earning what and how stable is that stream of income? The person earning or having to select work-place options affecting income should provide timely updates to the other spouse. If one spouse decides that they can't handle the stock market rollercoaster ride and wants to sell 401(k) investments so as "not to lose more money," then both spouses should agree to that strategy in advance. Timely updates go a long way toward keeping the waters calm.
3. Temporary agreements or orders. Your agreements about the exchange of information and the interim management of and reporting about assets and liabilities should be in writing to avoid misunderstandings, either in the form of a written agreement and/or agreed-upon temporary orders. This is especially important if there is a low trust level between the spouses.
4. Temporary injunctions. If you have facts to support a belief that your spouse is being, or will be, reckless with regard to finances, ask your attorney about filing for a temporary restraining order (TRO). In some jurisdictions TRO's are automatically issued upon filing for divorce to maintain the status quo.

On the other hand, if you're dead-set on finalizing your property division now rather than later, consider one or more of the following:

1. Divide some or all assets by percentages rather than dollar value. Even though doing so may make it harder to calculate sums paid to a spouse to equalize an otherwise unequal division, this approach does apportion the risk and burden of the unknown.
2. If there is an asset that does not lend itself to easy valuation or division, for example a small business that is currently shut down and may or may not survive, consult with an attorney to discuss the various methods for valuing that asset post-divorce with details that are enforceable, including a timetable by which the spouses will revisit valuation and stability of investments.
3. If you have real estate you will continue to own jointly after the divorce, have a Property Management Agreement as part of your overall marital settlement agreement. A Property Management Agreement should cover:
• each spouse's responsibilities for insurance, taxes, utilities, repairs, and maintenance
• how to determine a future listing price if the property is sold
• how to determine future rent to be paid if leased, and
• how to structure an owner-financed sale.
4. Alimony payments reached by agreement or court order may be modifiable in the future if there is a substantial change in circumstances; however, in some states judges cannot impose an increase to the original amount set at the time of divorce. Check with an attorney about this.

You may want to explore the option of mediation or a collaborative divorce. In a divorce mediation, a neutral, specially-trained third party (usually a family law attorney) helps spouses reach agreements on their divorce issues. In a collaborative divorce, the spouses contractually agree not to have a judge decide their fate, but instead agree to work through collaboratively-trained attorneys, mental health, and financial professionals to systematically navigate the issues.

Failure to collaborate can be short-sighted. Divorce battles are costly, not only in higher attorney's fees, but they also work against asset preservation, which is more important now than ever. Both spouses should be invested in maintaining the value of the marital estate, no matter how it's divided in the future.

Perhaps you are just now starting to contemplate divorce. You've had it being cooped up in isolation with your spouse, tempers have run amok, and tolerance is hiding in a rabbit hole. These domestic circumstances, coupled with the impact of the COVID-19 pandemic, do not present the optimum economic environment in which to make major life changes. Patience and measured decision-making may keep you from jumping into even more financial uncertainty.

If you have questions, you should reach out to a local divorce attorney for advice.